2005 North Carolina Code - General Statutes Article 1 - Title and Definitions.

Chapter 58.

Insurance.

Article 1.

Title and Definitions.

§ 58‑1‑1.  Title of the Chapter.

Articles 1 through 64 of this Chapter may be cited and shall be known as the Insurance Law. (1899, c. 54; Rev., s. 4677; C.S., s. 6260.)

 

 

§ 58‑1‑5.  Definitions.

In this Chapter, unless the context clearly requires otherwise:

(1)       "Alien company" means a company incorporated or organized under the laws of any jurisdiction outside of the United States.

(1a)     "Commercial aircraft" means aircraft used in domestic, flag, supplemental, commuter, or on‑demand operations, as defined in Federal Aviation Administration Regulations, 14 C.F.R. § 119.3, as amended.

(2)       "Commissioner" means the Commissioner of Insurance of North Carolina or an authorized designee of the Commissioner.

(3)       "Company" or "insurance company" or "insurer" includes any corporation, association, partnership, society, order, individual or aggregation of individuals engaging or proposing or attempting to engage as principals in any kind of insurance business, including the exchanging of reciprocal or interinsurance contracts between individuals, partnerships and corporations. "Company" or "insurance company" or "insurer" does not mean the State of North Carolina or any county, city, or other political subdivision of the State of North Carolina.

(4)       "Department" means the Department of Insurance of North Carolina.

(5)       "Domestic company" means a company incorporated or organized under the laws of this State.

(6)       "Foreign company" means a company incorporated or organized under the laws of the United States or of any jurisdiction within the United States other than this State.

(7)       "NAIC" means the National Association of Insurance Commissioners.

(8)       Repealed by Session Laws 1999‑219, s. 5.5.

(9)       "Person" means an individual, partnership, firm, association, corporation, joint‑stock company, trust, any similar entity, or any combination of the foregoing acting in concert.

(10)     The singular form includes the plural, and the masculine form includes the feminine wherever appropriate. (1899, c. 54, s. 1; Rev., s. 4678; C.S., s. 6261; 1945, c. 383; 1971, c. 510, s. 1; 1987, c. 864, s. 34; 1995, c. 193, s. 1; 1999‑219, s. 5.5; 2001‑334, s. 18.2.)

 

§ 58‑1‑10.  Contract of insurance.

A contract of insurance is an agreement by which the insurer is bound to pay money or its equivalent or to do some act of value to the insured upon, and as an indemnity or reimbursement for the destruction, loss, or injury of something in which the other party has an interest. (1899, c. 54, s. 2; Rev., s. 4679; C.S., s. 6262; 1945, c. 383.)

 

§ 58‑1‑15.  Warranties by manufacturers, distributors, or sellers of goods or services.

(a)       As used in this section:

(1)       "Goods" means all things that are moveable at the time of sale or at the time the buyer takes possession. "Goods" includes things not in existence at the time the transaction is entered into; and includes things that are furnished or used at the time of sale or subsequently in modernization, rehabilitation, repair, alteration, improvement, or construction on real property so as to become a part of real property whether or not they are severable from real property.

(2)       "Services" means work, labor, and other personal services.

(b)       Any warranty made solely by a manufacturer, distributor, or seller of goods or services without charge, or an extended warranty offered as an option and made solely by a manufacturer, distributor, or seller of goods or services for charge, that guarantees indemnity for defective parts, mechanical or electrical breakdown, labor, or any other remedial measure, including replacement of goods or repetition of services, shall not be a contract of insurance under Articles 1 through 64 of this Chapter; however, service agreements on motor vehicles are governed by G.S. 58‑1‑25, 58‑1‑35, and 58‑1‑36. Service agreements on home appliances are governed by G.S. 58‑1‑30, 58‑1‑35, and 58‑1‑36.

(c)       Nothing in this section affects the provisions of Article 28 of this Chapter. Any warranty or extended warranty made by any person other than the manufacturer, distributor, or seller of the warranted goods or services is a contract of insurance.

