85R22013 EES-F
 
  By: Goldman H.B. No. 2279
 
 
 
A BILL TO BE ENTITLED
 
AN ACT
  relating to the regulation of residential service contracts.
         BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
         SECTION 1.  Section 1303.002, Occupations Code, is amended
  by adding Subdivisions (2-a) and (3-a) and amending Subdivision (5)
  to read as follows:
               (2-a)  "Executive director" means the executive
  director of the Texas Real Estate Commission.
               (3-a)  "Reimbursement insurance policy" means a policy
  of insurance issued to a residential service company to:
                     (A)  provide reimbursement to the residential
  service company under the terms of the insured residential service
  contracts issued or sold by the residential service company; or
                     (B)  pay on behalf of the residential service
  company, in the event of the residential service company's
  nonperformance, all covered contractual obligations incurred by
  the residential service company under the terms of the insured
  residential service contracts issued or sold by the residential
  service company.
               (5)  "Residential service contract" means an agreement
  that is entered into for a separately stated consideration and for a
  specified term under which [, in exchange for a fee,] a person
  agrees to, in the event of the operational or structural failure of
  or damage caused by a defect in materials or workmanship or by
  normal wear to [undertakes for a specified period to maintain,
  repair, or replace all or any part of] a structural component, an
  appliance, or an electrical, plumbing, heating, cooling, or
  air-conditioning system of a residential property that is attached
  to the residential property:
                     (A)  [. The term does not include a service or
  maintenance agreement sold, offered for sale, or issued by a
  manufacturer or merchant under which the manufacturer or merchant
  undertakes to] maintain, repair, or replace all or any part of the
  [a product or part of a product, including a] structural component,
  [an] appliance, or [an] electrical, plumbing, heating, cooling, or
  air-conditioning system;
                     (B)  provide incidental payment of indemnity
  under limited circumstances, including food spoilage; or
                     (C)  provide payment instead of repair when a
  part, structural component, appliance, or service provider or
  technician is unavailable [of a residential property, that is:
                     [(A)     manufactured or sold by the manufacturer or
  merchant; or
                     [(B)     installed by the merchant in a building or
  residence].
         SECTION 2.  Section 1303.053, Occupations Code, is amended
  by adding Subsection (c) to read as follows:
         (c)  Information prepared or compiled by the commission
  relating to an examination conducted under this section, including
  the examination file, is confidential and exempt from disclosure
  under Chapter 552, Government Code. The commission may withhold
  the information without the necessity of requesting a decision from
  the attorney general under Subchapter G, Chapter 552, Government
  Code.
         SECTION 3.  Section 1303.101(b), Occupations Code, is
  amended to read as follows:
         (b)  A person may not sell, offer to sell, arrange or solicit
  the sale of, or receive an application for a residential service
  contract unless:
               (1)  the person is:
                     (A)  employed by a residential service company
  licensed under this chapter; or
                     (B)  licensed as or employed by a real estate
  sales agent [salesperson], real estate broker, mobile home dealer,
  or insurance agent in this state; and
               (2)  the contract is issued by a residential service
  company licensed under this chapter.
