SENATORS Spada, Nein, Prentiss, Roberts, Schuler

To amend sections 3901.043, 3901.51, 3905.24, and

1

3915.073, to enact section 3905.422, and to repeal

2

sections 3957.01, 3957.02, 3957.03, 3957.04,

3

3957.05, 3957.06, 3957.07, 3957.08, 3957.09,

4

3957.10, 3957.11, 3957.12, 3957.13, 3957.14,

5

3957.15, 3957.16, 3957.17, 3957.18, 3957.19, and

6

3957.99 of the Revised Code to regulate the sale

7

of home service contracts as consumer transactions

8

rather than as the sale of insurance.

9

BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF OHIO:

Section 1. That sections 3901.043, 3901.51, 3905.24, and	10
3915.073 be amended and section 3905.422 of the Revised Code be	11
enacted to read as follows:	12

Sec. 3901.043.  The superintendent of insurance may adopt	13
rules in accordance with Chapter 119. of the Revised Code to	14
establish reasonable fees for any service or transaction performed	15
by the department of insurance pursuant to section 1751.03,	16
3901.321, 3901.341, 3907.09, 3907.10, 3907.11, 3907.12, 3911.011,	17
3913.40, 3915.14, 3917.06, 3918.07, 3923.02, 3935.04, 3937.03, or	18
3953.28, 3957.12, or 3957.13 of the Revised Code or any provision	19
in sections 3913.01 to 3913.23 or in Chapter 3905. of the Revised	20
Code, if no fee is otherwise provided under Title XVII or XXXIX of	21
the Revised Code for such service or transaction. Any fee	22
collected pursuant to those rules shall be paid into the state	23
treasury to the credit of the department of insurance operating	24
fund.	25

Sec. 3901.51.  As used in sections 3901.51 to 3901.55 of the	26
Revised Code:	27

(A) "Clearing corporation" has the same meaning as in section	28
1308.01 of the Revised Code, except that with respect to	29
securities issued by institutions organized or existing under the	30
laws of any foreign country or securities used to meet the deposit	31
requirements pursuant to the laws of a foreign country as a	32
condition of doing business in that country, "clearing	33
corporation" includes a corporation that is organized or existing	34
under the laws of any foreign country and is legally qualified	35
under those laws to effect transactions in securities by	36
computerized book-entry.	37

(B) "Direct participant" means a bank, trust company, or	38
other entity that maintains an account in its name in a clearing	39
corporation and through which an insurance company participates in	40
a clearing corporation.	41

(C) "Federal reserve book-entry system" means the	42
computerized systems sponsored by the United States department of	43
the treasury and agencies and instrumentalities of the United	44
States for holding and transferring securities of the United	45
States government and agencies and instrumentalities in federal	46
reserve banks through banks that are members of the federal	47
reserve system or that otherwise have access to these computerized	48
systems.	49

(D) "Member bank" means a national or state bank or a trust	50
company that is a member of the federal reserve system and through	51
which an insurance company participates in the federal reserve	52
book-entry system.	53

(E) "Provisions of the insurance laws of this state" means	54
provisions of Title XXXIX of the Revised Code related to the	55
deposit of securities for the benefit and security of	56
policyholders, and includes, but is not limited to, sections	57
3901.18, 3901.74, 3901.75, 3901.86, 3903.73, 3907.07, 3909.03,	58
3909.09, 3909.17, 3913.01, 3913.04, 3919.13, 3919.36, 3919.37,	59
3919.41, 3925.07, 3927.02, 3927.06, 3929.01, 3929.07, 3929.08,	60
3929.09, 3929.10, 3929.11, 3941.30, 3941.31, 3941.32, 3941.33,	61
3941.34, 3941.42, 3953.06, and 3953.11, and 3957.03 of the Revised	62
Code.	63

(F) "Securities" has the same meaning as in section 1308.01	64
of the Revised Code.	65

