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Contractors get scoop on service contract regulations

LAS VEGAS, NV — The Nevada Division of Insurance recently met with 68 attendees at a Southern Nevada Air Conditioning Refrigeration Service Contractors Association (SNARSCA) meeting to discuss new regulations for service contracts and warranties. A new “Service Contracts” state law, effective January 1, 2000, set up-front fees of $1,000 to register service contacts and a $500 yearly renewable fee. It will not cover:

Residential maintenance agreements;
Residential warranties provided by the manufacturers (for which there is no separate cost); and
Commercial hvac service contracts that include multifamily hvac service work.

Jim Jeppson, chief insurance assistant, Division of Insurance, State of Nevada, and Peggy Willard-Ross, insurance examiner, Division of Insurance, State of Nevada, said the law was written to regulate hvac contractors that are “self-insured” pro-viders of their own service contracts.

In addition, third-party insurers of hvac service contracts would be regulated.

Pros and cons

Jeff Stewart, vice president of Quality Air Conditioning Service, Inc., said that “It will prevent under-capitalized home warranty companies from coming in and selling contracts, then leaving town with many contractors who purchased them left to explain it to an unhappy customer. It will also protect homeowners from those few a/c companies who do the same thing.”

Jeppson and Willard-Ross also warned the group they have a grace period until May 1, 2000 to register their existing service contracts. After that date, a contractor may not sell existing service contracts until the State Insurance Division approves them.

For the contractors wishing to continue their service contract programs, three forms have to be filled out, approved, and registered with the Insurance Department.

First, a general registration form plus a fee of a $1,000 for first-time registrants (a renewal fee of $500 thereafter) will be required of the contractors.

Second, financial responsibility has to be proven through either a liability insurance policy, a reserve in a bank account of 40% of the gross consideration received from the service contracts, or an SEC form stating that the company is worth more than $100 million.

Finally, the service contracts would have to cover 16 specific items outlined in the law. (This 16-item checklist will be available in the near future.)

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“As always, new regulations are difficult to absorb into business,” said Stewart. “The registration fee is twice our contractors’ license amount. The May 1st compliance gives us no time to redraft our contracts, submit our applications, and have approval of our hundreds of renewals we write every month.

“I do believe it will affect the way many Nevada contractors go about their business. Most of the contractors present at the meeting were seeing that there was little they could do to change the law.”

Stewart said that companies that write a small amount of service contracts each year will probably not feel it is worth the registration fee to continue writing the contracts, and some of those may not even be aware of the changes. The larger companies, he said, would have to scramble to meet the deadline.

For more information visit, http://doi.state. nv.us/b&i/ id/company/pcfilings.htm or www.leg.state.nv.us/web/99NRS/NRS-690C.html (Web sites).