         SECTION 4.  Section 1303.103, Occupations Code, is amended
  by amending Subsection (b) and adding Subsection (d) to read as
  follows:
         (b)  Each application for a license must contain or be
  accompanied by:
               (1)  a copy of the articles of incorporation, articles
  of association, partnership agreement, trust agreement, or any
  other basic organizational document of the applicant;
               (2)  a copy of any amendment to the applicant's basic
  organizational document;
               (3)  a copy of any bylaws, rules, or other similar
  document that regulates the conduct of the applicant's internal
  affairs;
               (4)  the name, address, and official position of each
  person who will be responsible for the conduct of the applicant's
  affairs, including:
                     (A)  each member of the board of directors, board
  of trustees, executive committee, or other governing body or
  committee of the applicant;
                     (B)  the applicant's principal officer, if the
  applicant is a corporation; and
                     (C)  each partner or member of the applicant, if
  the applicant is a partnership or association;
               (5)  a copy of the residential service contract made or
  to be made between the applicant and another person;
               (6)  a general description of the residential service
  contract or the contract's coverage or plan;
               (7)  the most recent [a] financial statements for the
  applicant [statement that]:
                     (A)  that are [is]:
                           (i)  prepared by an independent certified
  public accountant; or
                           (ii)  certified as accurate by at least two
  of the residential service company's principal officers, if the
  residential service company uses a reimbursement insurance policy
  to insure its outstanding residential service contracts written in
  this state in accordance with Section 1303.151(b) [within six
  months preceding the date the application is submitted]; and
                     (B)  that show [shows] the applicant's assets,
  liabilities, and sources of financial support;
               (8)  a description of the applicant's proposed method
  of marketing a residential service contract;
               (9)  a statement regarding the applicant's sources of
  working capital and any other funding sources;
               (10)  if the applicant is not domiciled in this state, a
  power of attorney appointing the executive director
  [administrator] and the executive director's [administrator's]
  successors in office, or the executive director's [administrator's]
  authorized deputy, as the applicant's agent for service of process
  in this state in a legal action arising in this state against the
  applicant or the applicant's agents; and
               (11)  any other information the commission requires to
  make a determination required by this chapter.
         (d)  Any financial information submitted to the commission
  in connection with an application is confidential and exempt from
  disclosure under Chapter 552, Government Code. The commission may
  withhold the financial information without the necessity of
  requesting a decision from the attorney general under Subchapter G,
  Chapter 552, Government Code.
         SECTION 5.  Section 1303.151, Occupations Code, is amended
  to read as follows:
         Sec. 1303.151.  RESERVE OR REIMBURSEMENT INSURANCE POLICY
  REQUIRED. (a) Except as provided by Subsection (b), a [A]
  residential service company shall maintain a funded reserve against
  its liability to provide repair and replacement services under its
  outstanding residential service contracts written in this state.
         (b)  Except as provided by Section 1303.152(d), a
  residential service company is not required to maintain a funded
  reserve if it insures all of its risk under its outstanding
  residential service contracts written in this state under a
  reimbursement insurance policy issued by:
               (1)  an admitted insurer; or
               (2)  a surplus lines insurer or a surplus lines bonding
  company if the insurer or bonding company:
                     (A)  is rated A+ or better by a rating service
  recognized by the commission; and
                     (B)  submits to the commission for its approval
  evidence, in the form of a certified audit and other pertinent
  information the commission may require, of the insurer's or bonding
  company's ability to meet its contractual obligations.
         SECTION 6.  Section 1303.152, Occupations Code, is amended
  by amending Subsection (c) and adding Subsection (d) to read as
  follows:
         (c)  For purposes of this chapter, to the extent a
  residential service company uses a reimbursement insurance policy
  described by Section 1303.151(b) to insure an outstanding
  residential service contract written in this state, the company's
  reserve is not required to include a contract fee on the [a]
  residential service contract [to the extent that provision is made
  for reinsurance of the outstanding risk on the contract by:
               [(1)     a residential service company licensed in this
  state;
               [(2)  an admitted insurer; or
               [(3)     a surplus line insurer or a surplus line bonding
  company if the insurer or bonding company:
                     [(A)     is rated A+ or better by a rating service
  recognized by the commission; and
                     [(B)     submits to the commission for its approval
  evidence, in the form of a certified audit and other pertinent
  information the commission may require, of the insurer's or bonding
  company's ability to meet its contractual obligations].
         (d)  If a residential service company's reimbursement
  insurance policy is issued by a captive insurance company as
  defined by Section 964.001, Insurance Code, the residential service
  company shall maintain a funded reserve of at least 25 percent of
  the reserve amount described by Subsection (a).
