Many of our product manufacturing clients believe that offering product warranties on their products is good for business, which, in most cases, is true. However, when offering a product warranty, it is imperative that the warranty expressly states what is warranted and what is not. Failure to do so will lead to unnecessary claims and eventually expensive litigation.
A recent decision in California reminds us the importance of a well drafted warranty and well informed customer when it comes to product warranties. The United States District Court of the Northern District of California recently entertained a claim brought by a purchaser of an automotive additive that came with a limited product warranty that warrants against damage to the moving parts of a vehicle’s engine and transmission caused by failure of the additive. The product warranty contained a provision stating that the warranty would not be effective if a customer did not satisfy certain maintenance requirements, including changing the vehicle’s oil every four months or four thousand miles. The plaintiff initiated a class action claiming that he and other consumers were swindled into purchasing the additive because they believed that they were purchasing an extended automobile warranty rather than a limited product warranty. Following the customers initial warranty claim, the company rejected the claim on the grounds that the customer did not follow the maintenance requirements as specified, as he did not change the oil in accordance with the warranty’s terms. The plaintiff brought the action claiming that he never received the terms and conditions associated with the warranty and was unaware of the maintenance obligations.
In addition to the customary claims brought by similarly situated plaintiffs, the plaintiff claimed that the manufacturer was prohibited from selling the warranties to the public as the manufacturer was selling “insurance” as defined in the California Insurance Code §116.5, which states that express warranties on motor vehicle lubricants, etc. will constitute insurance unless the manufacturer can meet four specific requirements (which we will not go into detail with in this article).
This case is a good reminder to all product manufacturers that you must tread carefully when offering any type of warranty to avoid similar claims on their product warranties. Some things to keep in mind are the following:
When drafting a product warranty, you must be careful to clearly specify what exactly the warranty covers. There are numerous ways to convey this information to your customers such as on your product packaging, on your website or by providing a warranty pamphlet/booklet. The thing to keep in mind is that, no matter how you provide the information, it must be clear to the consumer what the warranty covers.
If you are doing business in the United States, it is extremely important to keep in mind that each state has specific laws affecting warranties. The line between a warranty and insurance policy is not as plain as it appears on its face. California’s Insurance Code §165.5 is a perfect example of how a statute’s “default” is set to being interpreted as selling insurance. Many states have similar specific requirements for selling warranties and insurance products. If your warranty is deemed “insurance” in the eyes of the state, it can lead to troubling results, to say the least. You must be aware of every warranty related law in each territory you sell your product.
As exemplified in this case, each product has different warranty related laws that it must comply with. For example, California’s Insurance Code §165.5 applies only to warranties related to “motor vehicle lubricant, treatment, fluid or additive.” If your company is selling other product types, there may be specific statutes that affect your product. You must be aware of all of them before offering a warranty on your product.
If you are interested in learning more about this topic we recommend reading the additional information we have listed on our site about Product Warranties.
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