Consumer Warranty Law: 12.4.4 Defenses
There are three important defenses to a claim for negligence:
There are three important defenses to a claim for negligence:
Service contracts may involve a number of different entities:
Service contracts are distinct from written or express warranties, and legal requirements and consumer enforcement rights under the two are different. Under the Magnuson-Moss Warranty Act, a written warranty must be “part of the basis of the bargain.”4 Under the Federal Trade Commission’s Magnuson-Moss rules a written warranty is part of the basis of the bargain if it is provided at the time of sale and there is no extra charge for it.5
Whether a service contract is subject to state insurance regulations has a significant impact on a consumer’s legal claims. Insurance regulations may require the retailer selling the contract to be licensed to sell insurance and comply with other insurance agent requirements. The service contract owner may have to comply with insurance solvency requirements, unfair claims payment laws, rate and policy filing requirements, and unfair insurance practices laws.
A number of states have special laws regulating automobile service contracts or other forms of service contracts,17 and these statutes are sometimes explicit about whether service contracts are treated as insurance,18 are not to be treated as insurance, or are to be treated as insurance if they include certain characteristics and are not to be treated as insurance if they lack those characteristics.19 Other state pronouncements may perform a similar func
If a consumer’s repair claim covered by a service contract is denied, obtain the ground for the denial in writing, so the obligor does not later change its reason for denying the claim.27 Also read the service contract’s exclusionary language with great precision, particularly as it relates to the stated grounds for denying coverage.
Service contracts are limited in time, and motor vehicle contracts may also be limited as to mileage driven. Read the contract language carefully to see how time and mileage are to be computed. For example, one company sold a five-year contract on a used car, starting from the date the contract was purchased, but the contract stated elsewhere that it began to run on the same day as the new vehicle warranty.33 Such conflicting provisions should be interpreted against the drafter.
The Magnuson-Moss Warranty Act requires that a service contract “fully, clearly, and conspicuously discloses its terms and conditions in simple and readily understood language.”36 If contract exclusions do not meet this standard, the consumer has a cause of action under the Act for actual damages and attorney fees.37
Even if a claim denial is consistent with the written contract, the consumer still may have various legal claims when the contract is at variance with prior representations concerning that contract. Review advertising claims, brochures available at the retailer, internet-based representations, and the preliminary paperwork given the consumer concerning the service contract. Explore all oral representations the retailer made to the consumer.
Service contract claims can be denied not just on the basis of a disputed interpretation of the contract, but also based on the disputed accuracy of the obligor’s inspection of the defective product. Some service contracts deny responsibility for repair if one of the many non-covered parts contributes to the damage to a covered part. For example, a service contractor may claim that a defective automobile gasket not covered by the service contract caused the engine damage, and therefore the service contractor is not responsible.
Service contract coverage may be denied when the consumer did not obtain prior approval for repairs, as required by the agreement. But this denial has been found to be unfair and deceptive when the service contract administrator had a practice of not responding to consumer requests for prior approval.53
The voluntary and unreasonable disregard of a known and appreciated risk, while sometimes called contributory negligence, is more serious buyer conduct than mere negligent failure to discover or protect against a defect. Although the buyer’s negligence may be reasonably contemplated by the warranty, disregarding a known and appreciated risk usually is not and generally is considered unreasonable conduct.
Misuse or abnormal use of the product is generally recognized as a defense to warranty claims, either because the buyer’s misuse is the intervening cause of the damage or because the warranty does not extend to abnormal use.519 If a buyer uses a passenger car for drag racing, the seller will claim that it was the buyer’s abnormal use of the product that caused the damage and/or that the abnormal use is beyond the scope of the warranty.520 In addition to causation, the seller may have to show tha
A seller will often direct the buyer to use or maintain the product in a particular fashion. “Inflate tire to 23–28 pounds only,” and “Do not use near open flame” are typical. The directions can be on the product, in the warranty, in the user’s manual, or even given orally. Failure to abide by these directions will be raised as a defense by the seller as failure to comply with a condition precedent, misuse of the product, contributory negligence, or the proximate cause of the malfunction and damage.533
Warranties often expressly condition coverage on performance by the buyer of some duty, such as “Warranty applies only if product is returned postage prepaid to manufacturer” or “Warranty void unless buyer returns ‘warranty card’ to manufacturer within 15 days.” Conditions such as these are not merely instructions on proper maintenance or use of the product,541 although warranty conditions and use instructions may overlap, as in “Product not covered by warranty unless Grade X oil is used.”
Many express warranties have a specific duration, such as one year or thirty days. In a suit for breach of the warranty, the seller may claim that the express warranty period already expired before the defect was discovered and brought to the warrantor’s attention.
There are several different scenarios in which a seller may attempt to defend against a warranty claim on the ground that the warranty period has expired. When a defect within the scope of the express warranty is discovered and brought to the warrantor’s attention before expiration of the express warranty period, the warrantor must remedy the defect or be liable for breach of the warranty.
Sometimes a defect is discovered during the warranty period but reported after it expires. This may happen when the defect is discovered close to the end of the warranty period.
The consumer must prove that the defendant’s negligence was proximate cause of the consumer’s injury.239 Proximate cause refers to both causation-in-fact and the policy considerations involved in determining the limits of responsibility for the results one causes.240 Causation-in-fact means that the damage the buyer or other party suffered resulted from the goods’ nonconformity to the standard of care.241
Service contracts, extended warranties, and mechanical breakdown insurance have become a fixture in the sale of new and used cars and other consumer products. This chapter focuses on enforcement of the consumer’s bargain under the contract:
Service contracts, extended warranties, and mechanical breakdown insurance are functionally equivalent. The consumer receives, for a price, protection beyond that indicated in any applicable written warranty. If the parties involved in offering a written warranty also offer (for a price) the added protection, it may be called an extended warranty. If an insurance company offers the protection, it may be called mechanical breakdown insurance or vehicle breakdown insurance.
Repair shops typically accept credit card payment, and this provides consumers with an important tactic when a repair shop will not release a car without payment. Consumers can put the charge on their credit card, and then refuse to pay the card issuer when they receive their monthly statement.
The Magnuson-Moss Warranty Act applies to written warranties provided by automobile repair shops if they cover both parts and labor.259 The Act offers important protections prohibiting disclaimers of implied warranties, and sets out restrictions on limitation of remedies.
Most states have enacted some special statute or regulation dealing with repair services in general or automobile repairs in particular.262 These statutes or regulations are of three basic types:
General repair or motor vehicle repair disclosure and regulation laws often restrictively define the type of work or the type of repair establishments that are covered. They may exclude body work or simple maintenance typically done by service stations (for example, replacement of windshield wipers, fan belts, spark plugs, or lubricating), or the law may specifically include certain work. The law may apply to certain establishments (for example, car dealers and repair shops), but not others (for example, service stations).