Service contractors must be aware that any contracts on residential air conditioning units that fit the guidelines of a "service contract" must be registered with the Division of Insurance or the contractor faces stiff penalties.

Peggy Willard-Ross of the Nevada Division of Insurance said that, so far, the amount of applications submitted to the D.O.I. are far less than the outlets providing contracts.

"Service contractors should know that if their manufacturer isn’t licensed, the manufacturer, and possibly the contractor, could be fined," she said. Other steps may include a "cease & desist" order.

The law applies to all service contracts, including auto, VCR, computer, appliances and contracts to repair or maintain air conditioning or heating. Many a/c contractors use contracts from another source such as Equiguard. In that case, Equiguard would license the contract and the contractor is released.

Equiguard is the only such company to license at this time.

"We’re getting a lot of vehicle and consumer (registrations)," Willard-Ross said. Such well known retail outlets as The Good Guys, Best Buy and Staples have registered, yet Willard-Ross said that these giants still don’t represent the total number of outlets in the market.

Call (775) 687-4270, ext 250 to speak to Peggy Willard-Ross at the Division of Insurance if you have any further questions. Or visit the DOI’s website at:  http://doi.state.nv.us/b&i/id/company/pcfilings.htm

by Joe Wheeler

A. The HVAC contractor is offering the contract on behalf of the equipment manufacturer/dealer (i.e. Trane, American Standard, GE, and Lennox). The contractor is reimbursed for the labor and parts by the company or the company’s insurance policy. The manufacturer/dealer is required to register as the provider and have their contracts approved.

B. The HVAC contractor is offering the service contract on behalf of a third party - service contract dealer (i.e. Equiguard, GE Warranty, and GE Service). The dealer reimburses or pays the contractor per service call. The dealer is the provider and must register.

C. The HVAC contractor is offering the service contract on behalf of himself as the provider for all service and repairs. The contractor is required to register as the provider and submit the contracts.

NOTE: If you answered "C," to the question above, please review the questions below:

1. Commercial clients.

2. Consumer / residential clients.

This statute/regulation address only consumer/residential customers. If you serve commercial customers only, you do not have to register. Please review the following question:

The HVAC contractor serves residential customers.

Question 3: What actions of the HVAC contractor require registration?

A. Maintenance agreements are not regulated - regular schedule of service without additional repairs.

B. Manufacturer warranty -

> WITHOUT separate consideration - is not regulated.

> WITH separate consideration - manufacturer/provider must be registered.

C. New construction -

>IF the service contract is included in the price of the home and NOT sold separately to the homeowners by the contractor/provider, registration is not required.

>IF sold separately, for separate consideration, the provider has to register.

D. Replacement of existing unit - Cost of service agreement is separate from the unit sales price - Provider of the contract must register.

E. Sale of separate service contract without installation of unit - Provider of the contract must register.

If you disagree with the above outline, please submit a letter outlining your argument, using legal opinions, etc., and asking for a legal opinion, to the Division of Insurance. The intent of this regulation/statute is to protect the consumer.

Call (775) 687-4270, ext 250 to speak to Peggy Willard-Ross at the Division of Insurance if you have any further questions. Or visit the DOI’s website at: http://doi.state.nv.us/b&i/id/company/pcfilings.htm

Peggy Willard-Ross, the Nevada Division of Insurance’s contact for service contract registration, reported that only 35 applications have so far been received from companies selling such contracts to Nevada consumers.

"Most of them are from the auto side," Willard-Ross said. "The only air conditioning applicant we have so far is Equiguard."

Equiguard is a national company that represents extended warranties.

Contractors shouldn’t make promises unless they intend to keep them. And some contractors are being asked to register their "promises" with the Division of Insurance.

Nevada Division of Insurance Chief Insurance Assistant James Jeppson explained AB673 to HVAC contractors on April 18^th in Las Vegas at a meeting of the Southern Nevada Air Conditioning, Refrigeration Service Contractors Association (SNARSCA).

