Code of Virginia

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Code of Virginia
Title 38.2. Insurance
Subtitle .
Chapter 26. Home Protection Companies
4/16/2024

Chapter 26. Home Protection Companies.

§ 38.2-2600. Definitions.

As used in this chapter:

"Fronting company" means a licensed insurer or licensed home protection company which generally transfers to one or more unlicensed insurers or unlicensed home protection companies by reinsurance or otherwise all or substantially all of the risk of loss under all of the home protection contracts written by it in this Commonwealth.

"Home protection company" means any person who performs, or arranges to perform, services pursuant to a home protection insurance contract.

"Home protection insurance contract" or "contract" means any insurance contract or agreement whereby a person undertakes for a specified period of time and for a predetermined fee to furnish, arrange for or indemnify for service, repair, or replacement of any and all of the structural components, parts, appliances, or systems of any covered residential dwelling necessitated by wear and tear, deterioration, inherent defect, or by the failure of an inspection to detect the likelihood of failure.

The contract shall provide for a system to effect repair or replacement if the contract undertakes to provide for repair or replacement services. The contract shall not include protection against consequential damage from the failure of any structural component, part, appliance or system.

"Structural component" means the roof, foundation, basement, walls, ceilings, or floors of a home.

1981, c. 530, §§ 38.1-932, 38.1-944; 1982, c. 132; 1986, c. 562; 2006, c. 634; 2017, c. 727.

§ 38.2-2601. Exemptions.

This chapter shall not apply to:

1. Performance guarantees given by either (i) the builder of a home or (ii) the manufacturer, seller, or lessor of the property that is the subject of the contract if no identifiable charge is made for the guarantee.

2. Any service contract, guarantee, or warranty intending to guarantee or warrant the repairs or service of a home appliance, component, part, or system that is issued (i) by a person who has sold, serviced, repaired, or provided replacement of the appliance, component, part, or system at the time of or prior to issuance of the service contract, guarantee or warranty if such person does not engage in the business of a home protection company or (ii) by a home protection company which sells such service contracts, guarantees or warranties in the Commonwealth of Virginia and which has net worth in excess of $100 million.

1981, c. 530, § 38.1-933; 1986, c. 562; 1992, c. 21; 2006, c. 634; 2017, c. 727.

§ 38.2-2602. Limited applicability to certain insurers.

A property and casualty insurer may be licensed to transact home protection insurance as defined in § 38.2-129. An insurer licensed in this Commonwealth to transact the class of insurance defined by § 38.2-111 on July 1, 1986, may also transact home protection insurance without additional authority. No other provision of this chapter, except § 38.2-2606 and §§ 38.2-2608 through 38.2-2614, shall be applicable to the insurers, their businesses, or their home protection contracts.

1981, c. 530, §§ 38.1-933, 38.1-945; 1986, c. 562; 2006, c. 634; 2017, c. 727.

§ 38.2-2603. License required; application; fee.

Except as provided in § 38.2-2602, no home protection company shall issue or offer to issue home protection contracts in this Commonwealth until a home protection company license has been granted by the Commission. Application for a license shall be made in writing, in the form prescribed by the Commission, and shall be accompanied by a nonrefundable application fee of $500.

1981, c. 530, § 38.1-933; 1986, c. 562.

§ 38.2-2604. Qualification for license; net worth; deposit of securities with State Treasurer.

A. No license shall be issued to any home protection company unless the applicant:

1. Is a Virginia corporation formed under the provisions of Article 3 (§ 13.1-618 et seq.) of Chapter 9 of Title 13.1, or Article 3 (§ 13.1-818 et seq.) of Chapter 10 of Title 13.1; or

2. Is a foreign corporation subject to regulation and licensing under the laws of its domiciliary jurisdiction which are substantially similar to those provided in this chapter, and has obtained a certificate of authority to transact business in this Commonwealth;

3. Furnishes the Commission with evidence satisfactory to it that the management of the home protection company is competent and trustworthy, and can be reasonably expected to successfully manage the company's affairs in compliance with law;

4. Establishes to the satisfaction of the Commission that it (i) maintains employees or has contractual arrangements sufficient to provide the services or indemnity undertaken by it, and (ii) agrees to accept requests for heating, electrical and plumbing services contracted for twenty-four hours per day, seven days per week;

5. Makes the deposit of bonds or other securities required by this section;

6. Is otherwise in compliance with this chapter;

7. Has filed the required application and paid the required fee;

8. Has paid all fees, taxes, and charges required by law;

9. Has the minimum net worth prescribed by this section;

10. Has filed any financial statement and any reports, certificates, or other documents as the Commission deems necessary to secure a full and accurate knowledge of its affairs and financial condition; and

11. Keeps adequate, correct and complete books and records of accounts and maintains proper accounting controls.

B. The Commission shall not issue a license to or renew the license of a home protection company unless it is satisfied that the financial condition, the method of operation, and the manner of doing business enable the home protection company to meet its obligations to all contract holders and that the home protection company has otherwise complied with all the requirements of law.

