(a) A motor vehicle service contract must allow the service contract holder to cancel the motor vehicle service contract not later than 30 days after the date that the motor vehicle service contract was delivered to the service contract holder, not later than 10 days after the date of delivery if the motor vehicle service contract is delivered to the service contract holder at the time of sale, or within a longer period, as set out in the motor vehicle service contract. If the service contract holder returns the motor vehicle service contract to the provider within the applicable time period and a claim has not been made under the motor vehicle service contract before the contract is returned to the provider, the motor vehicle service contract is void, and the provider shall refund the full amount of the provider fee to the service contract holder or credit the account of the service contract holder not later than 45 days after the return of the contract to the provider. If the provider does not pay or credit a refund owed under this subsection not later than 45 days after a service contract holder returns a motor vehicle service contract, a penalty in the amount of 10 percent of the provider fee paid by the service contract holder for each month the refund remains unpaid shall be added to the refund. The right to void the motor vehicle service contract provided in this subsection is not transferable and applies only to the original service contract holder for a contract under which a claim is not made before the contract is returned to the provider.

(b) After the time specified in (a) of this section, or if a claim has been made under the motor vehicle service contract within that time, a service contract holder may cancel the motor vehicle service contract, and the provider shall refund to or credit the account of the contract holder the prorated amount of the unearned provider fee, less any claims paid, not later than 45 days after the return of the service contract to the provider. If the provider does not pay or credit a refund owed under this subsection not later than 45 days after a service contract holder returns a motor vehicle service contract, a penalty in the amount of 10 percent of the unearned provider fee paid by the service contract holder for each month the refund remains unpaid shall be added to the refund. A provider may charge a reasonable cancellation fee not to exceed 7.5 percent of the unearned provider fee paid by the service contract holder.

(c) A motor vehicle service contract shall state the terms, restrictions or conditions governing cancellation of the service contract by the provider. A provider may only cancel a service contract for

(1) nonpayment of the provider fee;

(2) conviction of the service contract holder of a crime having as one of its necessary elements an act increasing a hazard covered by the service contract;

(3) discovery of fraud or material misrepresentation made by the service contract holder or a representative of the service contract holder in obtaining the service contract or by the service contract holder in pursuing a claim under the service contract;

(4) discovery of a grossly negligent act or omission by the service contract holder that substantially increases the hazards covered by the service contract;

(5) physical changes in the property covered by the service contract that result in the property becoming ineligible for coverage under the contract; or

(6) a substantial breach of duties by the service contract holder related to the covered motor vehicle.

(d) The provider of the service contract shall mail a written notice to the service contract holder at the last known address of the service contract holder contained in the records of the provider at least five days before cancellation by the provider. The notice shall state the effective date of the cancellation and the reason for the cancellation. Prior notice is not required if the reason for cancellation is nonpayment of the provider fee or fraud or a material misrepresentation by the service contract holder in obtaining the service contract or by the service contract holder in pursuing a claim under the service contract. If the provider cancels the service contract, the provider shall refund or credit to the account of the contract holder the prorated amount of the unearned provider fee, less any claims paid, within 45 days after the return of the service contract to the provider. If the provider does not pay or credit a refund owed under this subsection within 45 days after the provider cancels the motor vehicle service contract, a penalty in the amount of 10 percent of the unearned provider fee paid by the service contract holder for each month the refund remains unpaid shall be added to the refund.