Third Party Extended Warranties and Service Contracts: Drawing the Line Between Insurance and Warranty Agreements

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For the average consumer, the purchase of a product seldom involves questions of insurance law. When purchasing tangible goods such as washers, dryers, and automobiles, consumers often rely upon product warranties by the seller to guard against possible future repair costs. However, in the past two decades manufacturers and retailers, especially of automobiles, have intensified the sale of product guarantees such as extended warranties and service contracts which lengthen the term of a product’s usual guarantee. Moreover, independent corporations which neither manufacture nor sell consumer products have begun to solicit third party service contracts to consumers. Such service contracts are intended to fulfill the purpose of an extended warranty by providing either actual repair or replacement or by offering financial reimbursement for the necessary repair or replacement of consumer products. Abuse in the sale and performance of product guarantees sold by third parties has come to the attention of both state and federal regulators. This publication exams the problems and risks facing consumers as a result of these agreements, and the laws across the country which try to deal with the complexities of this industry. This publication has been cited by regulators and courts throughout the country, which have relied on its discussion and findings as a definitive and compelling discussion of this topic.

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