59.1-437 - Bond or letter of credit required.
§ 59.1-437. Bond or letter of credit required.
A. Every extended service contract obligor, before it is registered, shallfile and maintain with the Commissioner, in form and substance satisfactoryto him, a bond with corporate surety, from a company authorized to transactbusiness in the Commonwealth or a letter of credit from a bank insured by theFederal Deposit Insurance Corporation, in the amount of $10,000. Additionalbond or letter of credit amounts shall be similarly filed with theCommissioner and shall be adjusted from time to time, in accordance with thefollowing schedule:
Total Amount of Unexpired Amount of Bond or
Extended Service Contracts Letter of Credit
$0 to $50,000 $10,000
$50,001 to $300,000 $40,000
$300,001 to $750,000 $65,000
$750,001 or more $90,000
The total amount of unexpired extended service contracts shall be the totalconsideration paid by all purchasers to the extended service obligor for allextended service contracts currently in effect.
B. The bond or letter of credit required by subsection A of this sectionshall be in favor of the Commonwealth for the benefit of purchasers ofextended service contracts for consumer products in the event that theextended service contract obligor does not fulfill its obligations under suchcontracts for any reason, including insolvency or bankruptcy.
C. The aggregate liability of the bond or letter of credit to all persons forall breaches of the conditions of the bond or letter of credit shall in noevent exceed the amount of the bond or letter of credit. The bond or letterof credit shall not be cancelled or terminated except with the consent of theCommissioner.
D. In order to ensure the faithful performance of a third party obligor'sobligations to its contract holders, each third party obligor shall furnishproof of its financial stability by complying with either of the following:
1. The third party obligor shall show that it has a net worth of at least$100 million by providing the Commissioner with a copy of the third partyobligor's most recent annual audited financial statement; or
2. The third party obligor shall show a net worth of the third party obligoror its parent company of at least $100 million by providing the Commissionerwith a copy of the third party obligor's, or if the third party obligor'sfinancial statements are consolidated with those of its parent company, thethird party obligor's parent company's, most recent Form 10-K or Form 20-Ffiled with the Securities and Exchange Commission, provided the Form 10-K orForm 20-F was filed with the Securities and Exchange Commission within thelast calendar year. If the third party obligor's parent company's Form 10-Kor Form 20-F is filed to meet the third party obligor's financial stabilityrequirement, then the parent company shall agree to guarantee the obligationsof the third party obligor relating to service contracts sold by the thirdparty obligor in this Commonwealth.
E. In lieu of compliance with subsection D, a third party obligor maydemonstrate financial responsibility by filing with the Commissioner a copyof a liability insurance policy issued by an insurer authorized to transactbusiness in this Commonwealth and which covers 100 percent of the obligor'sservice contract liabilities, including the administration of claims and thecost for such administration. Reimbursement insurance policies filed pursuantto this section may not be cancelled by either the third party obligor or theissuing insurer without providing 60 days' notice to the Commissioner.
(1991, c. 654; 1996, c. 966; 2003, c. 411.)