The Vermont Statutes Online

Title 8: Banking and Insurance

Chapter 113: Liability Insurance and Service Contract Companies

• Subchapter 001: Policies

• § 4201. Filing and approval of policies; review

  A policy of insurance covering against loss or damage resulting from accident to, or injury suffered by an employee or other person, and for which the insured is liable, shall not be issued or delivered to a person, firm, or corporation resident of, or doing business in this State, until a copy of the form of the policy has been filed with the Commissioner; and it shall not be issued or delivered unless approved by the Commissioner. If the Commissioner determines that the form does not comply with the requirements of law, the Commissioner shall immediately give written notice to the insurer who filed the form, specifying the reasons for the Commissioner’s determination, and it shall then be unlawful for the insurer to issue a policy in such form. The Commissioner’s determination is subject to review pursuant to Rule 75 of the Vermont Rules of Civil Procedure. (Amended 2021, No. 105 (Adj. Sess.), § 164, eff. July 1, 2022.)

• § 4201a. Filing fees

  Each filing of a policy or contract form or document, submitted pursuant to section 4201 of this title, shall be accompanied by payment to the Commissioner of a nonrefundable fee of $50.00 per filing submission. (Added 1985, No. 236 (Adj. Sess.), § 9; amended 1991, No. 166 (Adj. Sess.), § 5.)

• § 4202. Form and contents of policy

  A policy shall not be issued or delivered under this chapter unless:

  (1) every printed portion of the policy and any endorsement or attached papers are plainly printed;

  (2) a brief description of the policy is plainly printed on the first page; and

  (3) the exceptions of the policy are printed with the same prominence as the benefits to which they apply. (Amended 2021, No. 105 (Adj. Sess.), § 165, eff. July 1, 2022.)

• § 4203. Required conditions

  Each policy issued and delivered under this chapter shall contain in substance the following conditions:

  (1) The company shall pay and satisfy any judgment that may be recovered against the insured upon any claim covered by this policy to the extent and within the limits of liability assumed thereby and shall protect the insured against the levy of any execution issued upon any such judicial judgment or claim against the insured. No limitation of liability in the policy shall be valid if, after a judgment has been rendered against the insured in respect to his or her legal liability for damages in a particular instance, the company continues the litigation by an appeal or otherwise, unless the insured stipulates with the company, agreeing to continue such litigation.

  (2) No action shall lie against the company to recover for any loss under this policy, unless brought within one year after the amount of such loss is made certain either by judgment against the insured after final determination of the litigation or by agreement between the parties with the written consent of the company.

  (3) The insolvency or bankruptcy of the insured shall not release the company from the payment of damages for injury sustained or loss occasioned during the life of the policy, and in case of such insolvency or bankruptcy an action may be maintained by the injured person or claimant against the company under the terms of the policy, for the amount of any judgment obtained against the insured not exceeding the limits of the policy.

  (4) Payment of any judicial judgment or claim by the insured for any of the company’s liability under the policy shall not bar the insured from any action or right of action against the company. In case of payment of loss or expense under the policy, the company shall be subrogated to all rights of the insured against any party, as respects such loss or expense, to the amount of such payment, and the insured shall execute all papers required and shall cooperate with the company to secure to the company such rights.

  (5) Policies of motor vehicle insurance shall not provide for any adjustment of rates, the application of any merit rating surcharge plan, nor any similar adjustment or surcharge for any payments made to or on behalf of an insured for damages not attributable to any fault of the insured.

  (6) Policies of motor vehicle insurance shall not provide for any adjustment of rates, the application of any merits surcharge rating plan, nor any similar adjustment or surcharge for the first violation of 23 V.S.A. § 800. (Amended 1985, No. 77, § 4; 2021, No. 105 (Adj. Sess.), § 166, eff. July 1, 2022.)

• § 4204. Illegal provisions

  A policy shall not be issued or delivered under this chapter if it contains a provision contradictory, in whole or in part, to any of the provisions of sections 4201–4203 and 4205–4209 of this title; nor shall any endorsements or attached papers vary, alter, extend, be used as a substitute for, or in any way conflict with such provisions. A policy shall not be issued or delivered under this chapter if it contains any provision purporting to make any portion of the charter, articles of association, Constitution, or bylaws of the insurer a part of the policy unless such portion of the charter, articles, Constitution, or bylaws is set forth in full in the policy. (Amended 2021, No. 105 (Adj. Sess.), § 167, eff. July 1, 2022.)