         SECTION 7.  Subchapter D, Chapter 1303, Occupations Code, is
  amended by adding Section 1303.1525 to read as follows:
         Sec. 1303.1525.  REIMBURSEMENT INSURANCE POLICY. (a) An
  insurer that issues a reimbursement insurance policy to a
  residential service company is considered to have received the
  premiums for the policy on the dates contract holders pay for
  residential service contracts issued by the residential service
  company.
         (b)  An insurer may not cancel a reimbursement insurance
  policy until the insurer mails or delivers a notice of cancellation
  to the executive director. The cancellation of the policy does not
  affect the issuer's liability for a residential service contract
  issued by the insured residential service company before the
  effective date of the cancellation.
         SECTION 8.  Section 1303.153, Occupations Code, is amended
  by amending Subsection (a) and adding Subsection (d) to read as
  follows:
         (a)  Except as provided by Subsection (d), as [As] a
  guarantee that a residential service company will meet its
  obligations to its contract holders, the company shall maintain
  with the commission a bond or other security accepted by the
  commission.
         (d)  This section does not apply to a residential service
  company that uses a reimbursement insurance policy to insure its
  outstanding residential service contracts written in this state in
  accordance with Section 1303.151(b).
         SECTION 9.  Section 1303.154, Occupations Code, is amended
  by amending Subsection (a) and adding Subsection (d) to read as
  follows:
         (a)  Except as provided by Subsection (d), an [An] applicant
  for a new license must provide security in the amount of $25,000.
  The amount of the security may not be reduced before the residential
  service company files a second report under Section 1303.202.
         (d)  This section does not apply to a residential service
  company that uses a reimbursement insurance policy to insure its
  outstanding residential service contracts written in this state in
  accordance with Section 1303.151(b).
         SECTION 10.  Sections 1303.202(b) and (c), Occupations Code,
  are amended to read as follows:
         (b)  The report must:
               (1)  be on a form prescribed by the commission;
               (2)  be verified by at least two of the residential
  service company's principal officers; and
               (3)  include:
                     (A)  [a] financial statements [statement] of the
  residential service company, including its balance sheet and
  receipts and disbursements for the preceding year, certified as
  accurate by:
                           (i)  an independent public accountant; or
                           (ii)  at least two of the residential
  service company's principal officers, if the residential service
  company uses a reimbursement insurance policy to insure its
  outstanding residential service contracts written in this state in
  accordance with Section 1303.151(b);
                     (B)  any material change to the information
  submitted under Section 1303.103;
                     (C)  if the residential service company maintains
  a reserve required by Section 1303.151(a), the number of
  residential service contracts entered into during the year, the
  number of contract holders as of the end of the year, and the number
  of contracts terminating during the year; and
                     (D)  any other information that:
                           (i)  relates to the performance and solvency
  of the residential service company; and
                           (ii)  is necessary for the commission to
  perform its duties under this chapter.
         (c)  Any information [Information] provided by a residential
  service company in connection with the report required by this
  section or any midyear report required by the commission [under
  Subsection (b)(3)(D)] is confidential and exempt from disclosure
  under Chapter 552, Government Code.  The commission may withhold
  the information without the necessity of requesting a decision from
  the attorney general under Subchapter G, Chapter 552, Government
  Code [:
               [(1)  confidential ; and
               [(2)  for the exclusive use of the commission].
         SECTION 11.  Section 1303.251, Occupations Code, is amended
  to read as follows:
         Sec. 1303.251.  CONTRACT DELIVERY AND FILING [EVIDENCE OF
  COVERAGE]. (a) Each contract holder residing in this state is
  entitled to receive a copy of the [evidence of coverage under a]
  residential service contract not later than the 15th day after the
  date the contract holder pays for the residential service contract
  or the effective date of the residential service contract,
  whichever is later. The residential service company may provide
  [that issued] the copy by mail, e-mail, or other means of delivery
  acceptable to the commission [contract shall issue evidence of
  coverage under the contract].
