KRS 190.046: Compensation to dealer for work performed under warranty --

"Reasonable compensation" -- Submission, determination, and payment of

dealer's claims -- Compensation to dealer for sponsored sales or service

promotion events -- Audits -- Fraud.

(1) Notwithstanding the terms of any franchise agreement, each motor vehicle

manufacturer or distributor, doing business within this Commonwealth, shall

assume all responsibility for and shall defend, indemnify, and hold harmless its

motor vehicle d ealers against any loss, damages, and expenses, including legal

costs, arising out of complaints, claims, recall repairs or modifications or factory

authorized or directed repairs, or lawsuits resulting from warranty defects, which

shall include structural or production defects; defects in the assembly; or design of

motor vehicles, parts, accessories; or other functions beyond the control of the

dealer, including without limitation, the selection of parts or components for the

vehicle. Each manufacturer or distributor shall pay reasonable compensation to any

authorized dealer who performs work to repair defects, or to repair any damage to

the manufacturer's or distributor's product sustained while the product is in transit to

the dealer, when the carrier or the means of transportation is designated by the

manufacturer or distributor. Each manufacturer or distributor shall provide to its

dealers with each model year a schedule of time allowances for the performance of

warranty repair work and services, which s hall include time allowances for the

diagnosis and performance of warranty work and service time, and shall be

reasonable and adequate for the work to be performed.

(2) (a) In the determination of what constitutes "reasonable compensation" under this

section, the principal factor to be considered shall be the amount of money

that the dealer is charging its other customers for the same type service or

repair work. Other factors may be considered, including:

1. The compensation being paid by other manufacture rs or distributors to

their dealers for work; and

2. The prevailing amount of money being paid or charged by the dealers in

the city or community in which the authorized dealer is doing business.

(b) Except as provided in paragraph (d) of this subsection , "reasonable

compensation" shall include:

1. Diagnosing the defect as needed;

2. Repair service;

3. Labor;

4. Parts; and

5. Administrative and clerical costs.

(c) Except as provided in paragraph (d) of this subsection, the compensation of a

dealer shall not be less than:

1. The amount charged by the dealer for like services and parts, which

minimum compensation for parts shall be dealer cost plus thirty percent

(30%) gross profit, to retail customers for nonwarranty service and

repairs; or

2. The amounts indicated for work on the schedule of warranty

compensation required to be filed by the manufacturer with the

commission as a part of the manufacturer's license appl ication by KRS

190.030.

(d) The compensation of a dealer for vehicles with a classification of seven (7) or

higher as established in 49 C.F.R. sec. 565.15 by a manufacturer, component

manufacturer, or distributor shall be subject to the following conditions:

1. The dealer shall be entitled to receive, as to reimbursement for parts, not

less than its actual acquisition cost of the parts including freight,

handling, taxes, and any other related out -of-pocket expenses, plus a

gross profit margin of thirty percent (30%);

2. In addition to paragraph (b) of this subsection, "reasonable

compensation" shall also include:

a. All dealer costs incurred for training and certifying technicians and

warranty administration personnel;

b. Dealer costs to acquire, use, and m aintain computer hardware and

software systems utilized for warranty and recall repairs, including

diagnostic computers, mobile devices, and software for tracking

and reporting warranty and recall time and expenses; and

c. Dealer costs for specialized tool s and hardware required for

warranty and recall repairs;

3. A dealer may submit reimbursement requests for its costs described in

subparagraph 2. of this paragraph, and the manufacturer, component

manufacturer, or distributor shall pay for those costs, at the dealer's

election either on a:

a. Per repair basis, as may be mutually agreeable between the dealer

and manufacturer, component manufacturer, or distributor;

b. Per repair basis, based upon the amounts customarily charged by

the dealer to retail customers for similar nonwarranty work; or

c. Periodic basis no less frequent than annually, with reasonable

documentation of the costs and a reasonable method of allocating

the costs between reimbursable warranty and recall services and

nonwarranty services;

4. If labor hours on a warranty or recall repair, diagnostics, or service are

incurred by a technician trained or certified in that service by a

manufacturer, component manufacturer, or distributor, or if such

training or certification is not furnished, the actual hours incurred shall

be the basis of reasonable compensation unless the manufacturer,

component manufacturer, or distributor proves by clear and convincing

evidence that the hours incurred were unreasonable for the specific

repair. Reference to stan dard repair times, labor guides, or time

allowance guidelines shall not constitute sufficient evidence of that

proof;

5. If a component manufacturer for any system, subassembly, or other

component part of a motor vehicle has assumed, undertaken, or

otherwise has legal responsibility for reimbursement and processing of a

dealer claim for warranty or recall services by virtue of any pass -

through or extended warranty arrangement, governmental recall

mandate, consent decree, judicial decree, litigation settleme nt, or other

means, the component manufacturer shall be subject to all the

requirements of this section as if primarily liable as a manufacturer or

distributor. This subparagraph shall not relieve the manufacturer or

distributor of the motor vehicle from a ny primary liability for the

indemnification obligations of subsection (1) of this section to its

dealers. If a component warranty is made contemporaneously with the

sale of a new motor vehicle and extends beyond the original

manufacturer or distributor wa rranty on the entire vehicle, the

manufacturer or distributor shall continue to have primary liability to its

dealers for the performance of warranty service on those components

during the extended period;