C. A home protection company shall maintain a net worth in an amount not less than 20% of the premiums charged on its contracts currently in force; however, the minimum required net worth shall be not less than $100,000, and the maximum required net worth shall be that amount required of insurers under the provisions of Article 5 (§ 38.2-1024 et seq.) of Chapter 10 of this title.

D. No license shall be granted to any home protection company until it presents to the Commission a certificate of the State Treasurer that bonds or other securities have been deposited with him to be held in accordance with the provisions of and upon the terms and conditions and in the amount as provided in Article 7 (§ 38.2-1045 et seq.) of Chapter 10 of this title.

1981, c. 530, § 38.1-934; 1982, c. 132; 1984, c. 640; 1986, c. 562; 2006, c. 634; 2017, c. 727.

§ 38.2-2605. Expiration and renewal of license.

Every home protection company licensed under this chapter shall obtain a renewal of its license annually from the Commission. Every license issued under this chapter shall expire at midnight on June 30 immediately following the date of issuance. No renewal license shall be issued unless the home protection company has paid all taxes, fees, assessments and other charges imposed upon it, and has complied with all the other requirements of law. The Commission shall not fail or refuse to renew the license of any home protection company without giving the home protection company ten days' notice of the failure or refusal to renew and providing it an opportunity to be heard and to introduce evidence in its behalf. Any such hearing may be informal, and the required notice may be waived by the Commission and the home protection company.

1981, c. 530, § 38.1-935; 1986, c. 562; 2006, c. 634; 2017, c. 727.

§ 38.2-2606. Reserves required.

A home protection company licensed in this Commonwealth shall maintain reserves in an amount sufficient to provide for its liability to furnish appropriate indemnity, repairs, and replacement services under its issued and outstanding contracts. The reserve account shall be calculated according to sound actuarial principles, but shall equal at a minimum fifty percent of the premiums received from all contracts in force in this Commonwealth, net of applicable reinsurance and any amounts paid on account of liabilities incurred under the contracts. To receive credit for reinsurance on home protection contracts, the reinsurance contract or policy shall be issued by a solvent insurer licensed in this Commonwealth or any other state having standards of solvency at least equal to those required in this Commonwealth.

1981, c. 530, § 38.1-936; 1986, c. 562.

§ 38.2-2607. Annual statements.

On or before March 1 of each year, each home protection company shall file with the Commission its annual statement pursuant to the provisions of § 38.2-1300, in the form prescribed by the Commission. The annual statement may be based on accounting principles common to the home protection business, provided that they enable the Commission to ascertain whether the reserves required by § 38.2-2606 have been established. However, the Commission may prescribe a uniform accounting system to be used by home protection companies. The Commission may also require the uniform reporting of statistical information under a plan prescribed or approved by the Commission.

1981, c. 530, § 38.1-937; 1986, c. 562.

§ 38.2-2608. Home protection contracts; filing; form and contents; application or agreement to purchase; regulation of rates and charges.

A. No home protection contract shall be issued or used in this Commonwealth unless it has been filed with and approved by the Commission.

B. No home protection contract shall be issued in this Commonwealth unless it:

1. Is written in simple and readable words with common meanings and is understandable without special insurance knowledge or training;

2. Specifically sets forth:

a. The services to be performed by the home protection company and the terms and conditions of the performance;

b. Any service fee or deductible amount applicable per claim or per occurrence;

c. Each of the systems, appliances, and structural components covered by the contract;

d. All exclusions and limitations respecting the extent of coverage;

e. The period during which the contract will remain in effect and the cancellation provision;

f. All limitations regarding the performance of services, including any restrictions as to the time periods when services will be performed;

3. Provides for the initiation of covered services contracted for upon telephonic request without first requiring the filing of written claim forms or written applications; and

4. Provides for the initiation of covered services contracted for by or under the direction of the home protection company within seventy-two hours of the request for the service by the contract holder, and provides for the completion of the services as soon as reasonably possible. For malfunctions of furnace or heating systems during the winter months, the contract must provide for the initiation of services immediately.

C. Every application for or agreement to purchase a home protection contract shall include a statement that the purchase of the contract is not mandatory and may be waived, and shall include a statement of the premium.