• § 4205. Effect of false statement in application

  The falsity of a statement in the application for a policy covered by the provisions of this chapter shall not bar the right to recovery under the policy unless such false statement was made with actual intent to deceive or unless it materially affected either the acceptance of the risk or the hazard assumed by insurer. (Amended 2021, No. 105 (Adj. Sess.), § 168, eff. July 1, 2022.)

• § 4206. Acts not constituting waivers

  The acknowledgment by an insurer of the receipt of notice given under a policy covered by the provisions of this chapter, or the furnishing of forms for filing proofs of loss, or the acceptance of such proofs, or the investigation of a claim under the policy shall not operate as a waiver of any of the rights of the insurer in defense of a claim arising under the policy. (Amended 2021, No. 105 (Adj. Sess.), § 169, eff. July 1, 2022.)

• § 4207. Penalty for unauthorized alterations

  An alteration of a written application for insurance by erasure, insertion, or otherwise shall not be made by a person other than the applicant without his or her written consent, and a person making such alteration without the consent of the applicant shall pay an administrative penalty of not more than $2,000.00. If such alteration is made by an officer of the insurer, or by an employee of the insurer with the insurer’s knowledge or consent, such act shall be deemed to have been performed by the insurer thereafter issuing the policy upon such altered application. (Amended 1995, No. 167 (Adj. Sess.), § 13.)

• § 4208. Construction of illegal policies

  A policy issued in violation of the provisions of this chapter shall be held valid but shall be construed as provided in the provisions of this chapter. When a provision in a policy is in conflict with the provisions of this chapter, the rights, duties, and obligations of the insurer, the policyholder, and the beneficiary shall be governed by the provisions of this chapter. (Amended 2021, No. 105 (Adj. Sess.), § 170, eff. July 1, 2022.)

• § 4209. Penalties

  A company, corporation, association, society, or other insurer or any officer or agent thereof that issues or delivers to a person in this State a policy in willful violation of the provisions of this chapter shall pay an administrative penalty of not more than $2,000.00 for each offense. The Commissioner may revoke the license of a company, corporation, association, society, or other insurer of another state or country, or of the agent thereof, that willfully violates such provisions. (Amended 1995, No. 167 (Adj. Sess.), § 14; 2021, No. 105 (Adj. Sess.), § 171, eff. July 1, 2022.)

• § 4210. Cost of examinations

  The insurer under any motor vehicle liability insurance policy shall bear the cost of all physical examinations imposed on the insured or proposed insured as a condition for issuance or renewal of the policy. (Added 1971, No. 108.)

• § 4211. Volunteer drivers

  (a) An insurer may not refuse to issue motor vehicle liability insurance to an applicant solely because the applicant is a volunteer driver. An insurer may not impose a surcharge or otherwise increase the rate for a motor vehicle policy solely on the basis that the named insured, a member of the insured’s household, or a person who customarily operates the insured’s vehicle is a volunteer driver.

  (b) As used in this section, “volunteer driver” means a person who provides services, including transporting individuals or goods, without compensation above mileage expenses to a charitable organization or nonprofit corporation established under Title 11B, pursuant to a written agreement.

  (c) This section does not prohibit an insurer from refusing to renew, imposing a surcharge on, or otherwise raising the rate for a motor vehicle liability insurance policy based upon factors other than the volunteer status of the insured driver. (Added 2009, No. 80 (Adj. Sess.), § 1.)

• Subchapter 002: Cancellation of Policies

• § 4221. Repealed. 1971, No. 195 (Adj. Sess.), § 7.

