Texas Service Contract Law Now Permits Key-Fob Replacement

Locke Lord LLP

As we previewed here earlier this year, the Texas Legislature passed legislation expressly permitting service contracts regulated by the Texas Department of Licensing and Regulation to include the replacement of a motor vehicle key or key-fob.  This new law became effective September 1, 2017.  A copy of the new law can be found here.

Specifically, House Bill 2275 amends the definition of “service contract” in Texas Occupations Code section 1304.003 to include “the replacement of a motor vehicle key or key fob in the event the key or key fob is inoperable, lost, or stolen”.  The new law brings Texas’s service contract program in line with a number of states that expressly permit service contracts to cover key-fob replacement and without such products being considered insurance.  The law also reflects the trend of service contract laws being used to expand the range of permissible products that might otherwise straddle the line between warranties and insurance.  See Brian Casey & Jon Gillum, “Extending the Murky Divide Between Warranty and Insurance,” Law360 (Aug. 21, 2017).  And, the law incrementally expands Texas’s patchwork of laws that divide regulation of risk-transfer contracts among multiple state agencies.  See Jon L. Gillum & Lauren M. Fincher, “Cross-Agency Regulation of Service Contracts in Texas,” Tex. Tech. Admin. Law J., Volume 19, Book 1 (forthcoming Fall 2017).

Finally, the new law also specifies that a service contract provider is not required to deduct the amount of any claims it pays under a service contract from the amount of a statutorily-required refund of the purchase price or portion thereof to the service contract purchaser.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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