Sec. 3905.24.  (A)(1) All records and other information	66
obtained by the superintendent of insurance or the	67
superintendent's deputies, examiners, assistants, or other	68
employees, or agents relating to an investigation of an applicant	69
for licensure under this chapter, or of an agent, solicitor,	70
broker, or other person licensed or appointed under this chapter	71
or Chapter 3951., 3957., or 3959. of the Revised Code, are	72
confidential and are not public records as defined in section	73
149.43 of the Revised Code until the applicant, licensee, or	74
appointee is provided notice and opportunity for hearing pursuant	75
to Chapter 119. of the Revised Code with respect to such records	76
or information. If no administrative action is initiated with	77
respect to a particular matter about which the superintendent	78
obtained records or other information as part of an investigation,	79
all such records and information relating to that matter shall	80
remain confidential for three years after the file on the matter	81
is closed.	82

(2) Division (A)(1) of this section applies only to	83
investigations that could result in administrative action under	84
Title XVII or XXXIX or Chapter 119. of the Revised Code.	85

(B) The records and other information described in division	86
(A) of this section shall remain confidential for all purposes	87
except when it is appropriate for the superintendent and the	88
superintendent's deputies, examiners, assistants, or other	89
employees, or agents to take official action regarding the affairs	90
of the applicant, licensee, or appointee or in connection with	91
actual or potential criminal proceedings.	92

(C) Notwithstanding divisions (A) and (B) of this section,	93
the superintendent may do either of the following:	94

(1) Share records and other information that are the subject	95
of this section with the chief deputy rehabilitator, the chief	96
deputy liquidator, other deputy rehabilitators and liquidators,	97
and any other person employed by, or acting on behalf of, the	98
superintendent pursuant to Chapter 3901. or 3903. of the Revised	99
Code, with other local, state, federal, and international	100
regulatory and law enforcement agencies, with local, state, and	101
federal prosecutors, and with the national association of	102
insurance commissioners and its affiliates and subsidiaries,	103
provided that the recipient agrees to maintain the confidential	104
status of the confidential record or other information and has	105
authority to do so;	106

(2) Disclose records and other information that are the	107
subject of this section in the furtherance of any regulatory or	108
legal action brought by or on behalf of the superintendent or the	109
state, resulting from the exercise of the superintendent's	110
official duties.	111

(D) Notwithstanding divisions (A), (B), and (C) of this	112
section, the superintendent may authorize the national association	113
of insurance commissioners and its affiliates and subsidiaries by	114
agreement to share confidential records and other information	115
received pursuant to division (C)(1) of this section with local,	116
state, federal, and international regulatory and law enforcement	117
agencies and with local, state, and federal prosecutors, provided	118
that the recipient agrees to maintain the confidential status of	119
the confidential record or other information and has authority to	120
do so.	121

(E) Notwithstanding divisions (A), (B), and (C) of this	122
section, the chief deputy rehabilitator, the chief deputy	123
liquidator, and other deputy rehabilitators and liquidators may	124
disclose records and other information that are the subject of	125
this section in the furtherance of any regulatory or legal action	126
brought by or on behalf of the superintendent, the rehabilitator,	127
the liquidator, or the state resulting from the exercise of the	128
superintendent's official duties in any capacity.	129

(F) Nothing in this section shall prohibit the superintendent	130
from receiving records and other information in accordance with	131
section 3901.045 of the Revised Code.	132

(G)(1) No waiver of any applicable privilege or claim of	133
confidentiality in the records and other information that are the	134
subject of this section shall occur as a result of sharing or	135
receiving records or other information as authorized in divisions	136
(C)(1), (D), and (F) of this section.	137

(2) The disclosure of records or other information in	138
connection with a regulatory or legal action pursuant to divisions	139
(C)(2) and (E) of this section does not prohibit an insurer or any	140
other person from taking steps to limit the dissemination of the	141
record or other information to persons not involved in or the	142
subject of the regulatory or legal action on the basis of any	143
recognized privilege arising under any other section of the	144
Revised Code or the common law.	145

(H) Employees or agents of the department of insurance shall	146
not be required by any court in this state to testify in a civil	147
action, if the testimony concerns any matter related to records or	148
other information considered confidential under this section of	149
which they have knowledge.	150