• § 4222. Definitions

  The following definitions, unless otherwise specified or qualified, shall be applicable to this subchapter:

  (1) “Policy” means an automobile liability policy providing bodily injury liability, property damage liability, medical payments, and uninsured motorist coverage, or any combination thereof, delivered or issued for delivery in this State, insuring a single individual or husband and wife resident of the same household, as named insured, and under which the insured vehicles designated under the policy are of the following types only:

  (A) a motor vehicle of the private passenger or station wagon type that is not used as a public or livery conveyance for passengers, nor rented to others; or

  (B) any other four-wheel motor vehicle with a load capacity of 1,500 pounds or less that is not used in the occupation, profession, or business of the insured; provided, however, that absent specific language to the contrary, this subchapter shall not apply to any policy issued under the Vermont Automobile Insurance Plan, nor shall it apply to any policy insuring more than four automobiles, or to any policy covering garage, automobile sales agency, repair shop, service station, or public parking place operation hazards, or to any policy of insurance issued principally to cover personal or premises liability of an insured even though such insurance may also provide some incidental coverage for liability arising out of the ownership, maintenance, or use of a motor vehicle on the premises of such insured or on the ways immediately adjoining such premises.

  (2) “Renewal” or “to renew” means the issuance and delivery by an insurer of a policy replacing at the end of the policy period a policy previously issued and delivered by the same insurer or the issuance and delivery of a certificate or notice extending the term of the policy beyond its policy period or term; provided, however, that any policy with a policy period or term of less than six months shall for the purpose of this subchapter be considered as if written for a policy period or term of six months. Provided, further, that any policy written for a term longer than one year or any policy with no fixed expiration date, shall for the purpose of this subsection be considered as if written for successive policy periods or terms of one year, and such policy may be terminated at the expiration of any annual period upon giving 30 days’ notice of nonrenewal prior to such anniversary date, and such nonrenewal shall not be subject to any other provisions of this subchapter.

  (3) “Nonpayment of premium” means failure of the named insured to discharge when due any of his or her obligations in connection with the payment of premiums on the policy, or any installment of such premium, whether the premium is payable directly to the insurer or its agent or indirectly under any premium finance plan or extension of credit. (Added 1971, No. 195 (Adj. Sess.), § 1; amended 1977, No. 223 (Adj. Sess.), §§ 1, 9; 2021, No. 105 (Adj. Sess.), § 172, eff. July 1, 2022.)

• § 4223. Cancellation of automobile insurance

  (a) A notice of cancellation of a policy shall be effective only if it is based on one or more of the following reasons:

  (1) nonpayment of premium;

  (2) fraud or material misrepresentation affecting the policy or in the presentation of a claim under the policy, or violation of any of the terms or conditions of the policy; or

  (3) the driver’s license of the named insured or of any operator either resident in the same household or who customarily operates an automobile insured under the policy has been suspended or revoked pursuant to law during the policy period or, if the policy is a renewal, during its policy period or the 180 days immediately preceding its effective date.

  (b) This section shall not apply to any policy or coverage that has been in effect less than 60 days at the time notice of cancellation is mailed or delivered by the insurer unless it is a renewal policy.

  (c) This section shall not apply to nonrenewal. (Added 1971, No. 195 (Adj. Sess.), § 2; amended 2021, No. 105 (Adj. Sess.), § 173, eff. July 1, 2022.)

• § 4224. Notice of cancellation

  (a) No notice of cancellation of a policy of insurance to which section 4223 of this title applies or of a policy issued under the Vermont Automobile Insurance Plan shall be effective unless mailed or delivered by the insurer to the named insured at least 45 days prior to the effective date of cancellation; provided, however, that where cancellation is for nonpayment of premium, at least 15 days’ notice of cancellation shall be given.

  (b) In all instances, the reason or reasons for cancellation shall accompany or be included in the notice of cancellation. An insurer shall not be held liable in any claim or suit for damages arising solely from the insurer’s compliance with the requirement that the reason for cancellation be specified.

  (c) This section shall not apply to nonrenewal. (Added 1971, No. 195 (Adj. Sess.), § 3, amended 1977, No. 223 (Adj. Sess.),§§ 2, 3; 1989, No. 171 (Adj. Sess.), § 6, eff. Sept. 1, 1990.)

• § 4225. Notice of nonrenewal

  No insurer shall refuse to renew a policy of insurance unless such insurer or its agent shall mail or deliver to the named insured, at the address shown in the policy, at least 45 days’ advance notice of its intention not to renew. This section shall not apply if the insurer has manifested its willingness to renew, or in case of nonpayment of premium, or if the insured fails to pay any advance premium required by the insurer for renewal. Notwithstanding the failure of an insurer to comply with this section, the policy shall terminate on the effective date of any other insurance policy with respect to any automobile designated in both policies. Renewal of a policy shall not constitute a waiver or estoppel with respect to grounds for cancellation that existed before the effective date of such renewal. (Added 1971, No. 195 (Adj. Sess.), § 4; amended 1977, No. 223 (Adj. Sess.), § 8; 1989, No. 171 (Adj. Sess.), § 7, eff. Sept. 1, 1990.)

