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Consumer Warranty Law: 20.3.1 First Considerations

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.

Consumer Warranty Law: 20.3.2 Factors Indicating Whether a Service Contract Is Regulated As Insurance

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

Consumer Warranty Law: 20.4.2 Computing the Contract’s Time Period

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.

Consumer Warranty Law: 20.4.4 When the Contract Is at Variance with Prior Representations

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.

Consumer Warranty Law: 20.4.5 Disputing the Accuracy of the Obligor’s Product Inspection

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.

Consumer Warranty Law: 20.4.6 Failure to Obtain Prior Approval for Repairs

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

Consumer Warranty Law: 7.7.2.3 Assumption of Risk

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.

Consumer Warranty Law: 7.7.2.4 Misuse of the Product

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

Consumer Warranty Law: 7.7.2.5 Failure to Abide by Directions for Use

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

Consumer Warranty Law: 7.7.3 Noncompliance with Conditions to Warranty Coverage

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.”

Consumer Warranty Law: 7.7.4.1 Determining When Warranty Expires

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.

Consumer Warranty Law: 7.7.4.2 Defects Reported But Not Repaired Before Period Expires

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.

Consumer Warranty Law: § 700.2 Date of manufacture.

Section 112 of the Act, 15 U.S.C. 2312, provides that the Act shall apply only to those consumer products manufactured after July 4, 1975. When a consumer purchases repair of a consumer product the date of manufacture of any replacement parts used is the measuring date for determining coverage under the Act. The date of manufacture of the consumer product being repaired is in this instance not relevant.

Consumer Warranty Law: § 700.3 Written warranty.

(a) The Act imposes specific duties and liabilities on suppliers who offer written warranties on consumer products. Certain representations, such as energy efficiency ratings for electrical appliances, care labeling of wearing apparel, and other product information disclosures may be express warranties under the Uniform Commercial Code. However, these disclosures alone are not written warranties under this Act. Section 101(6), 15 U.S.C.

Consumer Warranty Law: § 700.4 Parties “actually making” a written warranty.

Section 110(f) of the Act, 15 U.S.C. 2310(f), provides that only the supplier “actually making” a written warranty is liable for purposes of FTC and private enforcement of the Act. A supplier who does no more than distribute or sell a consumer product covered by a written warranty offered by another person or business and which identifies that person or business as the warrantor is not liable for failure of the written warranty to comply with the Act or rules thereunder.

Consumer Warranty Law: § 700.5 Expressions of general policy.

(a) Under section 103(b), 15 U.S.C. 2303(b), statements or representations of general policy concerning customer satisfaction which are not subject to any specific limitation need not be designated as full or limited warranties, and are exempt from the requirements of sections 102, 103, and 104 of the Act, 15 U.S.C. 2302–2304, and rules thereunder. However, such statements remain subject to the enforcement provisions of section 110 of the Act, 15 U.S.C. 2310, and to section 5 of the Federal Trade Commission Act, 15 U.S.C. 45.

Consumer Warranty Law: § 2306. Service contracts; rules for full, clear and conspicuous disclosure of terms and conditions; addition to or in lieu of written warranty

(a) The Commission may prescribe by rule the manner and form in which the terms and conditions of service contracts shall be fully, clearly, and conspicuously disclosed.

(b) Nothing in this chapter shall be construed to prevent a supplier or warrantor from entering into a service contract with the consumer in addition to or in lieu of a written warranty if such contract fully, clearly, and conspicuously discloses its terms and conditions in simple and readily understood language.

Consumer Warranty Law: § 2307. Designation of representatives by warrantor to perform duties under written or implied warranty

Nothing in this chapter shall be construed to prevent any warrantor from designating representatives to perform duties under the written or implied warranty: Provided, That such warrantor shall make reasonable arrangements for compensation of such designated representatives, but no such designation shall relieve the warrantor of his direct responsibilities to the consumer or make the representative a cowarrantor.

Consumer Warranty Law: 12.4.3 Proximate Cause

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

Consumer Warranty Law: § 2310. Remedies in consumer disputes

(a) Informal dispute settlement procedures; establishment; rules setting forth minimum requirements; effect of compliance by warrantor; review of informal procedures or implementation by Commission; application to existing informal procedures.

(1) Congress hereby declares it to be its policy to encourage warrantors to establish procedures whereby consumer disputes are fairly and expeditiously settled through informal dispute settlement mechanisms.

Consumer Warranty Law: § 2301. Definitions

For the purposes of this chapter:

(1) The term “consumer product” means any tangible personal property which is distributed in commerce and which is normally used for personal, family, or household purposes (including any such property intended to be attached to or installed in any real property without regard to whether it is so attached or installed).

(2) The term “Commission” means the Federal Trade Commission.