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.
To schedule a call to speak with Charles Internicola contact The Internicola Law Firm, P.C. at 1-800-976-4904.
In this guide you’ll learn the basics of franchising, how to franchise your business, and how to win at franchising. We’ll also take a deeper dive into legal requirements for franchising and why they matter, steps to take before and after you launch your franchise, and even some tips on... read more
When considering expanding a business both franchising and licensing are possible options. In this guide, you'll learn the differences of franchising and licensing and understand how each will affect you. read more
Are you a successful business owner? Are you looking for ways to expand your business? If so, this article will provide the answers you need to decide whether franchising your business is the right step for you. In short, franchising allows you, the franchisor, to create a relationship among several... read more
Under federal law, prior offering or selling a franchise in any state, franchisors are required to disclose a franchise disclosure document (FDD) to their prospective franchisees. In addition to federal law certain states, including the franchise registration states, require that franchisors register their FDD with the state. The legal documentation... read more
Franchising may be the next big step for your business and represents an opportunity to grow your brand. So, how do you know if franchising is right for you? How do you know if your business is franchisable and, if it is, whether or not you should franchise your business?... read more
Key strategies to accelerate franchise growth for startup and emerging franchisors In this webinar, franchise attorney Charles Internicola and Nick Powills, founder of No Limit Agency and 1851 Franchise, discuss key strategies to accelerate franchise growth through PR and digital media. Some topics include: Steps franchisors should take when it... read more
One of the biggest issues for emerging franchisors is not having a plan for insurance and system-wide protection. What do emerging brands need to know when they're starting off, who should they rely on, and how can they plan ahead? Get an insurance game plan to protect your franchise system... read more
Key strategies for developing the right logo & trade dress to drive franchise growth with branding and design expert Dan Antonelli. Dan is the author of ‘Building a Big Small Business Brand’ and is the creative director of the branding firm KickCharge Creative. Learn how to drive franchise growth and... read more
With services to make your growth strategy simple, cost effective, and with a team excited to help you, let’s talk about how we can help grow your business.
Fill out the following form and we’ll contact you as soon as possible. To reach our team directly, give us a call at (800) 976-4904.
An attorney client relationship is not established by submitting this initial contact information.