• § 4225a. Renewal policies

  (a) If the insurer has the necessary information to issue the renewal policy, the insurer shall confirm in writing at least 45 days prior to expiration its intention to renew the policy and the premium at which the policy is to be renewed. The insured shall have the right to renew the policy at this premium.

  (b) An insurer not complying with subsection (a) of this section shall grant its insured renewal coverage at the rate or premium in effect under the expiring or expired policy or at rates lawfully in effect on the expiration date, which have been approved by the Commissioner. This shall be done on a pro rata basis and shall continue for 45 days after the insurer confirms renewal coverage and premium. This subsection shall not apply if the insured accepts the renewal policy.

  (c) An insurer may transfer a policy to an affiliate, as defined by subdivision 3681(1) of this title, upon expiration of the policy without providing notice of nonrenewal, provided that:

  (1) the rating by A. M. Best or a similarly qualified rating service of the affiliate is equal to or better than the transferring insurer;

  (2) there is no diminution in the terms and conditions of coverage; and

  (3) notice of the transfer is provided to the insured at least 45 days prior to the transfer by first-class mail, and in connection with such notice the insurer:

  (A) complies with any requirements of federal law relating to notice of adverse credit determination;

  (B) includes in the notice of transfer a telephone number of the insurer, or the producer, if any, and a toll free telephone number of the insurer in the case of personal lines policies, where the insured can learn additional information concerning the transfer and the reasons for the transfer; and

  (C) complies with the other provisions of this section relating to renewal policies. (Added 2007, No. 135 (Adj. Sess.), § 2.)

• § 4226. Notice requirements

  When notice required under section 4224 or 4225 of this title is provided by mail, such notice shall be by certified mail, except that in the case of cancellation for nonpayment of premium notice shall be by certified mail or certificate of mailing. (Added 1971, No. 195 (Adj. Sess.), § 5; amended 1975, No. 53, § 3, eff. April 15, 1975; 1977, No. 223 (Adj. Sess.), § 10.)

• § 4227. Notice of eligibility

  When automobile bodily injury and property damage liability coverage is cancelled, other than for nonpayment of premium, or in the event of failure to renew automobile bodily injury and property damage liability coverage to which section 4225 of this title applies, the insurer shall notify the named insured of his or her possible eligibility for automobile liability insurance through the Vermont Automobile Insurance Plan. Such notice shall accompany or be included in the notice of cancellation or the notice of intent not to renew. (Added 1971, No. 195 (Adj. Sess.), § 6.)

• § 4228. Required renewals; continuation of agents’ contracts and brokers’ accounts

  (a) In the event of an insurer’s cancellation of an agent’s contract or a broker’s account placement authority with such insurer, each policyholder of such an agent or broker shall be entitled to renew his or her policy, upon timely payment of premium, for one additional annual policy period commencing at the next annual anniversary date of the policy; except that an insurer shall have the right to cancel such policy pursuant to section 4223 of this title.

  (b) The terminated agent or broker shall be entitled to receive commissions on account of all business continued or written pursuant to this section at the insurer’s prevailing commission rate for such line of insurance. However, this subsection shall not apply to an agent who agrees to represent exclusively one insurer or a group of insurers under common management or an agent or broker whose license has been revoked by the Commissioner or whose contract or account has been terminated for insolvency, abandonment, gross and willful misconduct, or failure to pay over to the insurer monies due to the insurer after receipt of a written demand therefor.

  (c) If, after hearing, the Commissioner finds that the financial condition of the insurer is insecure to the extent that continuation of agents’ contracts and brokers’ accounts represent a potential hazard to the policyholders in this State, or that any other condition of the insurer represents such a hazard, the Commissioner may issue an order relieving the insurer from its obligation to provide the renewal policies otherwise required by subsection (a) of this section. (Added 1985, No. 230 (Adj. Sess.), § 2.)

