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Vehicle Protection Products

Compliance With Ohio H.B. 442 - Vehicle Protection Products

By Keith Whann, NIADA General Counsel

H.B. 442 amends Section 3905.421 of the Ohio Revised Code, which governs the sale of Vehicle Protection Products. It was signed into Law by the Governor on July 11, 2006. Under the new provisions, motor vehicle dealers wishing to sell vehicle protection products with accompanying warranties will have to ensure that these product warranties contain new required disclosures and are covered by a warranty reimbursement insurance policy. The new Law also contains provisions related to consumer goods service contracts, but motor vehicle service contracts are specifically excluded from the definition of a consumer goods service contract. The following is a summary of the issues that must be addressed by motor vehicle dealers and their service providers.

Vehicle Protection Products

A vehicle protection product is defined as a "vehicle protection device, system, or service that is installed on or applied to a vehicle and that is designed to deter the theft of a vehicle or facilitate the recovery of the vehicle after it has been stolen." Examples of vehicle protection products specified in the statute include alarm systems, window etch products, body part marking products, steering locks, pedal and ignition locks, fuel and ignition kill switches, and electronic, radio, and satellite tracking devices. If the product and accompanying warranty document comply with the conditions set forth in Section 3905.421 of the Ohio Revised Code, the sale of the vehicle protection product does not constitute a contract substantially amounting to insurance, nor does the issuance of the product constitute the business of insurance. This is important because a license must otherwise be obtained to sell insurance products.
Effective October 12, 2006, a vehicle protection product must:

  1. Be limited to indemnifying the warranty holder for incidental cost caused by the failure of the vehicle protection product to deter the theft of the vehicle or facilitate the recovery of the vehicle after it has been stolen.
  2. Contain both of the following conspicuous, written disclosures:
    • "This vehicle protection product warranty is not subject to the insurance laws of this state, contained in Title XXXIX of the Ohio Revised Code."
    • "This warranty may not include all of the benefits or protections of an insurance policy that includes theft coverage issued by an insurer authorized to do business in Ohio."
  3. Identify the warrantor, the warranty holder, and the terms of the sale of the vehicle protection product.
  4. Conspicuously state that the obligations of the warrantor to the warranty holder are guaranteed under a warranty reimbursement insurance policy.
  5. Conspicuously state that if a payment due under the terms of the warranty is not paid by the warrantor within 60 days after the warranty holder files proof of loss pursuant to the terms of the warranty, the warranty holder may file directly with the warrantor's warranty reimbursement insurance company for reimbursement.
  6. Conspicuously state the name and address of the warrantor's warranty reimbursement insurance company.

Under the new provisions, all vehicle protection product warranties must also be covered by a warranty reimbursement insurance policy, which is defined as "a policy of insurance issued by an insurer authorized or eligible to do business in Ohio to the warrantor of a vehicle protection product to pay, on behalf of the warrantor, all covered contractual obligations incurred by the warrantor under the terms and conditions of the vehicle protection product warranty." It is important to note that the warrantor is the person that is contractually obligated to the warranty holder under the terms of the vehicle protection product warranty not necessarily the seller of the product.
The warranty reimbursement insurance policy must state that:

  1. The cancellation of a warrantor's warranty reimbursement insurance policy does not affect the warrantor's liability to the warranty holder;
  2. The warranty reimbursement insurance company will reimburse, or pay on behalf of, the warrantor of a vehicle protection product all covered amounts for which the warrantor is legally obligated, and will provide any service that the warrantor is legally obligated to perform, under the terms of a vehicle protection product warranty; and
  3. If a payment due under the terms of a vehicle protection product warranty is not paid within 60 days after the warranty holder files proof of loss pursuant to the terms of the warranty, that the warranty holder may file directly with the warrantor's warranty reimbursement insurance company for payment or reimbursement.

Finally, a warrantor of a vehicle protection product is also required to indemnify a seller of the product that pays or is required to pay a consumer any amount that the warrantor is obligated to pay under the terms of the vehicle protection product warranty.

Consumer Goods Service Contracts

Please not that H.B. 442 included provisions related to consumer goods service contracts, but they do not apply to motor vehicle service contracts. The definition of "consumer goods service contract" specifically excludes "a contract or agreement to perform or pay for the repair, replacement, or maintenance of a motor vehicle or utility vehicle..."

Please note that these provisions become effective on October 12, 2006. Dealers may wish to consult with their legal counsel or other professional consultants to ensure that their Vehicle Protection Product Programs and Warranties are in compliance with applicable federal and state laws, rules and regulations.