Jeppson urged contractors selling "service contracts" to comply with the law and register with the Division. The Division is responsible for regulating and licensing various entities including insurance companies, insurance agents, bail bondsmen and, now, service contract providers. Service contracts must be registered as of May 1, 2000.

"Nevada law previously prohibited third-parties from coming in and selling extended warranties," Jeppson said. "The new law allows third-parties to come in and sell such contracts once they’ve registered."

Contractors from across Nevada attended the meeting. Since the question of whether a contract is defined as a "maintenance agreement" or "service contract" determines if registration is necessary, Jeppson tried to address as many questions as he could on specific types of contracts.

"The key is ‘separate consideration,’" Jeppson said. "If you sell to a contract to a consumer that promises to repair or replace parts without any further payment or with a deductible, and you receive separate consideration for that contract, then you probably have to register," Jeppson said. "If they’re paying a separate fee for protection, it’s a service contract."

If a company installs a new unit and it comes with a warranty, it is exempt. Likewise, if the manufacturer offers an extension on the warranty and the contractor sells it,. In that case, the manufacturer would register and no registration on the part of the contractor is expected. A contractor who sells his own contract, on the other hand, is selling his own ‘product’ directly to consumers and would have to register.

Peggy Willard-Ross is the Insurance Division’s administrator for service contract registration. She spoke about the application requirements and those kinds of contracts which are exempt.

"If you cover only maintenance, with no coverage for repairs, your company doesn’t need to register," she said. The same is true for companies selling contracts to commercial accounts. They are not required to register, as the law pertains only to contracts sold to "consumers."

The new law was offered by the Nevada Retail Association in response to a situation in New York where a store offering contracts on appliances, televisions and VCRs went bankrupt, leaving thousands of consumers with no way to have their contracts honored. The retailers wanted to prevent an event like that from happening in Nevada.

In recent years, several companies offering extended warranties on A/C units went under, leaving contractors to pick up the pieces.

"We’re glad you stepped up to the plate to provide some responsibility in this area," Neil Dille of Superior Air in Las Vegas, said. Dille noted that contractors were left to honor the contracts of others. The new law would require companies offering service contracts to provide financial surety.

Getting the many companies offering service contracts to register will be no easy task. Compliance will happen over time, according to Jeppson. "This is a new program. We have the authority to fine, but I don’t believe that will be our first cause of action."

All contracts sold prior to May 1 should be honored, Jeppson said. All contracts sold after that date should be approved contracts registered with the Division of Insurance in accordance with the law.

The filing fee is $1000 for the first year, $500 for renewal and $25 per type of contract being sold. .Applications can be obtained by calling the Division of Insurance in Carson City, Nevada at (775) 687-4270.

Contractors who offer a consumer a "service contract" to repair or replace the air conditioning unit will awaken May 1 with a surprise.

They’re breaking the law.

Last year, the Nevada Legislature passed AB673, a law aimed at "Crazy Eddie" that will smack air conditioning contractors in the pocketbook. The law demands that all companies offering "service contracts" register with the Nevada Division of Insurance.

The Southern Nevada Air Conditioning, Refrigeration Service Contractors Association (SNARSCA), has been following the law and its development with keen interest. The association represents air conditioning contractors in Las Vegas, and many members offer service contracts to customers.

A retail store in New York called "Crazy Eddie’s" went out of business recently, leaving thousands of consumers with worthless service contracts on stereos, VCRs, and televisions. Nevada lawmakers, concerned that a similar situation might occur, passed a law to protect consumers from service contract providers going bankrupt.

Air conditioning contractors became involved when the definition of a "service contract" included any such contract to "repair, replace or perform maintenance on...goods that are described in the service contract." Many air conditioning companies offer contracts to perform exactly those duties on consumer’s air conditioning units, therefore they are acting as a "provider" under the law and must register as such.

The registration requirements to be met by May 1 include an application, security requirements, a fee of $1000, and copies of each type of service contract the company wishes to sell.

Failure to register prior to May 1 is punishable by a fine of $500 for each act or violation, not to exceed an aggregate of $10,000 for violations of a similar nature.

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