• § 4229. Penalties

  A person who violates a provision of this subchapter may be subject to an administrative penalty of $2,000.00 for each violation. (Added 1995, No. 167 (Adj. Sess.), § 14a.)

• Subchapter 003: Assigned Risks

• § 4241. Vermont Automobile Insurance Plan

  All insurers licensed to transact business in this State, for the issuance of automobile insurance against bodily injury, property damage, medical payments, or other loss, including what are commonly known as “liability,” “collision,” “comprehensive,” or “uninsured motorist” coverages, and every advisory or service organization operating in this State under chapter 128 of this title shall cooperate in the formation, implementation, rating, and operation of a plan for the equitable apportionment among insurers of applicants for insurance who are unable to procure that insurance through ordinary methods. (Added 1969, No. 63, § 2.)

• § 4242. General provisions of Plan

  The Plan shall provide:

  (1) reasonable rules for the distribution of risks on an equitable basis under either a pooled or assigned plan;

  (2) rates applicable to, and based upon, that class of risks as described in section 4241 of this title to which the Plan applies;

  (3) limits of liability and coverages as described in section 4241 of this title that shall be not less favorable to the insured than is provided in 23 V.S.A. chapter 11, where that chapter is applicable to the insured;

  (4) a method whereby applicants, insureds, and insurers are entitled to a hearing before the Commissioner of Financial Regulation, for the settlement of grievances. (Added 1969, No. 63, § 3; amended 1989, No. 225 (Adj. Sess.), § 25; 1995, No. 180 (Adj. Sess.), § 38; 2011, No. 78 (Adj. Sess.), § 2, eff. April 2, 2012.)

• § 4243. Submission and approval of Plan

  (a) A plan conforming to the standards of section 4242 of this title shall be submitted to the Commissioner within 90 days of July 1, 1969. Each insurer and advisory or service organization described in section 4241 of this title shall file with the Commissioner within 90 days of July 1, 1969 a consent to operate in conformity with the Plan and an agreement to be bound by the operation of the Plan.

  (b) The Plan shall be deemed approved unless disapproved by the Commissioner within 30 days of its submission. Notice of disapproval shall be given to each insurer and advisory or service organization, together with the reasons for disapproval.

  (c) Changes in the Plan shall be submitted to the Commissioner at least 30 days before their effective date. Changes shall be deemed approved unless disapproved as provided in subsection (b) of this section within 30 days of their submission.

  (d) After approval, the original Plan, or changes in the original Plan, may be disapproved for failure to conform to any of the standards of section 4242 of this title. If the Commissioner disapproves the Plan, the Commissioner shall give 10 days’ written notice to each insurer, and advisory or service organization affected, of a hearing at which evidence in support of the proposed change shall be submitted. If the Commissioner determines after hearing that the evidence does not justify the proposed Plan or change, the Commissioner shall order the Plan or change ineffective after a certain date, which shall be not less than 60 nor more than 120 days after the date of the order. The order shall not affect policies issued prior to the date on which the Plan or change becomes ineffective. (Added 1969, No. 63, § 4; amended 2021, No. 105 (Adj. Sess.), § 174, eff. July 1, 2022.)

• § 4244. Commissioner to formulate Plan

  (a) If no Plan conforming to the standards of section 4242 of this title is submitted to the Commissioner within 90 days of July 1, 1969 or within the time provided for in any order of disapproval, the Commissioner shall prepare and promulgate a Plan conforming to the requirements of section 4242 of this title.

  (b) The Plan shall be prepared and promulgated after notice to each insurer and advisory or service organization, who shall be given an opportunity to be heard. (Added 1969, No. 63, § 5.)

• § 4245. Insurers to participate in Plan

  After approval of or preparation and promulgation of the Plan, every insurer licensed to transact business in this State shall participate in the Plan according to its provisions as described in section 4241 of this title. (1969, No. 63, § 6.)

• § 4246. Insurer or rating organization; conduct of

  If the Commissioner finds that the conduct of any insurer or advisory or service organization is not in conformity with the Plan, he or she may, after hearing, order the cessation of the conduct complained of. Further conduct in violation of the order is subject to the provisions of chapter 101, subchapter 12 of this title. (1969, No. 63, § 7; amended 1979, No. 28, § 1.)

