Are companies that sell home service contracts in Virginia regulated by the SCC, and do they need a contractor's license?

Plain-English summary

Delegate Christopher Peace asked three intertwined questions about home service contracts (the agreements consumers buy to cover repair or replacement of appliances, HVAC, plumbing, and similar systems). What recourse does a Virginia consumer have with the State Corporation Commission? Are the providers also contractors who need a Class A/B/C contractor license? And when a provider hires subcontractors to perform the actual repair work, does the provider have to comply with Chapter 11 contractor licensing?

AG Cuccinelli laid out a three-part answer. First, on SCC jurisdiction: Article 2 of Chapter 26 of Title 38.2 (§§ 38.2-2617 through 38.2-2628) regulates home service contracts, but § 38.2-2618 contains exemptions. The 2010 General Assembly added a new exemption for providers with a net worth above $100 million. If a provider falls under any of the § 38.2-2618 exemptions, the SCC has no authority to enforce against it under § 38.2-2627. Warranties and maintenance agreements are also excluded from Article 2's scope.

Second, on contractor licensing: the answer depends on what the home service contract actually says. The definition of "home service contract" in § 38.2-2617 has two flavors: a contract "to perform the repair, replacement, or maintenance" of components or systems, or a contract "for indemnification for repair, replacement, or maintenance." If the contract is a performance contract, the provider meets the broad "contractor" definition in § 54.1-1100 (which expressly extends to any person who "manages" or "superintends" construction or repair). If the contract is purely an indemnity arrangement, the provider does not meet that definition. The licensure analysis is case-by-case.

Third, on subcontracting: when an HSC provider is a contractor and is managing or superintending the work of subcontractors on someone's home, the provider must be licensed under Chapter 11. But merely hiring an independent contractor under an indemnity agreement, without managing or superintending the work, does not by itself trigger the licensing requirement.

The Virginia Supreme Court's broad reading in Bacigalupo v. Fleming was central. "Any person" in the contractor statute is "comprehensive, broad, unlimited, unrestricted, and indiscriminative of whatever kind"; the label the person uses for himself does not matter, only what he does.

Currency note

This opinion was issued in 2010. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Common questions

Q: What did the 2010 net-worth exemption change?
A: The 2010 Session of the General Assembly amended § 38.2-2618 to add an exemption for any home service contract provider with a net worth above $100 million. A provider that qualifies is outside Article 2, so the SCC cannot bring an enforcement action against it under § 38.2-2627.

Q: What is the difference between a 'performance' and an 'indemnity' home service contract?
A: A performance contract obligates the provider to actually do (or manage) the repair. An indemnity contract obligates the provider to reimburse the homeowner for repair costs, but the homeowner arranges the work. The licensing analysis only catches performance contracts.

Q: What happens if a provider needs a license but doesn't have one?
A: Section 54.1-1115(A)(1) makes contracting or bidding on construction/repair of real property without a license a Class 1 misdemeanor.

Q: Could a homeowner sue an SCC-exempt provider?
A: The opinion did not address civil remedies. SCC exemption only addresses the agency enforcement path. The homeowner may still have contract or consumer-protection remedies under other statutes or the common law.

Background and statutory framework

Article 2 of Chapter 26 of Title 38.2 sets up the home service contract regime: §§ 38.2-2617 (definitions), 38.2-2618 (exemptions, including the 2010 net-worth carve-out), and 38.2-2627 (SCC enforcement authority). Warranties and maintenance agreements are out of scope.

Chapter 11 of Title 54.1, §§ 54.1-1100 through 54.1-1143, sets up contractor licensing. The Bacigalupo case (Virginia Supreme Court, 1958) gave "any person" in the predecessor statute a sweeping read, picking up architects, engineers, agents, superintendents, supervisors, and contractors, dependent or independent.

The opinion's case-by-case approach reflects how home warranty companies actually structure their business: some manage repairs through preferred-contractor networks, some send a check, and some do both depending on the line item. Each contract's terms determine the licensure outcome.

Citations

• Va. Code Ann. § 38.2-2617 (home service contract defined)
• Va. Code Ann. § 38.2-2618 (exemptions, including 2010 net-worth provision)
• Va. Code Ann. § 38.2-2627 (SCC enforcement)
• Va. Code Ann. § 54.1-1100 (contractor defined broadly)
• Va. Code Ann. § 54.1-1103(A) (license required)
• Va. Code Ann. § 54.1-1115(A)(1) (unlicensed contracting a Class 1 misdemeanor)
• Bacigalupo v. Fleming, 199 Va. 827 (1958) (broad reading of "any person")

Source

• Landing page: https://www.oag.state.va.us/annual-reports-opinions/official-opinions
• Original PDF: https://www.oag.state.va.us/files/Opinions/2010/10-027_Peace.pdf

Original opinion text

Best-effort transcription from a scanned PDF. Minor errors may remain, the linked PDF is authoritative.

COMMONWEALTH OF VIRGINIA
Office of the Attorney General
Kenneth T. Cuccinelli, II

900 East Main Street
Richmond, Virginia 23219
804-786-2071

Attorney General

May 20, 2010

The Honorable Christopher K. Peace
Member, House of Delegates
P.O. Box 819
Mechanicsville, Virginia 23111

Dear Delegate Peace:

I am responding to your request for an official advisory opinion in accordance with § 2.2-505 of the Code of Virginia.

Issues Presented

You inquire about several aspects of Virginia law governing home service contract providers. Specifically, you ask whether a consumer who contracts with a home service contract provider has any recourse with the State Corporation Commission related to such contract in light of the exemptions found in current § 38.2-2618, and as amended in 2010. You further ask whether such providers are contractors required to be licensed pursuant to Chapter 11 of Title 54.1, §§ 54.1-1100 through 54.1-1143 ("Chapter 11"). Finally, you ask whether home service contract providers must comply with Chapter 11 when hiring contractors and subcontractors to perform work under the home service contracts they administer.

