Skip to main content

Search

Consumer Warranty Law: 14.2.10.5 The Conduct of a Dispute Resolution Proceeding

Lemon laws do not require any particular method for initiating the dispute resolution process. The Magnuson-Moss regulations and most individual mechanism procedures contemplate that the consumer will contact the mechanism program by telephone or in writing. Information concerning how to contact the mechanism is normally provided at the car’s delivery and should be posted in the dealer’s showroom. A number of states require that the manufacturer notify the consumer of the existence of the dispute resolution mechanism.493

Consumer Warranty Law: 14.2.10.6 Can the Mechanism Award the Consumer Attorney Fees?

A lemon law may provide that the dispute resolution mechanism can award attorney fees. When the law is not clear, a court may allow for such fees. The Connecticut Supreme Court has upheld an award of attorney fees for the consumer’s participation in the informal dispute resolution procedure when the statute allowed consumer attorney fees for certain actions, but was silent concerning the powers of the mechanism to award those fees. The court found a legislative intent to encourage consumers to resort to such procedures.501

Consumer Warranty Law: 14.2.10.7.1 When consumer rejects mechanism decision

Lemon laws typically specify whether the mechanism’s decision is binding on the manufacturer, the consumer, or both.510 In many states, if the dispute resolution decision does not satisfy the consumer, the consumer may choose to file a de novo action in civil court.511 Most courts hold that, when review is de novo, the consumer may include additional federal and state claims in the case.512

Consumer Warranty Law: 4.4.3 Dealing with Contract Clauses Stating That the Buyer Has Examined the Goods

Another problem for consumers is the effect on implied warranties of a fine print contract clause stating that the buyer “has examined the goods fully and finds them to be in good condition.” Two older cases hold that such an acknowledgment is conclusive on the issue of examination under section 2-316(3)(b) and precludes any implied warranty.270 The better view, however, is presented in Overland Bond & Investment Corp. v.

Consumer Warranty Law: 4.4.4 Other Remedies If Pre-Sale Inspection Has Vitiated Implied Warranties

A buyer who should have discovered defects or who is bound by an examination clause in the contract is not left without UCC rights. The implied warranties can still cover any defects or characteristics other than those the buyer should have discovered by an inspection, given the buyer’s knowledge and capabilities. The buyer whose inspection should have but did not reveal the defects may still have express warranty claims.275

Consumer Warranty Law: 4.5.1 Nature and Creation of Warranty of Title

Every contract for sale includes a warranty by the seller that the title conveyed is good and its transfer rightful, and that the goods will be delivered free from any security interest or other lien or encumbrance of which the buyer at the time of contracting has no knowledge.278 There is no need to show that the seller knew of the problem with the title, as the warranty arises by operation of law regardless of the seller’s knowledge.279

Consumer Warranty Law: 16.1 Introduction

Lemon laws are not only applicable to cars. Numerous states have passed “wheelchair lemon laws”—a misnomer because many such laws’ coverage has been expanded beyond wheelchairs to include other types of devices intended to assist persons with disabilities in daily life activities. A more accurate description for these laws is assistive technological (AT) device warranty laws.

Consumer Warranty Law: 20.4.7 Other Grounds for Denial of Coverage

Service contract coverage may be denied because, even though coverage was purchased, the product was never eligible for the service contract policy in the first place. For example, the vehicle involved is excluded from the category of vehicles for which coverage is available. Then the consumer has a UDAP claim against the party selling the contract. The contract owner may also be liable for the acts of its agent. While there is not case law in this area regarding service contracts, analogous precedent can be found concerning the sale of credit insurance or other lines of insurance.

Consumer Warranty Law: 20.5.1 Informal Approaches

Aggrieved consumers can complain about service contract performance to the retailer. If the service contractor is a manufacturer, consumers can pursue their complaint through the manufacturer’s hierarchy, from the district sales office to the national headquarters. A letter to the manufacturer or administrator may result in an additional inspection or re-evaluation of the claim. Some manufacturers have established dispute resolution mechanisms to handle warranty complaints which may also hear service contract complaints.

