Home Warranty Disputes: Getting Coverage

Home warranty disputes are among the most frustrating consumer complaints in America. The home warranty industry generates over $3 billion annually, with approximately 8 million active contracts nationwide. Yet the Better Business Bureau receives thousands of complaints each year about coverage denials, delays, and inadequate repairs. The FTC's warranty guide explains your rights under federal warranty law. Understanding your rights under state service contract laws and FTC regulations can help you fight back when your home warranty company refuses to honor your coverage.

Understanding Home Warranty Contracts

A home warranty is a service contract that covers repair or replacement of home systems and appliances that break down due to normal wear and tear. Despite the name "warranty," these are not warranties under the Magnuson-Moss Warranty Act (15 U.S.C. 2301-2312) but rather service contracts regulated by state insurance departments.

What Home Warranties Cover

Most home warranty contracts cover major systems and appliances:

• HVAC systems: Heating, ventilation, air conditioning units and ductwork
• Plumbing: Water heaters, pipes, fixtures (excluding exterior lines)
• Electrical: Wiring, panels, switches, outlets
• Kitchen appliances: Refrigerator, oven, dishwasher, disposal
• Laundry: Washer and dryer (often as add-on coverage)
• Optional coverage: Pool, spa, roof leaks, septic system

Industry Regulation

Home warranty companies (also called "home service contract providers") are regulated differently than insurance companies. Most states regulate them under their insurance department or consumer protection agency. Key regulatory frameworks include:

• California: Licensed by Department of Insurance under Cal. Ins. Code 12740-12770
• Texas: Regulated by Texas Real Estate Commission under Tex. Prop. Code 1303
• Florida: Licensed under Fla. Stat. 634.301-634.427 (Service Warranty Associations)
• Arizona: Regulated by Department of Insurance under A.R.S. 20-1095
• New York: Licensed under N.Y. Gen. Bus. Law Art. 36-B

Common Home Warranty Disputes

Understanding the most frequent reasons for claim denials helps you prepare a stronger case:

Pre-Existing Condition Denials

The most common denial reason. Companies claim the problem existed before coverage began. However, many states limit this defense:

• Burden of proof: In most states, the company must prove the condition pre-existed, not you
• Reasonable inspection: If a home inspection didn't reveal the problem, it's harder for companies to claim pre-existence
• Time limitations: Some states limit how long companies can use pre-existing condition denials after coverage starts

Improper Maintenance Denials

Companies frequently deny claims alleging the homeowner failed to maintain the system properly. Fight these denials by:

• Providing HVAC maintenance records (filter changes, annual inspections)
• Obtaining a second opinion from a licensed technician
• Challenging vague maintenance requirements in the contract

Coverage Exclusion Disputes

Contracts contain exclusions that companies interpret broadly. Common exclusions include:

• Code violations or upgrades required by local building codes
• Unusual or excessive usage
• Cosmetic damage or secondary damage
• Modifications or improper installation
• Acts of God or catastrophic events

Repair vs. Replacement Disputes

Companies often insist on repeated repairs rather than replacement, even when systems are beyond reasonable repair. Your contract likely specifies when replacement is required, often using terms like "non-repairable" or "exceeded useful life."

Major Home Warranty Company Policies

Understanding specific company policies helps you navigate disputes:

Company	Service Fee	Coverage Cap	BBB Rating
American Home Shield	$100-$125	$5,000 per item	B
Choice Home Warranty	$85	$3,000 per item	B
First American Home Warranty	$75-$125	Varies by item	A-
2-10 Home Buyers Warranty	$75-$100	$10,000-$25,000 aggregate	A+
Select Home Warranty	$75	$2,000-$3,000	B-
Old Republic Home Protection	$75-$100	$1,500-$2,500	A+

Your Legal Rights

Multiple legal protections apply to home warranty disputes:

State Service Contract Laws

Most states have specific laws regulating home service contracts. These typically require:

• Clear disclosure of coverage terms, exclusions, and limitations
• Cancellation rights (often 30 days for full refund, pro-rata thereafter)
• Licensing and bonding requirements for providers
• Reserve fund requirements to ensure claims can be paid

State Consumer Protection Laws

Unfair or deceptive practices in home warranty disputes may violate state consumer protection acts:

State	Law	Potential Recovery
California	Cal. Civ. Code 1750 (CLRA)	Actual damages + attorney's fees
Texas	Tex. Bus. & Com. Code 17.41 (DTPA)	Up to 3x damages
Florida	Fla. Stat. 501.201 (FDUTPA)	Actual damages + attorney's fees
New York	N.Y. Gen. Bus. Law 349	$50 minimum or actual damages + attorney's fees
Illinois	815 ILCS 505 (Consumer Fraud Act)	Actual damages + attorney's fees

FTC Act and Regulations

The Federal Trade Commission Act (15 U.S.C. 45) prohibits unfair or deceptive practices. Home warranty companies must:

• Accurately describe coverage in advertising and sales materials
• Not misrepresent claim denial rates or customer satisfaction
• Honor written contract terms

Contract Law Remedies

Standard contract law principles apply to home warranty disputes:

• Breach of contract: Recovery of benefit of the bargain (cost of covered repair)
• Implied covenant of good faith: Companies must act fairly in handling claims
• Contra proferentem: Ambiguous contract terms are interpreted against the drafter (the warranty company)

Step-by-Step: Fighting a Claim Denial

Follow these steps when your home warranty claim is denied:

Step 1: Request Written Denial

Always get the denial in writing. Many states require this. The written denial must cite the specific contract provision being applied. If the company only denies verbally, send a written request:

"I am requesting a written explanation of the denial of my claim [claim number] dated [date], including the specific contract language you are relying upon for this denial."