• Subchapter 004: Service Contract Companies

• § 4247. Definitions

  As used in this subchapter:

  (1) “Commissioner” means the Commissioner of Financial Regulation.

  (2) “Consumer” means a natural person who buys other than for purposes of resale any tangible personal property that is distributed in commerce and that is normally used for personal, family, or household purposes, and not for commercial purposes.

  (3) “Service contract holder” means a person who is the purchaser or holder of a service contract.

  (4) “Manufacturer” means a person that manufactures, produces, or markets goods and sells the goods under its own name or label; or manufactures or produces goods and the goods are sold under the trade name or label of another person.

  (5) “Maintenance agreement” means a contract of limited duration that provides for scheduled maintenance only.

  (6) “Mechanical breakdown insurance” means any policy, contract, or agreement issued by an authorized insurer that provides for the repair, replacement, or maintenance of property or indemnification for repair, replacement, or maintenance, for the operational or structural failure of the property due to a defect in materials or workmanship or due to normal wear and tear.

  (7) “Provider” means a person who issues, makes, or provides a service contract, and who is contractually obligated to provide service under a service contract and is not the manufacturer.

  (8) “Service contract” means any contract or agreement to perform or indemnify for a specific duration the repair, replacement, or maintenance of property for operational or structural failure due to a defect in materials, workmanship, or normal wear and tear, with or without additional provisions for incidental payment of indemnity under limited circumstances, including towing, rental, and emergency road service.

  (9) “Service contract reimbursement policy” means a policy of insurance providing full reimbursement coverage for all obligations and liabilities under the terms of a service contract issued by the provider.

  (10) “Warranty” means a warranty made solely by the manufacturer, importer, or seller of property or services, without charge, that is not negotiated or separated from the sale of the product and is incidental to the sale of the product, and that guarantees indemnity for defective parts, mechanical or electrical breakdown, labor, or other remedial measures, such as repair or replacement of the property or repetition of services. (Added 1997, No. 109 (Adj. Sess.), § 2, eff. Sept. 1, 1998; amended 2011, No. 78 (Adj. Sess.), § 2, eff. April 2, 2012.)

• § 4248. Registration required

  (a) All providers of service contracts issued, sold, or covering property located in this State shall file a registration with the Commissioner on a form prescribed by the Commissioner. Such registrations shall be renewed every three years. Providers shall submit a $600.00 fee at the time of registration and at the time of each renewal.

  (b) The following are exempt from the scope of this subchapter, inclusive of this subchapter:

  (1) warranties;

  (2) maintenance agreements; and

  (3) service contracts sold or offered for sale in commercial transactions.

  (c) The types of agreements defined as service contracts in this subchapter or excluded from coverage by subsection (b) of this section are not insurance under Vermont law.

  (d) A foreign or alien provider shall not transact business in this State until it has either registered with the Secretary of State to do business in Vermont or, if it is not registered to do business in Vermont, filed with the Commissioner the name and address of a person in this State upon whom service of process may be served. Failure to file such information with the Commissioner within 60 days of entering into a Vermont service contract shall constitute an appointment by such provider of the Secretary of State as its agent for service of process. (Added 1997, No. 109 (Adj. Sess.), § 2, eff. Sept. 1, 1998.)

• § 4249. Proof of financial stability

  (a) In order to ensure the performance of a provider’s obligations to its contract holders, each provider shall continue to possess and provide the Commissioner the following documents as proof of financial stability:

  (1)(A) a surety bond, securities of the type eligible for deposit by an authorized insurer in this State, cash, or letter of credit in a form acceptable to the Commissioner, which shall have at all times a value of not less than five percent of the gross annual consideration from all service contracts issued and in force, but in no case to be less than $25,000.00. Such bond, securities, cash, or letter of credit shall be maintained unimpaired as long as the provider continues to do business in this State. When the provider ceases to do business in this State and has furnished the Commissioner proof that it has discharged all its obligations to its service contract holders in this State, the Commissioner shall release said bond, cash, or letter of credit; and

  (B) a funded reserve account for its liability under its service contracts issued and outstanding in this State. Such reserve shall at all times be not less than 40 percent of all consideration received, less claims paid, on in force contracts. Such reserve accounts shall be subject to examination and review by the Commissioner upon a request; or