Sec. 3905.422. (A) As used in this section:

151

(1) "Home service contract" means a contract, however	152
described or denominated by the issuer of the contract, whereby,	153
for a predetermined fee, a person undertakes to repair or replace	154
all or any part of any structural component, appliance, or system	155
of a home necessitated by wear and tear, deterioration, or	156
inherent defect that occurs on or after the effective date of the	157
home service contract.	158

(2) "Appliance" includes a stove, refrigerator, dishwasher,	159
and any similar piece of equipment.	160

(3) "Structural component" includes the roof, foundation,	161
basement, walls, ceiling, and similar components of a home.	162

(4) "System" includes the heating, cooling, plumbing,	163
electrical system, and similar systems of a home.	164

(B) A home service contract is not insurance and its sale or	165
issuance is not governed by the laws of this state relating to	166
insurance, except a home service contract issued by a licensed	167
property and casualty insurance company as an insurance policy	168
shall be governed by the laws of this state relating to insurance.	169

(C) The sale or other issuance of a home service contract	170
constitutes a consumer transaction for purposes of Chapter 1345.	171
of the Revised Code. A person who purchases or is entitled to the	172
benefits of a home service contract is a consumer as defined in	173
division (D) of section 1345.01 of the Revised Code.	174

Sec. 3915.073.  (A) This section shall be known as the	175
standard nonforfeiture law for individual deferred annuities.	176

(B) This section does not apply to any reinsurance, group	177
annuity purchased under a retirement plan or plan of deferred	178
compensation established or maintained by an employer, including a	179
partnership or sole proprietorship, or by an employee	180
organization, or by both, other than a plan providing individual	181
retirement accounts or individual retirement annuities under	182
section 408 of the Internal Revenue Code of 1954, 26 U.S.C.A. 408,	183
as amended, premium deposit fund, variable annuity, investment	184
annuity, immediate annuity, any deferred annuity contract after	185
annuity payments have commenced, or reversionary annuity, nor to	186
any contract which is delivered outside this state through an	187
agent or other representative of the company issuing the contract.	188

(C) In the case of contracts issued on or after the operative	189
date of this section as defined in division (L) of this section,	190
no contract of annuity, except as stated in division (B) of this	191
section shall be delivered or issued for delivery in this state	192
unless it contains in substance the following provisions, or	193
corresponding provisions that in the opinion of the superintendent	194
are at least as favorable to the contractholder, upon cessation of	195
payment of consideration under the contract:	196

(1) That upon cessation of payment of considerations under a	197
contract, the company will grant a paid-up annuity benefit on a	198
plan stipulated in the contract of such value as is specified in	199
divisions (E), (F), (G), (H), and (J) of this section;	200

(2) If a contract provides for a lump sum settlement at	201
maturity, or at any other time, that upon surrender of the	202
contract at or prior to the commencement of any annuity payments,	203
the company will pay in lieu of any paid-up annuity benefit a cash	204
surrender benefit of such amount as is specified in divisions (E),	205
(F), (H), and (J) of this section. The company shall reserve the	206
right to defer the payment of such cash surrender benefit for a	207
period of six months after demand therefor with surrender of the	208
contract.	209

(3) A statement of the mortality table, if any, and interest	210
rates used in calculating any minimum paid-up annuity, cash	211
surrender, or death benefits that are guaranteed under the	212
contract, together with sufficient information to determine the	213
amounts of such benefits;	214

(4) A statement that any paid-up annuity, cash surrender, or	215
death benefits that may be available under the contract are not	216
less than the minimum benefits required by any statute of the	217
state in which the contract is delivered and an explanation of the	218
manner in which such benefits are altered by the existence of any	219
additional amounts credited by the company to the contract, any	220
indebtedness to the company on the contract, or any prior	221
withdrawals from or partial surrenders of the contract.	222