Step 2: Review Your Contract Carefully

Read the exact language of your contract, not summaries. Look for:

• The specific coverage for your item
• Exclusions cited in the denial
• Definition of key terms (pre-existing condition, normal wear, maintenance)
• The appeals process and timeline

Step 3: Get a Second Opinion

Hire an independent licensed contractor to inspect the failed system. Ask them to provide a written report addressing:

• The cause of the failure
• Whether it resulted from normal wear and tear
• Whether there's evidence of lack of maintenance or pre-existing damage
• The cost of repair or replacement

Step 4: File an Internal Appeal

Most companies have an internal appeals process. Submit your appeal in writing with:

• Reference to the original claim and denial
• Specific contract language supporting your claim
• The independent contractor's report
• Any maintenance records, inspection reports, or other supporting documentation

Step 5: File Regulatory Complaints

If internal appeals fail, file complaints with:

• State insurance department: Regulates home warranty companies in most states
• State attorney general: Consumer protection division handles unfair practices
• Better Business Bureau: Can mediate disputes and affects company ratings
• Consumer Financial Protection Bureau: If financing is involved

Step 6: Send a Formal Demand Letter

Before legal action, send a demand letter to the company's legal department. Include:

• Detailed timeline of events
• Specific contract provisions violated
• Applicable state laws (cite specific statutes)
• Amount demanded and deadline for response (typically 14-30 days)
• Statement that you will pursue legal remedies if not resolved

Calculating Your Damages

When pursuing a home warranty claim, you may recover:

Direct Damages

• Cost of repair/replacement: What the warranty should have covered
• Service fees paid: Often refundable if claim wrongfully denied
• Premium paid: Pro-rata refund if coverage was illusory

Consequential Damages

• Emergency repairs: If company delayed unreasonably
• Hotel costs: If home was uninhabitable during delay
• Food spoilage: If refrigerator failure caused loss
• Additional damage: If delay caused secondary damage (e.g., water damage from delayed plumbing repair)

Statutory Damages

Under state consumer protection laws, you may recover:

• Treble damages: Up to 3x actual damages in some states (Texas, Massachusetts)
• Minimum statutory damages: $200-$1,000 depending on state
• Attorney's fees: Available under most state consumer protection laws

Arbitration and Class Action Waivers

Most home warranty contracts contain mandatory arbitration clauses and class action waivers. Understanding these provisions is critical:

Arbitration Clauses

Most companies require disputes go to arbitration rather than court. However:

• Small claims court is usually exempt from arbitration requirements
• Filing fees for arbitration can be substantial ($1,500-$6,000)
• Many arbitration clauses require the company to pay fees for claims under certain amounts
• Some states limit enforcement of arbitration clauses (California, New Jersey)

Small Claims Court Alternative

Small claims court is often your best option for home warranty disputes:

State	Small Claims Limit	Filing Fee
California	$12,500	$30-$75
Texas	$20,000	$50-$100
Florida	$8,000	$55-$300
New York	$10,000	$15-$20
Arizona	$3,500	$18-$75

Frequently Asked Questions

Can a home warranty company deny a claim for a pre-existing condition?

Yes, but with limitations. Most states require the company to prove the condition existed before coverage began. If a pre-sale home inspection didn't reveal the problem, and the system was working when coverage started, you have strong grounds to challenge a pre-existing condition denial. Document that systems were operational at coverage start.

What if the warranty company keeps sending technicians but never fixes the problem?

Most contracts have provisions requiring replacement after repeated failed repairs. Document every service visit with dates, technician names, and what was done. After 3-4 failed attempts, demand replacement in writing. If they refuse, this may constitute breach of contract and bad faith handling.

Can I use my own contractor instead of the warranty company's?

Usually you must use their contractors for covered repairs. However, if they can't send a technician within a reasonable time (often 24-48 hours for emergencies), you may be able to use your own contractor and seek reimbursement. Check your contract for the specific timeframe and get pre-authorization in writing if possible.

What if the warranty company goes out of business?

Most states require home warranty companies to maintain reserve funds or surety bonds. If a company fails, file a claim with your state insurance department. You may recover from the company's reserves or bond. Also check if your home warranty was purchased through a real estate transaction; the title company or agent may have some liability.

Can I cancel my home warranty and get a refund?

Yes. Most contracts allow cancellation with a pro-rata refund (minus an administrative fee, usually $25-$75). Many states require a full refund within the first 30 days. Some contracts also allow cancellation for material breach by the company. Check your specific contract terms and state law.

Does my home warranty cover code upgrades?

Most home warranties exclude the cost of bringing systems up to current building codes. If an HVAC replacement requires new ductwork to meet code, or a water heater needs new venting, you typically pay these additional costs. Some contracts offer optional code upgrade coverage for an additional premium.

What's the difference between a home warranty and homeowner's insurance?

Homeowner's insurance covers damage from sudden events like fires, storms, or theft. Home warranties cover mechanical breakdowns from normal wear and tear. If your AC stops working because it's old, that's a warranty claim. If lightning strikes your AC and destroys it, that's an insurance claim. You need both for comprehensive protection.

Resources

• National Association of Insurance Commissioners: Find your state insurance department at naic.org
• Consumer Financial Protection Bureau: consumerfinance.gov/complaint
• FTC Consumer Complaints: reportfraud.ftc.gov
• Better Business Bureau: bbb.org
• State Attorney General: Search "[your state] attorney general consumer complaint"