2009 Iowa Code
Title 13 - Commerce
Subtitle 1 - Insurance and Related Regulation
CHAPTER 516E - MOTOR VEHICLE SERVICE CONTRACTS
516E.21 - FINANCIAL RESPONSIBILITY AND SECURITY REQUIREMENTS IN LIEU OF REIMBURSEMENT INSURANCE POLICY.

        516E.21  FINANCIAL RESPONSIBILITY AND SECURITY
      REQUIREMENTS IN LIEU OF REIMBURSEMENT INSURANCE POLICY.
         1.  In lieu of obtaining a reimbursement insurance policy as
      provided in section 516E.2, subsection 3, a service company may
      secure its service contracts by maintaining a funded reserve account
      which complies with all of the following:
         a.  The reserve account shall be in a custodial account at a
      financial institution that is dedicated to the service company's
      outstanding obligations under service contracts issued and
      outstanding in this state.
         b.  The reserve account shall comply with rules adopted by the
      commissioner pursuant to chapter 17A establishing requirements for
      reserve accounts, reserve account agreements, or the method of
      valuing marketable securities as necessary to protect holders of
      service contracts issued and outstanding in this state.  The
      commissioner may require amendments to reserve account agreements
      that are not in compliance with the provisions of this section.
         c.  The reserve account shall not be an amount that is less
      than forty percent of the gross consideration received, less claims
      paid, on the sale of service contracts issued and outstanding by the
      service company in this state.
         d.  The reserve account shall be subject to examination and
      review by the commissioner or a designee on the premises of the
      financial institution where the account is located and the financial
      institution shall, upon request, produce documents or records as
      necessary to allow the commissioner or a designee to verify the value
      and safety of the assets of the reserve account.
         2.  The service company shall annually provide the commissioner
      with one of the following:
         a.  A copy of the service company's financial statements.
         b.  If the service company's financial statements are
      consolidated with those of its parent company, a copy of the parent
      company's most recent form 10-K or form 20-F filed with the federal
      securities and exchange commission within the last calendar year, or
      if the parent company does not file with the federal securities and
      exchange commission, a copy of the parent company's audited financial
      statements showing a net worth of at least one hundred million
      dollars.  If the service company's financial statements are
      consolidated with those of its parent company, the service company
      shall also provide a copy of a written agreement by the parent
      company guaranteeing the obligations of the service company under
      service contracts issued and outstanding by the service company in
      this state.
         3.  If a service company secures its contracts by maintaining a
      funded reserve account as provided in subsection 1 but does not have
      or maintain a minimum net worth or stockholders' equity of one
      hundred million dollars or more, the service company shall also meet
      one of the following requirements:
         a.  Maintain a security deposit trust fund which complies with
      all of the following:
         (1)  The security deposit trust fund shall be in an account at a
      financial institution.
         (2)  The security deposit trust fund shall be held, invested, and
      administered for the benefit and protection of service contract
      holders in this state in the event of nonperformance of the service
      contract by the service company.
         (3)  The security deposit trust fund shall comply with rules
      adopted by the commissioner pursuant to chapter 17A, establishing the
      form, terms, and conditions of security deposit trust fund agreements
      established pursuant to this paragraph "a".
         (4)  The security deposit trust fund shall be subject to recovery
      by any service contract holder sustaining actionable injury due to
      the failure of the service company to perform its obligations under
      the service contract.  A holder of a service contract issued in this
      state may, in the event of nonperformance by the service company,
      maintain an action and file a claim against the security deposit
      trust fund maintained by the service company.
         (5)  The security deposit trust fund shall not be commingled with
      other funds of the service company.
         (6)  The security deposit trust fund shall have a value of not
      less than five percent of the gross consideration received by the
      service company, less claims paid, for the sale of all service
      contracts issued and in force in this state, but not less than
      twenty-five thousand dollars, and consist of one or more of the
      following:
         (a)  Cash.
         (b)  Securities of the type eligible for deposit by insurers
      authorized to transact business in this state.
         (c)  Certificates of deposit.
         (d)  Another form of security as prescribed by the commissioner by
      rule.
         b.  File a surety bond with the commissioner that is issued by
      a surety company authorized to do business in this state, and that
      complies with all of the following:
         (1)  The surety bond is conditioned upon the service company's
      faithful performance of service contracts subject to this chapter.
         (2)  The surety bond is for the benefit of and subject to recovery
      by any service contract holder sustaining actionable injury due to
      the failure of the service company to perform its obligations under a
      service contract.  The surety's liability shall extend to all service
      contracts issued by the service company and outstanding in this
      state.  A holder of a service contract issued in this state may, in
      the event of nonperformance of the contract by the service company,
      maintain an action and file a claim against the surety bond filed by
      the service company.
         (3)  The surety bond is for an amount that is not less than five
      percent of the gross consideration received by the service company,
      less claims paid, for the sale of all service contracts issued and in
      force in this state, but not less than twenty-five thousand dollars.

         (4)  The surety bond cannot be canceled by the surety except upon
      written notice of cancellation by the surety to the commissioner by
      restricted certified mail, and not prior to the expiration of sixty
      days after receipt of the notice by the commissioner.  

         2006 Acts, ch 1117, §90
         Referred to in § 516E.2