Service Contract Providers Penalties and Sanctions

Service Contract Providers (SCP)

Texas Occupations Code, Chapter 1304

16 Texas Administration Code, Chapter 77

Class A:

1^st Violation, Reprimand to $1,000

2^nd Violation, $500 to $2,000

3^rd Violation, $1,000 to $4,000 per day not corrected and/or 6 month probated suspension to 1 year full suspension

• Sold, offered, or issued a contract and did not give receipt or copy within 45 days from the date of purchase - 1304.154, 77.70(e)
• Sold, offered, or issued a contract under a reimbursement insurance policy and failed to make required statements in the contract, specifically:; 1304.156(d)
• Failed to state the name of the insurer; - 1304.156(d)(1)
• Failed to state that the contract holder may apply directly to the insurer if a covered claim is not addressed by the provider within 60 days after proof of loss or if a refund or credit is not paid before the 46th day after the date on which the contract is returned to the provider; - 1304.156(d)(2)
• Failed to state that obligations of the provider are insured under a reimbursement insurance policy - 1304.156(d)(3)
• Sold, offered, or issued a contract not under a reimbursement insurance policy and failed to make required statement in the contract that the obligations of the provider are back by the full faith and credit of the provider - 1304.156(e)
• Used a name that included the words “insurance”, “casualty” or “surety” or was deceptively similar to the name or description of an insurance or surety corporation or to the name of another provider - 1304.160
• Provider with pre-1999 name failed to include statement in each service contract that “this agreement is not an insurance contract” - 1304.160(c)
• Failed to include on contracts Department contact information and required statement concerning unresolved complaints - 77.70(a)
• Failed to report change in registrant information to the Department within 30 days of the change - 77.70(b), 77.70(c)
• Failed to include the “Service Contract Provider Texas Endorsement” on a reimbursement insurance policy - 77.72(b)

Class B:

1^st Violation, $500 to $3,000 and/or up to 6 month probated suspension

2^nd Violation, $1,500 to $5,000 plus 1 year probated suspension to 1 year full suspension

3^rd Violation, $3,000 to $5,000 per day not corrected plus 1 year full suspension up to revocation

• Failed to make required records available at the request of the executive director - 1304.007
• Failed to provide to the Department, within 30 days after the initial registration, the service provider’s internet website address(es) - 1304.1025(c)
• Failed to provide to the Department, within 30 days after the initial registration, the name, assumed name, street address and telephone number of any administrator appointed by the provider - 1304.1025(c)
• Failed to provide to the Department, within 30 days after the initial registration, the name, assumed name, street address and telephone number of any seller of the provider’s service contracts, other than employees and physical locations of the provider - 1304.1025(c)
• Insurer failed to annually file required documents with the executive director - 1304.152(a-1)
• Failed to maintain accurate books, accounts, and other records regarding service contract transactions, specifically: 1304.155
• A copy of each unique form of service contract sold - 1304.155(a)(1)
• Name and address of each service contract holder - 1304.155(a)(2)
• List of each location at which contracts are marketed, sold, or offered for sale - 1304.155(a)(3)
• Written claims files containing the date and a description of each claim filed - 1304.155(a)(4)
• Failed to retain records required by statute until the first anniversary of the expiration date - 1304.155(c)
• Sold, offered, or issued a contract that failed to allow the holder to return the contract within the statutory time limit - 1304.157
• Failed to mail cancellation notice stating the effective date and reason for cancellation before the fifth day preceding the date of cancellation - 1304.159(a)

Class C:

1^st Violation, $1,000 to $5,000 and/or 1 year probated suspension up to revocation

2^nd Violation, $2000 to $5,000 plus 1 year probated suspension to revocation

3^rd Violation, $3,500 to $5,000 per day not corrected plus 1 year full suspension up to revocation

• Operated as a provider, or offered to act as a provider, without a registration - 1304.101(a), 77.21(a)
• Failed to insure under a reimbursement insurance policy or to maintain a funded reserve - 1304.151
• Used a reimbursement insurance policy that failed to meet the statutory requirements - 1304.152(a)
• Insurer failed to maintain required surplus - 1304.152(a-1)
• Insurer canceled the reimbursement insurance policy before delivering to the provider and the executive director a written notice of cancellation that complies with the notice requirements - 1304.152(b)
• After previous insurance policy was canceled, issued a new service contract before filing with the executive director a new policy or meeting other financial security requirements - 1304.152(b-1)
• Failed to refund or credit to the account of the holder the full purchase price within the statutory time limit - 1304.158(c)
• Marketed, sold, offered, issued, made, proposed, or administered a contract that failed to meet the statutory requirements, specifically: 1304.156(a)
• Failed to be written in clear, understandable language that is easy to read - 1304.156(a)(1)
• Failed to state the name and address of the provider - 1304.156(a)(2)
• Failed to state the purchase price of the contract and the terms under which it is sold - 1304.156(a)(3)
• Failed to state the terms and restrictions governing cancellation of the contract - 1304.156(a)(4)
• Failed to identify the administrator, if any, the contract seller, or the contract holder - 1304.156(a)(5)
• Failed to state the amount of any deductible - 1304.156(a)(6)
• Failed to specify the products and services to be provided, and any limitations, exceptions, or exclusions - 1304.156(a)(7)
• Failed to specify any restriction governing the transferability of the contract - 1304.156(a)(8)
• Failed to state the duties of the service contract holder - 1304.156(a)(9)
• Failed to state whether the contract provides for or excludes consequential damages or preexisting conditions - 1304.156(a)(10)
• In the contracts or literature made a false or misleading statement or deliberately omitted a material statement and the omission is misleading - 1304.161
• Operated as an administrator, or offered to act as an administrator, without a registration - 77.22(a)
• Refused to allow Department to audit records - 77.70(d)

Class D:

1^st Violation, Revocation

2^nd Violation, Revocation

3^rd Violation, Revocation

• Obtained a registration by fraud or false representation - 1304.102(d), 60.63(b), 77.21(e), 77.22(e)
• Failed to comply with previous order of Commission/Executive Director - 1304.102(c), 51.353(a), 77.90
• Failed to pay the Department for a dishonored check - 60.82