         (b)  A residential service company shall file with the
  commission for approval [may not issue or deliver evidence of
  coverage under] a residential service contract, or an amendment to
  a previously filed residential service contract that changes the
  residential service contract's coverage or substantially amends a
  disclosure required by Section 1303.252 [evidence, to a person in
  this state until a copy of the evidence or amendment is filed with
  and approved by the commission].
         (c)  The commission may require a residential service
  company to submit relevant information the commission considers
  necessary to determine whether to approve or disapprove a filing
  made under Subsection (b) [the company's evidence of coverage].
         (d)  The commission shall approve a filing made under
  Subsection (b) [residential service company's evidence of
  coverage] if the requirements of this section and Section 1303.252
  are met.
         (d-1)  For a filing made under Subsection (b) after a
  residential service company is licensed, the commission shall have
  30 days to consider the filing from the date of the filing or the
  date that the commission receives any associated filing fee,
  whichever is later. On the 31st day after that date, the filing is
  considered approved unless the commission issues a written order
  disapproving the filing or notifies the residential service company
  that the filing violates this section or Section 1303.252.
         (d-2)  If the commission notifies the residential service
  company that the filing violates this section or Section 1303.252,
  the residential service company may submit a response to that
  notification. On receipt of a response from the residential
  service company, the commission shall have 30 days to reconsider
  the filing. On the 31st day after the commission receives the
  residential service company's response, the filing is considered
  approved unless the commission issues a written order disapproving
  the filing. 
         (d-3)  The commission may not require a residential service
  company to waive a 30-day consideration period provided by this
  section or make the approval of a filing contingent on waiving a
  30-day consideration period provided by this section.
         (e)  If the commission disapproves a filing made under
  Subsection (b) [residential service company's evidence of
  coverage], the commission shall notify the company of the
  disapproval and in the notice shall specify in detail the reason for
  the disapproval.
         (f)  A residential service company whose filing under
  Subsection (b) [evidence of coverage] is disapproved by the
  commission is entitled to a hearing conducted by the State Office of
  Administrative Hearings [may request a hearing on the commission's
  decision. If a hearing is requested, the commission shall set a
  hearing on the decision as soon as reasonably possible. Not later
  than the 60th day after the date of the hearing, the commission by
  written order shall approve or disapprove the evidence. If the
  evidence is disapproved, the commission shall state in the order
  the grounds for the disapproval].
         (g)  A hearing under Subsection (f) is governed by the
  contested case procedures under Chapter 2001, Government Code.
         SECTION 12.  Section 1303.252, Occupations Code, is amended
  to read as follows:
         Sec. 1303.252.  FORM OF CONTRACT AND REQUIRED DISCLOSURES
  [CONTENTS OF EVIDENCE OF COVERAGE]. (a) A residential service
  contract marketed, sold, offered for sale, issued, made, proposed
  to be made, or administered in this state must be written, printed,
  or typed in clear, understandable language that is easy to read and
  must disclose the following [Evidence of coverage under a
  residential service contract must contain a clear and complete
  statement, if the evidence is a contract, or a reasonably complete
  facsimile, if the evidence is a certificate, of]:
               (1)  the services or benefits to which the contract
  holder is entitled;
               (2)  any limitation on the services, kinds of services,
  or benefits to be provided, including a deductible or co-payment
  provision;
               (3)  where and in what manner information is available
  on how to obtain services;
               (4)  the period during which the coverage is in effect;
               (5)  the residential service company's agreement to
  perform services on the contract holder's telephone request to the
  company, without a requirement that a claim form or application be
  filed before the services are performed;
               (6)  the company's agreement that, under normal
  circumstances, the company will initiate the performance of
  services within 48 hours after the contract holder requests the
  services; and
               (7)  any service fee to be charged for a service call.
