Interpretation ID: ltrtoMyles2

Russell Myles, Esquire
McDowell, Knight, Roedder & Sledge, L.L.C.
63 South Royal, Suite 900
Riverview Plaza
Mobile, AL 36602

Dear Mr. Myles:

This is in response to your letter of April 17, 2002, requesting clarification of certain requirements in our regulations in 49 CFR Part 592 that specify the duties of registered importers of motor vehicles that were not originally manufactured to comply with all applicable Federal motor vehicle safety standards.

You note that under section 592.5(a)(8) of those regulations, an applicant for registered importer (RI) status must supply a copy of a contract to acquire "a prepaid mandatory service insurance policy underwritten by an independent insurance company" to ensure that the applicant will be financially able to remedy any noncompliance or safety-related defect determined to exist in a vehicle that is covered by a certificate of conformity the applicant furnishes to the National Highway Traffic Safety Administration (NHTSA). Section 592.6(i) specifies that one of the duties of an RI is to maintain such a policy in effect to guarantee its ability to carry out the defect and noncompliance notification and remedy responsibilities that are set forth in section 592.6(g).

You note that under section 592.6(g)(2)(i), the requirement to provide a remedy without charge does not apply "if the noncompliance or safety-related defect exists in a motor vehicle whose first sale after importation occurred more than 10 calendar years before notification of the failure to comply is furnished" to the owner of the affected vehicle pursuant to 49 CFR Part 577. This has prompted you to ask how long prepaid mandatory service insurance would be required (1) for a vehicle that was first sold after importation 30 days before owner notification under Part 577 is provided and (2) for a vehicle that was first sold after importation nine years before such notification. You state that you are asking these questions so that you can better understand "when coverage for each imported vehicle must begin and when that obligation expires, and how that coverage commitment is affected by the language of 592.6(g)(2)(i)."

Because the mandatory service insurance policies required under sections 592.5(a)(8) and 592.6(g) are for the purpose of guaranteeing the RI's ability to fulfill its responsibility to provide notification and remedy for defects and noncompliances under section 592.6(g), those policies must take effect no later than the date on which the vehicle is first purchased after importation, and must remain in effect until ten years have elapsed from that date. Therefore, a full ten-year policy would be required for the vehicle in each of the examples that you cite, effective upon the date of the vehicle's first sale after importation. In the case of the first vehicle, 9 years and 335 days of outstanding coverage would remain on the policy, and in the case of the second vehicle, one year of outstanding coverage would remain.

You next request confirmation that if a prepaid mandatory service insurance policy becomes ineffective because the insurance underwriter has gone out of business, the RI would be required to secure a new policy that provides coverage for the periods that remain outstanding on all previously imported vehicles, as well as for the full ten-year term on all vehicles the RI may subsequently import. As far as we are aware, no company that underwrites mandatory service insurance policies has gone out of business to date. We therefore have never had the need to address this issue. An RI would have to obtain mandatory service insurance policies for its future imports from a new company in the event that the company that previously provided this coverage is no longer able to satisfy applicable requirements, including those of state regulatory authorities.

The RI would not be required to obtain new mandatory service insurance coverage for periods that remain outstanding on vehicles that it has previously imported. We note that the owners of those vehicles would be protected to the extent that the company is required by state regulatory authorities to maintain sufficient reserves or take other measures to cover its outstanding liability on previously issued policies in the event that it should go out of business. Beyond that, our regulations do not obligate an RI to obtain new mandatory service insurance policies for previously imported vehicles if the original underwriter should go out of business. It naturally follows that there is no "information concerning the new policy" that the RI would be required to furnish to the owners of those vehicles. In asking us whether an RI would have such an obligation, your referred us to 49 CFR 592.5(f), which requires an RI to notify NHTSA of any changes in the information submitted with its application for RI status, which, as previously noted, includes a copy of a contract to acquire a prepaid mandatory service insurance policy, or a copy of the policy itself. We note that this section requires notification to NHTSA if there is a change in the mandatory service insurance policy furnished with the RI's application for RI status. There is no comparable requirement for the RI to furnish notification of such a change to the owners of the affected vehicles as well.

Lastly, you have asked whether the actual insurer should be identified in the policy information that an RI places with a vehicle to be sold, and if so, you have asked how much information concerning the actual insurer should be provided to the vehicle owner. You have referenced, in this regard, Registered Importer Newsletter No. 16 dated May 2000, which states that the service insurance policy that an RI is required to obtain for each vehicle it imports or brings into conformity with the Federal motor vehicle safety standards should be placed in the glove box of the vehicle or given to the owner with other important vehicle documents if the vehicle does not have a glove box. The guidance further states that "[t]hese policies must be written by an insurance company or by a company that is backed by an insurance company," and that "[t]he insurance company must be registered with a state as authorized to issue insurance policies and be totally independent of any RI to which it is providing policies." Although there is no express requirement in either the Part 592 regulations or this guidance for the insurance company underwriting the policy to be identified on the face of the policy, NHTSA expects this information to be provided to the vehicle owner. Without that information, the owner would encounter practical difficulties in making a claim in the event that the RI defaults on its obligation to provide notification and remedy for safety-related defects and noncompliances.

If you have any further questions regarding the mandatory service insurance requirements or other requirements that NHTSA has placed on RIs, please contact Coleman Sachs of this office at 202-366-5238.

Sincerely,
Jacqueline Glassman
Chief Counsel
Ref:592
d.5/24/02