(a) In addition to any other right of rescission an obligor or purchaser may have, an obligor may include a provision in a service contract that reserves to the obligor the right to cancel the service contract within 60 days under the following conditions:

(1) Notice of cancellation is mailed to the purchaser postmarked before the 61st day after the date the contract was sold by the seller.

(2) The obligor provides the purchaser with a refund equal to the full purchase price stated on the contract within 30 days from the date of cancellation. However, if the obligor has paid a claim, or has advised the purchaser in writing that it will pay a claim, it may provide a pro rata refund, less the amount of any claims paid prior to cancellation.

(3) The service contract ceases to be valid no less than five days after the postmark date of the notice.

(4) The notice states the specific grounds for the cancellation.

(b) An obligor may at any time cancel a service contract for nonpayment by the purchaser, conditioned upon each of the following:

(1) Notice of cancellation is mailed to the purchaser.

(2) If any refund is owed pursuant to Section 1794.41 of the Civil Code, the refund is paid within 30 days of the date of cancellation.

(3) The service contract ceases to be valid no less than five days after the postmark date of the notice.

(4) The notice states the specific grounds for the cancellation.

(c) An obligor may at any time cancel a service contract for material misrepresentation or fraud by the purchaser, conditioned upon each of the following:

(1) Notice of cancellation is mailed to the purchaser

(2) A pro rata refund of the purchase price stated on the contract is paid within 30 days of the date of cancellation.

(3) The notice states the specific nature of the misrepresentation.

(d) An obligor who cancels a contract is liable for any claim reported to a person designated in the contract for the reporting of claims if the claim is reported prior to the effective date of cancellation and is covered by the contract. For the purpose of this subdivision, a purchaser is deemed to have reported a claim if he or she has completed the first step required under the contract for reporting a claim.

(e) An obligor canceling a contract pursuant to subdivision (b), (c), or (d) who pays a claim, or has advised the purchaser in writing that he or she will pay a claim, may provide a prorata rather than full refund, less the amount of any claims paid prior to cancellation.

(Added by Stats. 2003, Ch. 439, Sec. 5. Effective January 1, 2004. Operative July 1, 2004, by Sec. 7 of Ch. 439.)