Consumer Warranty Law: 20.5.2 Shaping the Consumer’s Legal Claim

In bringing a legal claim for the service contractor’s failure to perform covered services, plead that the consumer actually requested the services from either the obligor or the obligor’s authorized agent.55 Alleging that the obligor discouraged the consumer from making a request may be insufficient; state that the consumer specifically requested that the covered service be performed.56

Consumer Warranty Law: 20.5.3 Mandatory Arbitration Requirements

Service contracts may include binding arbitration clauses, limiting consumers’ ability to challenge service contract denials in court. Even when the service contract does not include an arbitration requirement, defendants may try to enforce the arbitration clause found in the sales agreement for the covered product.

Consumer Warranty Law: 20.5.4 Magnuson-Moss Warranty Act Remedies

The Magnuson-Moss Warranty Act provides for actual damages, equitable relief, and attorney fees when a service contractor fails to meet its obligations under a service contract.65 Individual Magnuson-Moss claims must usually be brought in state court, although certain class actions may be brought in federal court.66

Consumer Warranty Law: 20.5.5 UDAP Statutes

State deceptive practices (UDAP) statutes provide a remedy for various service contract practices, usually providing attorney fees and often minimum, multiple, or punitive damages.75 Failure to pay a service contract claim may be a UDAP violation, and the bad faith failure to pay a claim is certainly a UDAP violation.76 So are misrepresentations about policy coverage, misstatements that the service contractor will be fair in paying claims, and failure to disclose important facts about the service co

Consumer Warranty Law: 20.5.8 State Service Contract Statutes

Certain state service contract statutes provide an explicit private remedy for violations or for the contractor’s failure to pay a claim.85 Each statute is different—some statutes provide attorney fees, minimum damages, or multiple damages.86 The Third Circuit has found that a provision in a service contract waiving the consumer’s right to attorney fees under the state service contract statute is a violation of that statute.87 Violation of a service cont

Consumer Warranty Law: 20.7.1 Introduction

The service contract owner is primarily responsible for paying claims, so it will be the prime defendant in any litigation for breach of the service contract. When the contract owner is insolvent, consumers can explore alternative parties to hold liable. Even if the contract owner is not insolvent, consumers may wish to raise their service contract-related claims against the holder of their installment sales contract, who will often not be the service contract owner. This section examines the liability of various parties other than the service contract owner.

Consumer Warranty Law: 20.7.2 Insurance Coverage When Contract Owner Is Insolvent

When a service contract is regulated as insurance or offered by an insurance company, a state insurance insolvency fund may be available to pay out claims when that insurance company is insolvent.91 When a service contract is not regulated as insurance, a number of state statutes require that the service contract obligor take out reimbursement insurance or a bond that will pay out claims in case the obligor becomes insolvent.92

Consumer Warranty Law: 20.7.3 Service Contract Administrator Liability

Service contract owners often employ a third party to process and approve claims, called the service contract administrator. The administrator may also offer advice to the service contractor on how to set up the service contract program, but the service contract typically will state that the administrator has no liability to the consumer.

Consumer Warranty Law: 20.7.4 Retailer Liability

A retailer typically sells another company’s service contract in conjunction with its sale of the product protected by the service contract, retains a large portion of the price, and may even perform the promised repairs. In some cases, the retailer or a company related to the retailer reinsures the contract, so that as a practical matter the retailer retains all the benefit and risk from the contract, and the service contract “owner” does little more than participate in a legal fiction, for a fee.

Consumer Warranty Law: 20.7.5 Liability of Other Parties

In addition to the reimbursement insurer, administrator and retailer, other parties aiding and abetting the scheme may be liable for a service contract owner’s failure to pay out on a claim. For example, the Nevada Supreme Court allowed a potential class action to go forward against an accounting firm regarding its participation in the undercapitalization of a service contract insurance company.108

Consumer Warranty Law: 20.7.6 Liability of Holder of Installment Sales Contract

In many consumer transactions, it is more practical to raise claims and defenses against the holder of the consumer’s loan obligation related to the covered product than it is to bring an affirmative suit against a third party. When the retailer is liable for the failure to pay on a service contract claim,109 the retailer’s assignee (or a third party lender referred by the retailer) is also liable pursuant to the Federal Trade Commission’s Holder Rule.110