(d)       Repealed by Session Laws 1989 (Regular Session, 1990), c. 1021, s. 3. (1959, c. 866; 1975, cc. 643, 788; 1977, c. 185; 1987, c. 369; 1989, c. 789, s. 2; 1989 (Reg. Sess., 1990), c. 1021, s. 3; 1991 (Reg. Sess., 1992), c. 1014, s. 2; 1995, c. 193, s. 2.)

 

§ 58‑1‑20.  Real property warranties.

(a)       Any warranty relating to fixtures to real property issued by a person is a contract of insurance, except the following:

(1)       A warranty made by a builder or seller of the real property;

(2)       A warranty providing for the repair or replacement of the items covered by the warranty for defective parts and mechanical failure or resulting from ordinary wear and tear, and excluding from its coverage damage from recognizable perils, such as fire, flood, and wind, that neither relate to any defect in the items covered nor result from ordinary wear and tear.

(b)       It is unlawful for any person to issue a warranty specified in subdivision (a)(2) of this section unless that person has posted a surety bond with the Secretary of State in the principal sum of not less than one hundred thousand dollars ($100,000). The bond must be issued by a surety company licensed to do business in this State and is subject to the approval of the Secretary of State. Any person to whom the warranty is issued may institute an action to recover against the warrantor and the surety bond for any breach of warranty.

(c)       Persons issuing real property warranties shall comply with the requirements of G.S. 58‑1‑36. (1979, c. 773, s. 1; 1987, c. 864, s. 9; 1991, c. 644, s. 43; 2003‑290, s. 1(a).)

 

§ 58‑1‑25.  Motor vehicle service agreement companies.

(a)       This section applies to all motor vehicle service agreement companies soliciting business in this State, but it does not apply to performance guarantees, warranties, or motor vehicle service agreements made by

(1)       A manufacturer,

(2)       A distributor, or

(3)       A subsidiary or affiliate of a manufacturer or a distributor, where fifty‑one percent (51%) or more of the subsidiary or affiliate is owned directly or indirectly by

a.         The manufacturer,

b.         The distributor, or

c.         The common owner of fifty‑one percent (51%) or more of the manufacturer or distributor

in connection with the sale of motor vehicles. This section does not apply to any motor vehicle dealer licensed to do business in this State (i) whose primary business is the retail sale and service of motor vehicles; (ii) who makes and administers its own service agreements with or without association with a third‑party administrator or who makes its own service agreements in association with a manufacturer, distributor, or their subsidiaries or affiliates; and (iii) whose service agreements cover only vehicles sold by the dealer to its retail customer; provided that the dealer complies with G.S. 58‑1‑35 and G.S. 58‑1‑36. A motor vehicle dealer who sells a motor vehicle service agreement to a consumer, as defined in 15 U.S.C. § 2301(3), is not deemed to have made a written warranty to the consumer with respect to the motor vehicle sold or to have entered into a service contract with the consumer that applies to the motor vehicle, as provided in 15 U.S.C. § 2308(a), if: (i) the motor vehicle dealer acts as a mere agent of a third party in selling the motor vehicle service agreement; and (ii) the motor vehicle dealer would, after the sale of the motor vehicle service agreement, have no further obligation under the motor vehicle service agreement to the consumer to service or repair the vehicle sold to the consumer at or within 90 days before the dealer sold the motor vehicle service agreement to the consumer.

(b)       The following definitions apply in this section and in G.S. 58‑1‑30, 58‑1‑35, and 58‑1‑36:

(1)       Authorized insurer. – An insurance company authorized to write liability insurance under Articles 7, 16, 21, or 22 of this Chapter.

(2)       Distributor. – Defined in G.S. 20‑286(3).

(3)       Licensed insurer. – An insurance company licensed to write liability insurance under Article 7 or 16 of this Chapter.

(4)       Motor vehicle. – Defined in G.S. 20‑4.01(23), but also including mopeds as defined in G.S. 20‑4.01(27)d1.