  (2) evidence that all of its service contracts are insured through the purchase of a service contract reimbursement policy issued by an insurer that files annually with the National Association of Insurance Commissioners a financial statement prepared in accordance with the accounting practices and procedures required or permitted by their domiciliary regulatory authority and a corresponding audit report that reflects:

  (A) capital and surplus of $5,000,000.00 or more;

  (B) written premiums not exceeding three times capital and surplus over the most recent five years; and

  (C) profitable operations over the most recent five years; or

  (3) a copy of the provider’s financial statement or, if the provider’s financial statement is consolidated with those of a parent company or affiliate, the provider’s parent company or affiliate’s financial statement, for the most recent calendar year which shows a net worth of the provider or its parent company or affiliate of at least $50 million. The financial statement shall contain information relating to the general financial condition, ownership, and management of the provider and its controlling parent organization, the identity of the controlling entity, if applicable, and any reinsurance agreements covering all or substantially all of the ceded service contracts. A Form 10-K filed with the Securities and Exchange Commission within the last calendar year may be filed to meet the financial stability filing requirement.

  (b) If the provider’s parent or affiliate company’s financial statement is filed with the Commissioner pursuant to subdivision (a)(3) of this section as evidence of a net worth of at least $50 million, the parent or affiliate company shall agree, on a form prescribed by the Commissioner, to guarantee the provider’s obligations relating to service contracts sold by the provider in this State.

  (c) The Commissioner may, upon review of the business activities of a provider, determine that the amounts set forth in this section are inadequate for protection of the public, and may require additional assurances of financial stability.

  (d) In the event that the Department recovers funds from service contract providers, the Commissioner in his or her discretion may distribute such funds in a manner that he or she determines is equitable and cost-effective, giving due consideration to the amount of funds recovered, the estimated amounts due to consumers, and the costs of administering any distribution. Distributions may be allocated based on claims made, premiums, or the number of consumers affected. If the Commissioner determines that it would be prohibitively expensive or impossible to make restitution to consumers, the recovered funds will be remitted to the General Fund. (Added 1997, No. 109 (Adj. Sess.), § 2, eff. Sept. 1, 1998; amended 2005, No. 122 (Adj. Sess.), § 2.)

• § 4250. Examinations

  For the purpose of determining the provider’s financial stability and protecting consumer interests, the Commissioner may conduct an examination of a provider concerning service contracts sold in this State to enable the Commissioner to determine compliance or noncompliance with this subchapter. The expenses of examinations shall be paid to the State by the company or companies examined, and the Commissioner of Finance and Management shall issue warrants for the proper charges incurred in all examinations. (Added 1997, No. 109 (Adj. Sess.), § 2, eff. Sept. 1, 1998; amended 2021, No. 105 (Adj. Sess.), § 175, eff. July 1, 2022.)

• § 4251. Consumer disclosure requirements

  (a) Each service contract subject to this subchapter shall be written in clear, understandable language and easily read type and disclose the following:

  (1) the identity of the provider and the service contract seller;

  (2) the total purchase price of the contract, stated separately from the price of the goods purchased;

  (3) the existence of any deductible amount;

  (4) the procedures to file a claim, including the procedures for obtaining prior approval for repair work, the toll-free telephone number if prior approval is necessary for claim service and if the service contracts provide services essential to public health, safety, or welfare, the service contract provider shall either provide for 24-hour telephone assistance or state the procedure for obtaining reimbursement for emergency repairs performed outside normal business hours;

  (5) the terms for transferability of the contract;

  (6) the prerequisites for early cancellation;

  (7) the terms, restrictions, or conditions governing termination of the service contract by the service contract holder;

  (8) the obligations and duties of the service contract holder;

  (9) the authorization of the original service contract holder to return the contract within 20 days of receipt of the contract if no claim has been made under the contract and obtain a refund of the full purchase price of the contract.

  (b) All service contract reimbursement insurance policies insuring service contracts issued, sold, or offered for sale in this State shall conspicuously state, that upon the failure of the provider to perform under the contract, the insurer that issued the policy shall pay on behalf of the provider any sums the provider is legally obligated to pay and shall provide the service that the provider is legally obligated to perform according to the provider’s contractual obligations under the service contracts issued or sold by the provider. (Added 1997, No. 109 (Adj. Sess.), § 2, eff. Sept. 1, 1998.)

