Department issues Cease and Desist Order to protect California consumers from illegal extended warranty sales
News: 2021 Press Release
SAN DIEGO, Calif. — The California Department of Insurance (CDI) issued a Cease and Desist Order effective immediately for Wyoming-based company, Classic Administration Systems, LLC (Classic). The Department’s Order alleges Classic sold illegal Vehicle Service Contracts styled as “lifetime battery replacement” warranties to more than 1,100 California consumers from 2018 to 2020.
Generally, Vehicle Service Contracts (VSCs), often called ‘extended warranties’, are offered to consumers by automobile dealers when they purchase a car. Most VSCs typically provide coverage for repairs due to mechanical failure, which would include replacing a battery or other services such as paint-less dent removal, glass or key replacement, tire and wheel repair, and other routine maintenance.
The Cease and Desist Order alleges Classic was not licensed by CDI to sell or cover these VSCs in California. Since the company failed to file the lifetime battery replacement warranty with CDI prior to its sale, the warranties were non-compliant and unenforceable, making them essentially useless for consumers.
Under the Order, Classic must immediately stop selling VSCs and cease acting as an insurance agent or producer or in any other capacity in the State of California unless and until they hold a valid license, permit, or Certificate of Authority.
VSCs may be sold legally to Californians only when specific criteria are met, which Classic failed to do.
- Every VSC must be filed with CDI before it can be sold.
- Companies responsible for all the obligations on VSCs, including paying the claims, must be licensed by CDI, unless the company is a vehicle manufacturer, distributor or dealer.
- These companies must carry CDI-preapproved backup insurance insuring every VSC they sell, unless they receive an exemption from CDI by proving their company has a net worth of at least $100 million.
- VSCs can only be sold through dealerships licensed by the Department of Motor Vehicles. Direct sales to consumers are illegal.
- Every VSC sold in California must include the name and license number of the company that is the obligor on that VSC.
The approximately 1,140 VSC’s that were sold by Classic are now being honored by Old Republic Insured Automotive Services, which is licensed by CDI.
The Department reminds everyone that consumers can check the license status of VSC obligors, or any of CDI’s licensees, on the Department’s website on the Check a License page.
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Media Notes:
Led by Insurance Commissioner Ricardo Lara, the California Department of Insurance is the consumer protection agency for the nation's largest insurance marketplace and safeguards all of the state’s consumers by fairly regulating the insurance industry. Under the Commissioner’s direction, the Department uses its authority to protect Californians from insurance rates that are excessive, inadequate, or unfairly discriminatory, oversee insurer solvency to pay claims, set standards for agents and broker licensing, perform market conduct reviews of insurance companies, resolve consumer complaints, and investigate and prosecute insurance fraud. Consumers are urged to call 1-800-927-4357 with any questions or contact us at www.insurance.ca.gov via webform or online chat. Non-media inquiries should be directed to the Consumer Hotline at 800-927-4357. Teletypewriter (TTY), please dial 800-482-4833.