D. 1. Chapter 20 (§ 38.2-2000 et seq.) of this title shall apply to the rates charged by home protection companies until such time as the Commission determines, after proper notice and hearing, that sufficient competition exists in the home protection industry to justify its regulation under Chapter 19 (§ 38.2-1900 et seq.) of this title. Upon this determination, Chapter 19 of this title shall apply to the rates charged by home protection companies.

2. No home protection company shall make or issue a contract except in accordance with the filings that are in effect for that company. No home protection company or any of its representatives shall charge or receive any fee, compensation or consideration for the contract that is not included in the rate in effect for that company.

3. The rates charged shall be based on sound actuarial principles and shall not be excessive, inadequate, or unfairly discriminatory as defined in § 38.2-1904.

1981, c. 530, § 38.1-938; 1984, c. 640; 1986, c. 562.

§ 38.2-2609. Qualifications of agents.

No person shall sell, solicit, or negotiate home protection contracts in this Commonwealth unless (i) he has a valid license granting the authority to transact such insurance in this Commonwealth, (ii) he has a valid license to sell real estate in this Commonwealth, issued pursuant to Chapter 21 (§ 54.1-2100 et seq.) of Title 54.1, or (iii) he is the builder of the home or one of his authorized agents.

1981, c. 530, § 38.1-939; 1984, c. 640; 1986, c. 562; 2001, c. 706.

§ 38.2-2610. Cancellation of home protection contracts.

A. No home protection contract shall be cancelable by the home protection company during the initial term for which it is issued, except for:

1. Nonpayment of premium;

2. Fraud or misrepresentation of facts material to the issuance of the contract; or

3. Contracts providing coverage prior to the time the residential property is purchased, provided that purchase of the property does not occur.

B. Nothing in this section establishes the right of a contract holder to renew any contract.

1981, c. 530, § 38.1-940; 1986, c. 562.

§ 38.2-2611. Unfair discrimination.

No person shall make or permit any unfair discrimination between individuals in the rates or fees charged for any contract, in the performance of services or payments for services, or in any other terms or conditions of the contract.

1981, c. 530, § 38.1-941; 1986, c. 562.

§ 38.2-2612. Unfair trade practices.

In addition to the provisions of Chapter 5 (§ 38.2-500) of this title, the Commission may order any home protection company or its representatives to cease and desist from engaging in the following unfair trade practices:

1. The making of any false or misleading statements, either oral or written, in connection with the sale, offer to sell, or advertisement of a home protection contract;

2. The omission of any material statement in connection with the sale, offer to sell, or advertisement of a contract that under the circumstances should have been made in order to make the statements that were made not misleading;

3. The making of any statement that the purchase of a home protection contract is mandatory;

4. The making of any false or misleading statements, either oral or written, about the benefits or services available under the contract;

5. The failure to perform the services promised under the contract in a timely, competent, or workmanlike manner; or

6. Any statement or practice which has the effect of creating or maintaining a fraud.

1981, c. 530, § 38.1-942; 1986, c. 562.

§ 38.2-2613. Application of insurance laws.

Except as otherwise specifically provided in this chapter or where the context requires otherwise, all of the provisions of this title that apply to property and casualty insurers shall apply in every respect to home protection companies licensed under this chapter. In addition, Article 1 (§ 58.1-2500 et seq.) and Article 2 (§ 58.1-2520 et seq.) of Chapter 25 of Title 58.1 shall apply to the operation of a home protection company.

1981, c. 530, § 38.1-943; 1986, c. 562; 2006, c. 634; 2017, c. 727.

§ 38.2-2614. Fronting not permitted.

No licensed insurer or licensed home protection company shall act as a fronting company for any unlicensed insurer or unlicensed home protection company.

1981, c. 530, § 38.1-944; 1986, c. 562.

§ 38.2-2615. Other insurance transactions prohibited.

A. A home protection company that engages in any business other than the business of a home protection company is not eligible for the issuance or renewal of a license in this Commonwealth.

B. Nothing in this chapter shall be deemed to authorize any home protection company to transact any business other than that of a home protection company or to transact any other business of insurance, unless the company is authorized by a license issued by the Commission.

1981, c. 530, § 38.1-945; 1986, c. 562; 2006, c. 634; 2017, c. 727.

§ 38.2-2616. Binding arbitration provisions in contract.

Notwithstanding the provisions of § 38.2-312, no home protection company based in this Commonwealth shall be prohibited from including in its contract a provision that requires the contract holder to submit to binding arbitration any dispute between the contract holder and the home protection company.

2003, c. 799.

§ 38.2-2617. Repealed.

Repealed by Acts 2017, c. 727, cl. 2, effective January 1, 2018.

§ 38.2-2628. Repealed.

Repealed by Acts 2015, c. 709, cl. 2.