Guide to Auto service contracts

19 The Backup Insurance Company As discussed earlier, VSCs are not insurance policies. However, because so many VSC companies went out of business without paying claims in the 1970s through 1990s, California law requires that a backup insurance company authorized by the CDI guarantee almost all VSCs. This guarantee means that if a VSCP or dealer fails to pay any claim, either because the VSCP or dealer is out of business, or because the VSCP or dealer simply does not think the claim is covered by the VSC, then you can seek to have the backup insurance company review the claim. The law requires that the name and address of the backup insurance company be “conspicuously” printed on the contract. (If a VSCP has $100,000,000 in “net worth,” it is exempt from the requirement to have backup insurance.) A VSC without the name of a backup insurance company may be illegal and should not be bought without first confirming with the CDI that the VSC is legal. Companies called “rating organizations” grade insurance companies on their financial strength. Some people prefer to deal only with the strongest insurance companies, for example those with an “A” or “A+” grade or rating. These people might not buy a VSC if the backup insurance company does not have at least an “A” rating. You can check the Web- sites of insurance company rating organizations, such as A.M. Best, to see what the rating is of a backup insurance company named on a VSC you are thinking of buying. If a VSC includes the name of a backup insurance company, the backup insurance company must evaluate your claim if the obligor doesn’t (because it is out of business or for some other reason). The backup insurance company must pay your claim if it is covered and not excluded.