(5)       Motor vehicle service agreement. – Any contract or agreement indemnifying the motor vehicle service agreement holder against loss caused by failure, arising out of the ownership, operation, or use of a motor vehicle, of a mechanical or other component part of the motor vehicle that is listed in the agreement. The term does not mean a contract or agreement guaranteeing the performance of parts or lubricants manufactured by the guarantor and sold for use in connection with a motor vehicle where no additional consideration is paid or given to the guarantor for the contract or agreement beyond the price of the parts or lubricants.

(6)       Motor vehicle service agreement company. – Any person that issues motor vehicle service agreements and that is not a licensed insurer.

(c)       through (g) Repealed by Session Laws 1993 (Reg. Sess., 1994), c. 730, s. 3. (1991 (Reg. Sess., 1992), c. 1014, s. 1; 1993, c. 504, ss. 47, 48; c. 539, s. 442; 1994, Ex. Sess., c. 24, s. 14(c); 1993 (Reg. Sess., 1994), c. 730, ss. 3, 4; 1995, c. 193, s. 3.)

 

§ 58‑1‑30.  Home appliance service agreement companies.

(a)       This section applies to all home appliance service agreement companies soliciting business in this State, but it does not apply to performance guarantees or warranties made by manufacturers in connection with the sale of new home appliances. This section does not apply to any home appliance dealer licensed to do business in this State (i) whose primary business is the retail sale and service of home appliances; (ii) who makes and administers its own service agreements without association with any other entity; and (iii) whose service agreements cover primarily appliances sold by the dealer to its retail customers, provided that the dealer complies with G.S. 58‑1‑35 and G.S. 58‑1‑36. This section does not apply to any warranty made by a builder or seller of real property relating to home appliances that are sold along with real property. This section does not apply to any issuer of credit cards or charge cards that markets home appliance service agreements as an ancillary part of its business; provided, however, that such issuer maintains insurance in accordance with G.S. 58‑1‑36.

(b)       The following definitions apply in this section:

(1)       "Home appliance" means a clothes washing machine or dryer; kitchen appliance; vacuum cleaner; sewing machine; home audio or video electronic equipment; home electronic data processing equipment; home exercise and fitness equipment; home health care equipment; power tools; heater or air conditioner, other than a permanently installed unit using internal ductwork; or other personal consumer goods.

(2)       "Home appliance service agreement" means any contract or agreement indemnifying the home appliance service agreement holder against loss caused by failure, arising out of the ownership, operation, or use of a home appliance, of a mechanical or other component part of the home appliance that is listed in the agreement.

(3)       "Home appliance service agreement company" means any person that issues home appliance service agreements and that is not a licensed insurer.

(c)       through (g) Repealed by Session Laws 1993 (Reg. Sess., 1994), c. 730, s. 3. (1991 (Reg. Sess., 1992), c. 1014, s. 1; 1993, c. 504, ss. 49, 52; c. 539, s. 443; 1994, Ex. Sess., c. 24, s. 14(c); 1993 (Reg. Sess., 1994), c. 730, ss. 3, 4, 6; 2003‑290, s. 1(b).)

 

§ 58‑1‑35.  Miscellaneous requirements for motor vehicle and home appliance service agreement companies.

(a)       The provisions of this section and G.S. 58‑1‑36 apply to companies specified in G.S. 58‑1‑25 and G.S. 58‑1‑30.

(b)       The following definitions apply in this section and in G.S. 58‑1‑36:

(1)       Service agreement. – Includes motor vehicle service agreements and home appliance service agreements.

(2)       Service agreement company. – Includes motor vehicle service agreement companies and home appliance service agreement companies.

(c)       Before the sale of any service agreement, the service agreement company shall give written notice to the customer clearly disclosing that the purchase of the agreement is not required either to purchase or to obtain financing for a motor vehicle or home appliance, as the case may be.

(d)       No service agreement may be used in this State by any service agreement company if the agreement:

(1)       In any respect violates, or does not comply with, the laws of this State;

(2)       Contains, or incorporates by reference when incorporation is otherwise permissible, any inconsistent, ambiguous, or misleading clauses or any exceptions and conditions that deceptively affect the risk purported to be assumed in the general coverage of the agreement;

(3)       Has any title, heading, or other indication of its provisions that is misleading; or

(4)       Is printed or otherwise reproduced in a manner that renders any material provision of the agreement substantially illegible.

