There is another more positive way that service factor can be used:
When you call a motor '1 horsepower', that implies certain things about starting torque and other aspects of motor design. If a motor has the starting capability of a 1 hp machine, but once up to speed can tolerate a 1.5 hp mechanical load without overheating, then it is fair to call that a 1 hp motor with a 1.5 service factor.
You can end up with a very high service factor if the motor has a low resistance rotor; this makes the motor more efficient, so you get less heating when you are up at running speed, but it also drops the starting torque and increases the starting current.
You could also end up with a high service factor if you take exactly the same motor design, but use wire that has a higher temperature rating; the starting and running characteristics would be exactly the same, except that you can push the motor harder simply because it can tolerate a higher temperature.
Without knowing more details of the motors involved (like the running current and temperature rise at the actual pump load), we don't know if this new motor is a suitable replacement for the old motor; we don't know if the manufacturer is cheating or providing a better motor.
-Jon