Notwithstanding the requirements of this section, any	223
deferred annuity contract may provide that if no considerations	224
have been received under a contract for a period of two full years	225
and the portion of the paid-up annuity benefit at maturity on the	226
plan stipulated in the contract arising from considerations paid	227
prior to such period would be less than twenty dollars monthly,	228
the company may at its option terminate such contract by payment	229
in cash of the then present value of such portion of the paid-up	230
annuity benefit, calculated on the basis of the mortality table,	231
if any, and interest rate specified in the contract for	232
determining the paid-up annuity benefit, and by such payment shall	233
be relieved of any further obligation under such contract.	234

(D) The minimum values as specified in divisions (E), (F),	235
(G), (H), and (J) of this section of any paid-up annuity, cash	236
surrender, or death benefits available under an annuity contract	237
shall be based upon minimum nonforfeiture amounts as defined in	238
this section.	239

(1) With respect to contracts providing for flexible	240
considerations, the minimum nonforfeiture amount at any time at or	241
prior to the commencement of any annuity payments shall be equal	242
to an accumulation up to such time at a rate of interest of three	243
per cent per annum of percentages of the net considerations, as	244
defined in this section, paid prior to such time, decreased by the	245
sum of:	246

(a) Any prior withdrawals from or partial surrenders of the	247
contract accumulated at a rate of interest of three per cent per	248
annum; and	249

(b) The amount of any indebtedness to the company on the	250
contract, including interest due and accrued; and increased by any	251
existing additional amounts credited by the company to the	252
contract.	253

The net considerations for a given contract year used to	254
define the minimum nonforfeiture amount shall be an amount not	255
less than zero and shall be equal to the corresponding gross	256
considerations credited to the contract during that contract year	257
less an annual contract charge of thirty dollars and less a	258
collection charge of one dollar and twenty-five cents per	259
consideration credited to the contract during that contract year.	260
The percentages of net considerations shall be sixty-five per cent	261
of the net consideration for the first contract year and	262
eighty-seven and one-half per cent of the net considerations for	263
the second and later contract years. Notwithstanding the	264
provisions of the preceding sentence, the percentage shall be	265
sixty-five per cent of the portion of the total net consideration	266
for any renewal contract year that exceeds by not more than two	267
times the sum of those portions of the net considerations in all	268
prior contract years for which the percentage was sixty-five per	269
cent.	270

Notwithstanding any other provision of this section, for any	271
contract issued on or after the effective date of this amendment	272
August 6, 2002, and before September 1, 20042006, the interest	273
rate at which net considerations, partial withdrawals, and partial	274
surrenders shall be accumulated for purposes of determining	275
minimum nonforfeiture amounts shall be one and one-half per cent	276
per annum.	277

(2) With respect to contracts providing for fixed scheduled	278
considerations, minimum nonforfeiture amounts shall be calculated	279
on the assumption that considerations are paid annually in advance	280
and shall be defined as for contracts with flexible considerations	281
which are paid annually with two exceptions:	282

(a) The portion of the net consideration for the first	283
contract year to be accumulated shall be the sum of sixty-five per	284
cent of the net consideration for the first contract year plus	285
twenty-two and one-half per cent of the excess of the net	286
consideration for the first contract year over the lesser of the	287
net considerations for the second and third contract years;	288

(b) The annual contract charge shall be the lesser of (i)	289
thirty dollars or (ii) ten per cent of the gross annual	290
consideration.	291

(3) With respect to contracts providing for a single	292
consideration, minimum nonforfeiture amounts shall be defined as	293
for contracts with flexible considerations except that the	294
percentage of net consideration used to determine the minimum	295
nonforfeiture amount shall be equal to ninety per cent and the net	296
consideration shall be the gross consideration less a contract	297
charge of seventy-five dollars.	298

(E) Any paid-up annuity benefit available under a contract	299
shall be such that its present value on the date annuity payments	300
are to commence is at least equal to the minimum nonforfeiture	301
amount on that date. Such present value shall be computed using	302
the mortality table, if any, and the interest rate specified in	303
the contract for determining the minimum paid-up annuity benefits	304
guaranteed in the contract.	305