(e)       All service agreements used in this State by a service agreement company shall:

(1)       Not contain provisions that allow the company to cancel the agreement in its discretion other than for nonpayment of premiums or for a direct violation of the agreement by the consumer where the service agreement states that violation of the agreement would subject the agreement to cancellation;

(2)       With respect to a motor vehicle service agreement as defined in G.S. 58‑1‑25(b)(1), provide for a right of assignability by the consumer to a subsequent purchaser before expiration of coverage if the subsequent purchaser meets the same criteria for motor vehicle service agreement acceptability as the original purchaser; and

(3)       Contain a cancellation provision allowing the consumer to cancel at any time after purchase and receive a pro rata refund less any claims paid on the agreement and a reasonable administrative fee, not to exceed ten percent (10%) of the amount of the pro rata refund.

(f)        Each service agreement company, as a minimum requirement for permanent office records, shall maintain:

(1)       A complete set of accounting records, including a general ledger, cash receipts and disbursements journals, accounts receivable registers, and accounts payable registers.

(2)       Memorandum journals showing the service agreement forms issued to the company salespersons and recording the delivery of the forms to dealers.

(3)       Memorandum journals showing the service agreement forms received by dealers and indicating the disposition of the forms by the dealers.

(4)       A detailed service agreement register, in numerical order by agreement number, of agreements in force. The register shall include the following: agreement number, date of issue, issuing dealer, name of agreement holder, description of item covered, service agreement period (and, if applicable, mileage), gross premium, total commission paid, and net premium.

(5)       A detailed claims register, in numerical order by service agreement number. The register shall include the following information: agreement number, date of issue, date claim paid, and, if applicable, disposition other than payment and reason for the disposition.

(g)       Repealed by Session Laws 1993 (Reg. Sess., 1994), c. 730, s. 3.

(h)       No insurer or service agreement company shall act as a fronting company for any unauthorized insurer or service agreement company that is not in compliance with this section. As used in this subsection, "fronting company" means a licensed insurer or service agreement company that, by reinsurance or otherwise, generally transfers to one or more unauthorized insurers or service agreement companies that are not in compliance with this section a substantial portion of the risk of loss under agreements it writes in this State.

(i)        All funds belonging to insurers, companies, or others received by a salesperson of a service agreement are trust funds received by the salesperson in a fiduciary capacity; and the salesperson, in the applicable regular course of business, shall account for and pay the funds to the person entitled to the funds. Any salesperson who, not being entitled to the funds, diverts or appropriates the funds or any portion of the funds, other than funds representing the salesperson's commission if authorized by the salesperson agreement, to his or her own use, upon conviction is guilty of embezzlement under G.S. 14‑90.

(j)        Any person who knowingly offers for sale or sells a service agreement for a company that has failed to comply with the provisions of this section is guilty of a Class 1 misdemeanor. All service agreement companies and individuals selling service agreements are subject to G.S. 75‑1 through G.S. 75‑19.

(k)       Repealed by Session Laws 1993 (Reg. Sess., 1994), c. 730, s. 2.

(l)        No service agreement company shall use in its name, contracts, literature, advertising in any medium, or any other printed matter the words "insurance", "casualty", "surety", "mutual", or any other words descriptive of the insurance business or deceptively similar to the name or description of any insurer doing business in this State, except to indicate that the obligations of the contract are insured by an insurance company.

(m)      If not submitted electronically, all contracts, literature, advertising materials, letters, and other documents submitted to the Department to comply with the filing requirements of this Chapter or an administrative rule adopted pursuant to this Chapter shall be submitted on paper eight and one‑half inches by eleven inches. Brochures and pamphlets shall not be stapled or bound. (1991 (Reg. Sess., 1992), c. 1014, s. 1; 1993, c. 504, ss. 50, 51, 52; c. 539, s. 444; 1994, Ex. Sess., c. 24, s. 14(c); 1993 (Reg. Sess., 1994), c. 730, ss. 2, 3, 5; 1995, c. 193, ss. 4, 5; 2003‑290, s. 2.)

