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Army Veteran Owned | Expert Surety Bonds Since 2004
Have a question? +1 815-826-6324 (815-8-BondAI) phil@AmericasSuretyBonds.com
Army Veteran Owned | Expert Surety Bonds Since 2004
An Arizona service contract company has two ways to show financial security for its service company permit: a mechanical reimbursement insurance policy, or a surety bond of at least $100,000 filed with the Director of the Department of Insurance and Financial Institutions. Cash is not an option. For many providers, the bond is the faster and less expensive route to the permit.
Arizona requires a service company that elects the bond route under ARS 20-1095.03 to file a surety bond with or for the benefit of the Director before a permit is issued. Under ARS 20-1095.04 the bond must at all times have a value of at least $100,000, must come from a surety licensed in Arizona, and is written on Form E-857, Bond of Service Company, with the State of Arizona as obligee for the benefit of Arizona service contract holders.
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ARS 20-1095.03 lets a service company qualify for its permit in one of two ways. It can file a surety bond, or an allowed alternative, under ARS 20-1095.04. Or it can be insured by a mechanical reimbursement insurance policy issued by an insurer authorized in Arizona and give the Director a copy of the policy. This bond is for companies that choose the first path.
The bond must at all times have a value of at least $100,000. It is filed before the permit is issued, and it stays in place until all of the service company's contractual obligations to contract holders are fulfilled. That can be long after you stop selling contracts, so plan to keep it in force for the life of your outstanding contracts.
ARS 20-1095.04 says a service company may not use a cash deposit to comply. The only substitutes for a surety bond are securities of the type eligible for investment by domestic insurers, or bonds of the United States government, irrevocably pledged to the Director. Arizona Administrative Code R20-6-407 repeats that a cash deposit cannot be used for contracts issued after August 3, 2018.
The Department lists several groups that do not need a permit. They include a manufacturer that issues warranties on its own product, motor vehicle manufacturers that pay claims on service contracts they sell, certain manufacturer affiliates that meet the financial statement test in ARS 20-1095.02, resellers of service contracts to non consumers, companies whose contracts cover only appliances, electronic equipment, HVAC systems or mechanical equipment other than vehicles, sellers of contracts on cell phones, tablets and similar devices, licensed residential contractors selling contracts on items they install or build, and prepaid maintenance agreements that provide scheduled maintenance without repair or replacement.
The Department's Form E-857, Bond of Service Company, names the State of Arizona as obligee for the benefit and protection of Arizona service contract holders. It conditions the bond on the service company faithfully performing its duties and fulfilling all obligations under Title 20, Chapter 4, Article 11. The surety's power of attorney must be attached. The bond cannot be terminated for any reason without 30 days' written notice to the Director by registered mail, and the surety must be licensed in Arizona and approved by the Director.
Under R20-6-407 a permit runs from the date it is granted or renewed until midnight on the last day of the month three months after the company's fiscal year end. Renewal is filed after fiscal year end and before the permit expires, with current financial statements and evidence of continuing financial security. There is a 90 day grace period, with a penalty of $25 per calendar day after expiration, and after that a new application is required.
The surety reviews the company's financial statements, the volume and type of service contracts outstanding, claims experience and the owners' credit. Because the bond must stay in force until every contract obligation is met, underwriters look closely at the contract book. You see the exact annual premium on your quote before you buy.
No. ARS 20-1095.03 gives two options. A service company insured by a mechanical reimbursement insurance policy from an insurer authorized in Arizona, with a copy provided to the Director, does not need this bond. The bond is for companies that choose the surety bond route.
It is the minimum. ARS 20-1095.04 requires the bond to have a value of at least $100,000 at all times. Enter the amount the Department accepts for your company on Form E-857.
No. The statute bars cash deposits. The only alternatives are securities eligible for investment by domestic insurers or United States government bonds, irrevocably pledged to the Director.
Not simply by stopping sales. The bond has to be maintained until all of the company's obligations to contract holders are fulfilled, and any cancellation requires 30 days' written notice to the Director by registered mail.
The premium is based on underwriting of the company's financial statements, service contract volume, claims history and owner credit. You get an exact annual quote before you commit.
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