Response

It is my opinion that when one of the exemptions to § 38.2-2618 applies to a home service contract provider, including the exemption added in 2010, the State Corporation Commission would not have the authority to bring an enforcement action under § 38.2-2627. It further is my opinion that the terms of the home service contract dictate whether a home service contract provider is considered to be a contractor. Should a provider be considered to be a contractor, he must be licensed as a contractor pursuant to Chapter 11 of Title 54.1. Finally, it is my opinion that when home service contract providers are considered to be contractors, they must comply with Chapter 11 when they manage and superintend contractors and subcontractors to perform work under the home service contracts they administer. They are not required to comply with Chapter 11 merely by hiring a contractor or subcontractor.

Applicable Law and Discussion

You first inquire whether a consumer who contracts with a home service contract provider ("HSC provider") has any recourse with the State Corporation Commission ("Commission") regarding such contract. Article 2, Chapter 26 of Title 38.2, §§ 38.2-2617 through 38.2-2628 ("Article 2"), regulates home service contracts and HSC providers. The Commission may enforce the law through an administrative action. The current version of § 38.2-2618 contains specific exemptions from Article 2. The 2010 Session of the General Assembly amended this provision to add an exemption for "[a]ny home service contract provider that has a net worth in excess of $100 million." Under the plain language of this amendment, an HSC provider with a net worth in excess of $100 million would be exempt from the statute. Furthermore, warranties and maintenance agreements are likewise specifically excluded from the scope of Article 2. Therefore, the Commission would not be authorized to bring an enforcement action pursuant to § 38.2-2627.

You next ask whether HSC providers may, depending on the terms of such contracts, be considered contractors. If so, you ask whether such providers would be required to be licensed as contractors pursuant to Chapter 11. Section 38.2-2617 currently defines a "home service contract," in pertinent part, as

a contract or agreement for a separately stated consideration for a specific duration to perform the repair, replacement, or maintenance of property or indemnification for repair, replacement, or maintenance, for the operational failure of any components, parts, appliances, or systems of any covered residential dwelling due to a defect in materials, workmanship, inherent defect, or normal wear and tear, with or without additional provisions for incidental payment of indemnity under limited circumstances. Home service contracts may provide for the repair, replacement, or maintenance of property for damage resulting from power surges or interruption and accidental damage from handling and may provide roof leak coverage.

Section 54.1-1100 of Article 11 defines a "contractor" as

any person, that for a fixed price, commission, fee, or percentage undertakes to bid upon, or accepts, or offers to accept, orders or contracts for performing, managing, or superintending in whole or in part, the construction, removal, repair or improvement of any building or structure permanently annexed to real property owned, controlled, or leased by him or another person or any other improvements to such real property.

Further, I note that

[t]he classification "any person" is comprehensive, broad, unlimited, unrestricted, and indiscriminative of whatever kind. It includes a person, whether he be an architect, an engineer, an agent, a servant, a superintendent, a supervisor, or a contractor, independent or dependent, who undertakes to do the things specified by the statute. It makes no difference what a person calls himself. If he does what is specified by the statute, then the statute fixes his classification.

Contractors are required to obtain a license. The act of "[c]ontracting for, or bidding upon the construction, removal, repair or improvements to or upon real property owned, controlled or leased by another person without a license" is prohibited, and a violation thereof would constitute a Class 1 misdemeanor.

It is my opinion that HSC providers would meet the definition of a contractor under home service contracts that are agreements to perform repairs, replacement, or maintenance of property for consideration. Such HSC providers, however, would not meet the definition of a contractor when the agreements at issue are agreements to indemnify for such repairs, replacement, or maintenance of property. Consequently, whether an HSC provider also is a contractor would depend on the exact terms of the individual home service contracts, and each contract must be examined on a case-by-case basis.

Section 54.1-1101 of Chapter 11 contains exemptions to the licensure requirement for contractors, but it does not appear that an HSC provider would qualify for any of these exemptions. Should an HSC provider be considered a contractor based on the terms of a home service contract, such provider would be required to be licensed as a contractor.

Finally, when the terms of a home service contract are such that the HSC provider is considered to be a contractor, you ask whether that provider would be compelled to comply with the requirements of Chapter 11 when hiring contractors and subcontractors to perform work under such contract. The definition of "contractor" is not limited to persons who directly perform construction. It also includes those who "manag[e]" and "superintend[]" the contracting work. If an HSC provider is hiring subcontractors during the course of managing or superintending a construction contract, the HSC provider would need to be licensed as a contractor. However, merely hiring another person to carry out the work based on an indemnity agreement does not make an HSC a "contractor."

Conclusion

Accordingly, it is my opinion that when one of the exemptions to § 38.2-2618 applies to a home service contract provider, including the exemption added in 2010, the State Corporation Commission would not have the authority to bring an enforcement action under § 38.2-2627. It further is my opinion that the terms of the home service contract dictate whether a home service contract provider is considered to be a contractor. Should a provider be considered to be a contractor, he must be licensed as a contractor pursuant to Chapter 11 of Title 54.1. Finally, it is my opinion that when home service contract providers are considered to be contractors, they must comply with Chapter 11 when they manage and superintend contractors and subcontractors to perform work under the home service contracts they administer. They are not required to comply with Chapter 11 merely by hiring a contractor or subcontractor.

With kindest regards, I am

Very truly yours,

Kenneth T. Cuccinelli, II
Attorney General