         (b)  A service fee under Subsection (a)(7) is not required to
  be preprinted on the residential service contract but must be
  disclosed in writing to the contract holder before the purchase of
  the residential service contract.
         (c)  A residential service contract insured under a
  reimbursement insurance policy in accordance with Section
  1303.151(b) must contain a statement substantially similar to the
  following: "The residential service company's obligations under
  this residential service contract are insured under a reimbursement
  insurance policy." The residential service contract must also:
               (1)  state the name and address of the insurer; and
               (2)  state that the contract holder may apply for
  reimbursement directly to the insurer if a covered service is not
  provided to the contract holder by the residential service company
  before the 61st day after the date the contract holder provides
  proof of loss.
         (d)  A residential service contract [Evidence of coverage]
  may not contain a provision that encourages misrepresentation or
  that is unjust, unfair, inequitable, misleading, deceptive, or
  false.
         SECTION 13.  Section 1303.253, Occupations Code, is amended
  to read as follows:
         Sec. 1303.253.  SCHEDULE OF CHARGES. [(a)] A residential
  service company shall file [may not use in conjunction with a
  residential service contract] a schedule of charges for services
  covered under a residential service [the] contract and any [or an]
  amendment to a previously filed [that] schedule with the commission
  before implementation of the schedule of charges or amendment.  A
  filing made under this section is not subject to prior approval and
  is made for informational purposes only [until a copy of the
  schedule or amendment is filed with and approved by the
  commission].
         [(b)     The commission shall approve a schedule of charges if
  the commission determines that the schedule is reasonably related
  to the amount, term, and conditions of the contract.
         [(c)     If the commission determines that the schedule of
  charges is not reasonably related to the contract as described by
  Subsection (b), the commission may reject the schedule. If the
  commission rejects the schedule, the commission shall notify the
  company of the rejection and shall specify in detail the reason for
  the rejection.
         [(d)     A residential service company whose schedule of
  charges is rejected by the commission may request a hearing on the
  commission's decision to be held as soon as reasonably possible.
  Not later than the 60th day after the date of the hearing, the
  commission by written order shall approve or reject the schedule.
  If the schedule is rejected, the commission shall state in the order
  the grounds for the rejection.]
         SECTION 14.  Section 1303.301(a), Occupations Code, is
  amended to read as follows:
         (a)  A residential service company may not cause or permit
  the use of:
               (1)  a false or misleading advertisement or
  solicitation; or
               (2)  any deceptive residential service contract
  [evidence of coverage].
         SECTION 15.  Section 1303.352(a), Occupations Code, is
  amended to read as follows:
         (a)  The commission may discipline a residential service
  company under Section 1303.351 if the continued operation of the
  company would be hazardous to its contract holders or if the
  company:
               (1)  operates in conflict with its basic organizational
  document or in a manner that is contrary to that described in and
  reasonably inferred from information submitted under Section
  1303.103, unless an amendment to the information has been filed
  with and approved by the commission;
               (2)  issues a residential service contract [evidence of
  coverage] that does not comply with Sections 1303.251 and 1303.252;
               (3)  uses a schedule of charges that has not been filed
  with the commission in accordance [does not comply] with Section
  1303.253;
               (4)  is not financially responsible and may be
  reasonably expected to be unable to meet the company's obligations
  to contract holders;
               (5)  did not comply with Subchapter D;
               (6)  advertised or marketed the company's services in a
  false, misrepresentative, misleading, deceptive, or unfair manner;
  or
               (7)  otherwise did not substantially comply with this
  chapter or a rule adopted under this chapter.
         SECTION 16.  The changes in law made by this Act apply only
  to a residential service contract entered into or renewed on or
  after the effective date of this Act.  A residential service
  contract entered into or renewed before that date is governed by the
  law as it existed immediately before the effective date of this Act,
  and that law is continued in effect for that purpose.
         SECTION 17.  This Act takes effect September 1, 2017.