6. Compensation to be paid a dealer from a compone nt manufacturer for

warranty or recall work on a component part shall be no less than the

amount that would otherwise be reimbursable if the manufacturer or

distributor of the vehicle had made the component warranty or was

otherwise responsible for the com ponent part. This subparagraph shall

apply regardless of whether or not the part bears a different part number

than the originally manufactured part, or is a remanufactured or rebuilt

part that is required or permitted to be utilized in a warranty or recal l

repair;

7. A manufacturer, component manufacturer, or distributor shall not refuse

payment for a replacement part installed by a dealer in connection with a

warranty or recall repair that the manufacturer, component

manufacturer, or distributor claims is not defective based upon

laboratory or other testing, or where no fault with the part is found,

unless the part is returned to the dealer with a written certification from

the manufacturer, component manufacturer, or distributor setting forth

the test con ditions and results and warranting that the part is not

defective, is fully functional, and qualified for reuse in future repairs;

8. A manufacturer, component manufacturer, or distributor shall not

require unreasonable proof or unduly burdensome processes to establish

reasonable compensation;

9. A manufacturer, component manufacturer, or distributor shall not

require a dealer for vehicles with a classification of seven (7) or higher

as established in 49 C.F.R. sec. 565.15 to submit a claim authorized

under this section sooner than ninety (90) days after the dealer

completes the preparation, delivery, or warranty service authorizing the

claim for preparation, delivery, or warranty service; and

10. As used in this paragraph, "component manufacturer" means any person

who manufactures, assembles, imports, or distributes new,

remanufactured, or rebuilt parts, assemblies, subassemblies, or other

components for motor vehicles.

(e) A manufacturer or distributor shall not require unreasonable proof to establish

"reasonable compensation."

(3) (a) Except as provided in subsection (2)(d)9. of this section, a manufacturer or

distributor shall not require a dealer to submit a claim authorized under this

section sooner than thirty (30) days after the dealer completes the pr eparation,

delivery, or warranty service authorizing the claim for preparation, delivery,

or warranty service.

(b) All claims made by a dealer under this section s hall be paid within thirty (30)

days after their approval.

(c) All claims shall be either approved or disapproved by the manufacturer or

distributor within thirty (30) days after their receipt on a completed form

supplied or approved by the manufacturer or distributor.

(d) Any claims not specifically disapproved in writing within thirty (30) days

after the receipt of the form shall be considered to be approved and payment

shall be made within thirty (30) days thereafter.

(e) A dealer shall not be required t o maintain defective parts for more than thirty

(30) days after payment of a claim.

(f) Any dispute between the dealer and the manufacturer or distributor shall be

subject to the provisions of KRS 190.057.

(4) A manufacturer or distributor shall compensate the dealer for manufacturer -

sponsored or distributor-sponsored sales or service promotion events, including but

not limited to rebates, programs, or activities in accordance with established written

guidelines for such events, programs, or activities, whi ch the manufacturer or

distributor shall provide to each dealer.

(5) (a) A manufacturer or distributor shall not require a dealer to submit a claim

authorized under subsection (4) of this section sooner than ninety (90) days

after the dealer becomes eligible to submit the claim.

(b) All claims made by a dealer pursuant to subsection (4) of this section for

promotion events, including but not limited to rebates, programs, or activities,

shall be paid within thirty (30) days after their approval.

(c) All clai ms shall be either approved or disapproved by the manufacturer or

distributor within thirty (30) days after their receipt on a completed form

supplied or approved by the manufacturer or distributor.

(d) Any claim not specifically disapproved in writing wit hin thirty (30) days after

the receipt of this form shall be considered to be approved and payment shall

be made within thirty (30) days.

(6) If a dealer submits any claim under this section to a manufacturer or distributor that

is incomplete, inaccurate, or lacking any information usually required by the

manufacturer or distributor, or if incomplete, inaccurate, or missing information is

discovered during an audit, then the manufacturer or distributor shall promptly

notify the dealer, and the time limit to submit the claim shall be extended for a

reasonable length of time, not less than five (5) business days following notice by

the manufacturer or distributor to the dealer, for the dealer to provide the complete,

accurate, or lacking information to the man ufacturer or distributor. A dealer's

failure to comply with the specific requirements of the manufacturer or distributor

for processing a claim may not constitute grounds for denial of the claim or

reduction of the amount of compensation paid to the dealer if the dealer presents

reasonable documentation or other evidence to substantiate the claim.

(7) (a) A manufacturer or distributor may only audit warranty, recall, sales, or

incentive claims for a period of twelve (12) months following payment, or the

end of a program which does not exceed one (1) year in length, whichever is

later, subject to all of the provisions of this section.

(b) A manufacturer or distributor shall not require documentation for warranty,

recall, sales, or incentive claims more than t welve (12) months after the claim

was paid or the end of a program which does not exceed one (1) year in

length, whichever is later.

(c) Prior to requiring any charge -back, reimbursement, or credit against a future

transaction arising out of an audit, the manufacturer or distributor shall submit

written notice to the dealer along with a copy of its audit and the detailed

reason for each intended charge-back, reimbursement, or credit.

(d) Notwithstanding the limitations of this subsection, a manufacturer tha t

possesses evidence which would cause a person of ordinary caution,

prudence, and judgment to believe that a dealer submitted a claim that was

fraudulent, false, or misleading may audit the dealer for the claims during any

period in which an action for fr aud or for the submission of false or

misleading claims may be commenced under applicable state law.