• § 4252. Obligations of providers and insurers

  (a) A provider is considered to be the agent of an insurer that issued a service contract reimbursement insurance policy and therefore is required to act as a fiduciary in regard to premiums, return of premiums, or other sums of money received. However, nothing in this subchapter shall be construed to make such provider subject to the insurance agent licensure requirements set forth in this title.

  (b) Providers shall keep accurate accounts, books, and records concerning transactions regulated under this subchapter for at least three years after the specified period of coverage has expired. Records required by this subchapter may be maintained solely in an electronic, optical, or other storage medium, provided they are capable of being accurately reproduced upon request. These accounts, books, and records shall include:

  (1) copies of each type of service contract in use;

  (2) the name and address of each service contract holder to the extent that the name and address have been furnished by the service contract holder;

  (3) a list of the locations where service contracts are sold; and

  (4) claims files that shall contain at least the dates, amounts, and description of all receipts, claims, and expenditures related to the service contracts. (Added 1997, No. 109 (Adj. Sess.), § 2, eff. Sept. 1, 1998; amended 2021, No. 105 (Adj. Sess.), § 176, eff. July 1, 2022.)

• § 4253. Prohibited acts

  (a) A provider shall not use in its name, contracts or literature:

  (1) the words “insurance,” “casualty,” “surety,” “mutual”; or

  (2) a name deceptively similar to the name or description of any insurance or surety corporation or any other provider licensed to do business in this State.

  (b) No provider or its agent shall advertise, print, display, publish, distribute, or broadcast, or cause to permit the foregoing to occur, in any manner whatsoever, any statement or representation with regard to the rates, terms, or conditions of a service contract that is false, misleading, or deceptive.

  (c) No service contract sold or offered for sale to a consumer in this State shall fail to contain the authorization of the original service contract holder to return the contract within 20 days of receipt of the contract if no claim has been made under the contract and obtain a refund of the full purchase price of the contract. Each provider shall provide or mail a copy of the service contract to the customer within 14 days of the date of sale, unless the provider makes a copy of the service contract terms and conditions available to the consumer at the point of sale, in which event the provider must provide or mail the service contract to the customer within a reasonable period of time.

  (d) Nothing in this subchapter shall be construed to impair or in any way affect any rule of law applicable to or governing service contracts not otherwise subject to this subchapter. (Added 1997, No. 109 (Adj. Sess.), § 2, eff. Sept. 1, 1998; amended 2021, No. 105 (Adj. Sess.), § 177, eff. July 1, 2022.)

• § 4254. Prohibited terms

  No service contract issued, sold, or covering property located in this State shall provide:

  (1) that the consumer is not a party to the contract;

  (2) that the provider has no liability to the consumer;

  (3) that the consumer does not have the right to bring an action to enforce the terms of the contract or otherwise challenge the denial of a claim that the consumer believes is wrongful, subject to the provisions of any alternative dispute resolution procedure authorized by contract and by law; or

  (4) that any civil action brought in connection with the service contract must be brought in the courts of a jurisdiction other than Vermont. (Added 1997, No. 109 (Adj. Sess.), § 2, eff. Sept. 1, 1998.)

• § 4255. Penalties; enforcement

  (a) The Commissioner, after proper notice and opportunity for hearing in accordance with this State’s Administrative Procedure Act, may take action to enforce the provisions of this subchapter and may:

  (1) revoke or suspend the registration of the service contract provider;

  (2) order the provider to cease and desist from further service contract operations;

  (3) impose a penalty of not more than $1,000.00 for each violation or $10,000.00 for each violation the Commissioner finds to be willful; and

  (4) order the provider to make restitution to contract holders.

  (b) Failure to comply with section 4251 or 4253 of this title shall constitute an unfair or deceptive act in commerce enforceable under 9 V.S.A. § 2461(b). (Added 1997, No. 109 (Adj. Sess.), § 2, eff. Sept. 1, 1998.)

• § 4256. Exemption for certain delivery service maintenance and repair contracts

  The provisions of this subchapter shall not apply to service contracts with a duration of one year or less where the provider also has an existing agreement to supply liquid fuel used in the course of normal operation of the property subject to the service contract. (Added 1997, No. 109 (Adj. Sess.), § 2, eff. Sept. 1, 1998.)