ASK THE BUSINESS LICENSE GURU

By David Yount

Question:

“Do I need a CLIP (contractual liability insurance policy) if licensed as a warranty service provider?”

Answer:

Depending on the jurisdiction, a licensed warranty service provider may need a CLIP (contractual liability insurance policy), often referred to by the states as a reimbursement insurance policy.

For example, Connecticut does not allow extended warranties to be issued, sold or offered for sale unless the extended warranty provider is insured under an extended warranty reimbursement insurance policy issued by an insurer authorized to do business in the State of Connecticut.

Having such a policy is not always a requirement, but instead may be one option among various alternatives to show financial responsibility. For example, in Alabama a warranty service provider must meet a “financial security” requirement, meaning they must either have a reimbursement insurance policy, a net worth of $100 million, a surplus lines insurance policy, a funded reserve account or provide a financial security deposit. Similarly, Arkansas has a financial requirement that can be satisfied by either a reimbursement insurance policy, a funded reserve account or provide a financial security deposit.

Other states that regulate warranty providers, such as Arizona, do not require a CLIP or reimbursement policy and instead allow for a bond or cash to satisfy their financial security requirement.

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