 

§ 58‑1‑36.  Insurance policy requirements.

(a)       Each company or person subject to this section shall maintain contractual liability insurance or service agreement reimbursement insurance with an authorized insurer for one hundred percent (100%) of claims exposure, including reported and incurred but not reported claims and claims expenses, on business written in this State unless the company or person:

(1)       Maintains an audited net worth of one hundred million dollars ($100,000,000);

(2)       Has offered service agreement contracts or warranties, as applicable to the respective company, its parent company, or person, for at least the preceding 10 years; and

(3)       Either is required to file and has filed an SEC Form 10K or Form 20‑F with the Securities and Exchange Commission (SEC) within the last calendar year or, if the company does not file with the SEC, can produce, upon request, a copy of the company's audited financial statements, which show a net worth of the company or person of at least one hundred million dollars ($100,000,000). A company or person may utilize its parent company's Form 10‑K, Form 20‑F, or audited financial statements to satisfy this requirement if the parent company agrees to guarantee the obligations of the company or person relating to service agreement contracts or warranties, as applicable to the respective company or person, sold by the company or person in this State.

(b)       All forms relating to insurance policies written by authorized insurers under this section shall be filed with and approved by the Commissioner before they may be used for any purpose in this State, irrespective of whether the insurers are licensed insurers.

(c)       Each policy shall contain the following provisions:

(1)       If the company or person does not fulfill its obligations under service agreements or warranties issued in this State for any reason, including federal bankruptcy or state receivership proceedings, the insurer will pay losses and unearned premium refunds directly to any person making the claim under the service agreement.

(2)       The insurer shall assume full responsibility for the administration of claims if the company or person is unable to do so.

(3)       The policy is subject to the cancellation, nonrenewal, and renewal provisions of G.S. 58‑41‑15, 58‑41‑20, 58‑41‑25, and 58‑41‑40.

(4)       The policy shall insure all service agreements and warranties that were issued while the policy was in effect, regardless of whether the premium was remitted to the insurer.

(5)       If the insurer is fulfilling any service agreement covered by the policy and if the service agreement holder cancels the service agreement, the insurer shall make a full refund of the unearned premium to the consumer pursuant to G.S. 58‑1‑35(e)(3). This subdivision applies only to service agreement companies.

(d)       The Commissioner may adopt rules, in addition to the requirements of this section, governing the terms and conditions of policy forms for the insurance required by this section.

(e)       Persons and companies subject to G.S. 58‑1‑15, 58‑1‑20, 58‑1‑25, 58‑1‑30, and 58‑1‑42 are subject to and shall comply with this section. The Commissioner may enforce compliance with this section using the provisions of Article 2 of this Chapter. (1993 (Reg. Sess., 1994), c. 730, s. 1; 2003‑290, s. 1(c).)

 

§ 58‑1‑40: Repealed by Session Laws 1993 (Reg. Sess., 1994), c. 730, s. 3.

 

§ 58‑1‑42.  Mechanical breakdown service agreements.

(a)       Except as provided in subsection (c) of this section, all mechanical breakdown service agreement companies soliciting business in this State shall comply with G.S. 58‑1‑35 and G.S. 58‑1‑36.

(b)       As used in this section, "mechanical breakdown service agreement companies" include any person that issues mechanical breakdown service agreements and is not a licensed insurer, and "mechanical breakdown service agreements" are applicable to mechanized equipment, including automobiles, riding mowers, scooters, generators, farm implements, logging equipment, road graders, bulldozers, and power equipment not licensed for road use, whether mobile or not.

(c)       This section does not apply to performance guarantees, warranties, mechanical breakdown service agreements, or motor vehicle service agreements made by:

(1)       A manufacturer.

(2)       A distributor.

(3)       A subsidiary of a manufacturer or distributor. (2003‑290, s. 4.)

 

§§ 58‑1‑43 through 58‑1‑50:  Repealed by Session Laws 1993 (Reg.  Sess., 1994), c. 730, s. 3.