(F) For contracts which provide cash surrender benefits, such	306
cash surrender benefits available prior to maturity shall not be	307
less than the present value as of the date of surrender of that	308
portion of the maturity value of the paid-up annuity benefit that	309
would be provided under the contract at maturity arising from	310
considerations paid prior to the time of cash surrender reduced by	311
the amount appropriate to reflect any prior withdrawals from or	312
partial surrenders of the contract, such present value being	313
calculated on the basis of an interest rate not more than one per	314
cent higher than the interest rate specified in the contract for	315
accumulating the net considerations to determine such maturity	316
value, decreased by the amount of any indebtedness to the company	317
on the contract, including interest due and accrued, and increased	318
by any existing additional amounts credited by the company to the	319
contract. In no event shall any cash surrender benefit be less	320
than the minimum nonforfeiture amount at that time. The death	321
benefit under such contracts shall be at least equal to the cash	322
surrender benefit.	323

(G) For contracts that do not provide cash surrender	324
benefits, the present value of any paid-up annuity benefit	325
available as a nonforfeiture option at any time prior to maturity	326
shall not be less than the present value of that portion of the	327
maturity value of the paid-up annuity benefit provided under the	328
contract arising from considerations paid prior to the time the	329
contract is surrendered in exchange for, or changed to, a deferred	330
paid-up annuity, such present value being calculated for the	331
period prior to the maturity date on the basis of the interest	332
rate specified in the contract for accumulating the net	333
considerations to determine such maturity value, and increased by	334
any existing additional amounts credited by the company to the	335
contract. For contracts that do not provide any death benefits	336
prior to the commencement of any annuity payments, such present	337
values shall be calculated on the basis of such interest rate and	338
the mortality table specified in the contract for determining the	339
maturity value of the paid-up annuity benefit. However, in no	340
event shall the present value of a paid-up annuity benefit be less	341
than the minimum nonforfeiture amount at that time.	342

(H) For the purpose of determining the benefits calculated	343
under divisions (F) and (G) of this section, in the case of	344
annuity contracts under which an election may be made to have	345
annuity payments commence at optional maturity dates, the maturity	346
date shall be deemed to be the latest date for which election	347
shall be permitted by the contract, but shall not be deemed to be	348
later than the anniversary of the contract next following the	349
annuitant's seventieth birthday or the tenth anniversary of the	350
contract, whichever is later.	351

(I) Any contract that does not provide cash surrender	352
benefits or does not provide death benefits at least equal to the	353
minimum nonforfeiture amount prior to the commencement of any	354
annuity payments shall include a statement in a prominent place in	355
the contract that such benefits are not provided.	356

(J) Any paid-up annuity, cash surrender, or death benefits	357
available at any time, other than on the contract anniversary	358
under any contract with fixed scheduled considerations, shall be	359
calculated with allowance for the lapse of time and the payment of	360
any scheduled considerations beyond the beginning of the contract	361
year in which cessation of payment of considerations under the	362
contract occurs.	363

(K) For any contract that provides, within the same contract	364
by rider or supplemental contract provision, both annuity benefits	365
and life insurance benefits that are in excess of the greater of	366
cash surrender benefits or a return of the gross considerations	367
with interest, the minimum nonforfeiture benefit shall be equal to	368
the sum of the minimum nonforfeiture benefits for the annuity	369
portion and the minimum nonforfeiture benefits, if any, for the	370
life insurance portion computed as if each portion were a separate	371
contract. Notwithstanding the provisions of divisions (E), (F),	372
(G), (H), and (J) of this section, additional benefits payable:	373

(1) In the event of total and permanent disability;

374

(2) As reversionary annuity or deferred reversionary annuity	375
benefits; or	376

(3) As other policy benefits additional to life insurance,	377
endowment and annuity benefits, and considerations for all such	378
additional benefits shall be disregarded in ascertaining the	379
minimum nonforfeiture amounts, paid-up annuity, cash surrender,	380
and death benefits that may be required by this section.	381

The inclusion of such additional benefits shall not be	382
required in any paid-up benefits, unless such additional benefits	383
separately would require minimum nonforfeiture amounts, paid-up	384
annuity, cash surrender, and death benefits.	385

