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from Western General had no surrender value, and on the basis
that petitioners remained primarily liable on their service
contracts (i.e., the EWA’s). Petitioners’ assertion that the
policies had no surrender value appears to be in error. Although
the Vehicle Policies provide that Western General’s premium is
fully earned upon the inception of coverage, the Policies provide
exceptions where a pro rata refund of the premium would be
provided to petitioners, such as when a vehicle is repossessed.
Further, we are not persuaded that the absence of a surrender
value affects the capitalization requirement for a prepaid
multiyear insurance policy. Regardless of surrender value, the
policies herein afforded protection to petitioners with respect
to covered claims for a period of years, and there is no
indication in recent decisions involving prepaid insurance
coverage for extended service agreements that surrender value was
important. See, e.g., Johnson v. Commissioner, supra; Hinshaw’s,
Inc. v. Commissioner, supra.
As to petitioners’ claim that Western General, not they,
remained “primarily liable” to the vehicle purchaser, the EWA’s
provide as follows:
The Dealer [i.e., each petitioner] will repair
and/or replace, or at its option either pay for or
reimburse you [i.e., the EWA purchaser] or the repair
facility for reasonable costs to repair any of the
covered parts * * * which break down.
* * * * * * *
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