(L) Any company may file with the superintendent a written	386
notice of its election to comply with the provisions of this	387
section on or before July 1, 1980. The date specified in the	388
notice shall be the operative date of this section for such	389
company. If a company makes no such election, the operative date	390
of this section for the company shall be July 1, 1980.	391

Section 2. That existing sections 3901.043, 3901.51, 3905.24,	392
and 3915.073 and sections        Sec. 3957.01. ,        Sec. 3957.02. ,        Sec. 3957.03. ,        Sec. 3957.04. ,	393
Sec. 3957.05. ,        Sec. 3957.06. ,        Sec. 3957.07. ,        Sec. 3957.08. ,        Sec. 3957.09. ,        Sec. 3957.10. ,        Sec. 3957.11. ,	394
Sec. 3957.12. ,        Sec. 3957.13. ,        Sec. 3957.14. ,        Sec. 3957.15. ,        Sec. 3957.16. ,        Sec. 3957.17. ,        Sec. 3957.18. ,	395
Sec. 3957.19. , and        Sec. 3957.99.  of the Revised Code are hereby repealed.	396

Section 3. No home warranty company established and operating	397
in this state on the effective date of this act pursuant to a	398
certificate of authority issued by the Superintendent of Insurance	399
under Chapter 3957. of the Revised Code shall sell, offer to sell,	400
or solicit offers for, home service contracts on or after the	401
effective date of this act as contracts regulated by Chapter 3957.	402
of the Revised Code.	403

All home service contracts issued pursuant to Chapter 3957.	404
of the Revised Code and outstanding on the effective date of this	405
act shall be consummated. The interpretation and fulfillment of	406
the terms and conditions of these outstanding contracts, and of	407
any home service contract sold or issued by a home warranty	408
company on or after the effective date of this act, is subject to	409
Chapter 1345. of the Revised Code on and after the act's effective	410
date, rather than to Ohio's Insurance Law.	411

A home warranty company with outstanding home service	412
contracts in this state on the effective date of this act shall	413
maintain a single reserve sufficient to provide for its liability	414
to furnish repair and replacement services under those contracts.	415
The amount of this reserve shall be calculated according to sound	416
actuarial principles.	417

The repeal of Chapter 3957. of the Revised Code pursuant to	418
this act does not: (1) invalidate any home service contract issued	419
by a home warranty company prior to the effective date of this	420
act; (2) discharge any liability based on the acts or conduct of a	421
home warranty company or its agents or employees prior to the	422
effective date of this act; (3) discharge or otherwise affect any	423
other liability incurred by a home warranty company prior to the	424
effective date of this act; or (4) affect a home warranty	425
company's conduct of business in accordance with other provisions	426
of state and federal law.	427

The repeal of Chapter 3957. of the Revised Code pursuant to	428
this act does not affect the authority of licensed property and	429
casualty insurers to issue home service contracts in accordance	430
with the Ohio Insurance Law.	431

Section 4.  Section 3901.043 of the Revised Code is presented	432
in this act as a composite of the section as amended by both Sub.	433
H.B. 370 and Am. Sub. S.B. 67 of the 122nd General Assembly. The	434
General Assembly, applying the principle stated in division (B) of	435
section 1.52 of the Revised Code that amendments are to be	436
harmonized if reasonably capable of simultaneous operation, finds	437
that the composite is the resulting version of the section in	438
effect prior to the effective date of the section as presented in	439
this act.	440

Section 5.  Section 3905.492 (3905.24) of the Revised Code is	441
presented in this act as a composite of the section as amended and	442
renumbered by Sub. S.B. 129 and amended by Am. Sub. S.B. 138, both	443
of the 124th General Assembly. The General Assembly, applying the	444
principle stated in division (B) of section 1.52 of the Revised	445
Code that amendments are to be harmonized if reasonably capable of	446
simultaneous operation, finds that the composite is the resulting	447
version of the section in effect prior to the effective date of	448
the section as presented in this act.	449