Florida-Licensed Home Warranty Companies Deserve A Little Respect

Consumers frequently complain about Florida-Licensed Home Warranty Companies and say they want to file claims or lawsuits against them, but many of these complaints are unwarranted.  Home warranty companies can be valuable in assisting homeowners to avoid unexpected home repair costs.  Except for rare exceptions, the home warranty companies registered in Florida are legitimate businesses.  They offer a specific scope of warranty coverage for a fixed price.  Their goal is not to take your premiums and then refuse to cover valid claims.

Pursuant to Chapter 634, Part II, Florida Statutes, home warranty companies, which the Florida Statutes refer to as “Home Warranty Associations”, must obtain licenses from the Florida Department of Insurance to sell warranties in Florida.  You can check if a home warranty company is authorized to operate in the State at companysearch.myfloridacfo.gov.

Many of the home warranty companies you recognize from advertisements have substantial assets.  Some, like Frontdoor, Inc. headquartered in Memphis, Tennessee (Nasdaq symbol: FTDR), are publicly traded companies with over a billion dollars in assets.  But, even new entrants to the market are required to satisfy financial and other requirements to be eligible to operate in Florida.  As part of the licensing process pursuant to Florida Statute 634.305, a home warranty company must deposit with the State $100,000 of securities or they can deposit $25,000 of securities and obtain a surety bond for $75,000.  Additionally, pursuant to Florida Statute 634.3077(1), they have to reserve 25% of the annual premium you pay to fund potential claims.  These financial requirements provide some protection that a home warranty company will have assets to be able to pay your future claims.

Moreover, home warranty companies must submit their proposed home warranty agreement forms and rate schedules to the Department of Insurance during the licensure process.  Note that the Department of Insurance does not regulate the rates charged for home warranties.

Another statutory safeguard is Florida Statute 634.312(5).  If you purchase a warranty agreement and later decide you are unhappy with it, you can cancel it.  If you cancel within 10 days, you are entitled to a refund of the entire premium less any claims paid and a reasonable administrative fee not to exceed 5% of the premium.  After 10 days, the refund is 90% of the unearned pro rata premium less any claims that have been paid.

Many of the prominent home warranty companies are also members of the National Home Service Contract Association (“NHSCA”) headquartered in Lenexa, Kansas.  NHSCA’s purpose is to nurture the home service contract industry and its use by the public.  All members are required to abide by a Code of Ethics that promotes sound and ethical business practices.

Many warranty customers are frustrated when a home warranty company denies a warranty claim.  However, how many of these customers took the time to review the warranty agreement before purchasing it?  A home warranty agreement is just like any other contract, where the rights and obligations of the parties are in writing.  Consumers must understand that there have to be limitations on what warranty agreements cover.  First, the home warranty company must establish reasonable limits of coverage so that certain claims do not exhaust assets needed to fund other homeowners’ claims.  Second, to have a service consumers will purchase, home warranty companies must sell their warranties at prices that consumers deem reasonable.  To keep prices in a reasonable range, there must be limitations on the types of repairs the home warranty companies are obligated to make and the costs and maximum amounts of such repairs.

When evaluating whether to purchase a warranty agreement or make a claim, a customer must read and understand what repairs are covered.  You should know that home warranty companies typically are not contractors or repair companies.  Home warranty companies generally provide the financial service of setting premiums and maintaining reserves and other assets to fund future claims.  Home warranty companies usually have agreements with independent contractors and repair companies to make service calls to evaluate claims.  If a claim is covered under the warranty, the repair company usually tries to make the necessary repair during the initial service call.  Some repair companies are preauthorized to perform certain types of repairs or have approval up to a certain dollar threshold.  Warranty companies must approve other repairs.  To offset the repair companies’ service fees, many home warranties require the customer to pay a service call fee directly to the repair company.

Obviously, some unreputable home warranty companies could deny legitimate claims.  If you have read your warranty agreement and determined that your claim has been improperly denied, you can enforce the warranty agreement like any other contract.  You need to review the warranty agreement provisions regarding dispute resolution.  The warranty agreement may require you to arbitrate the claim, but in many cases this is a quicker and cheaper way to resolve smaller value claims.  The warranty agreement may also specify the venue or jurisdiction where disputes will be resolved.  Again, that is a customary term in many contracts.  You should also check the warranty agreement provisions regarding attorneys’ fees and costs for claim disputes.  If you prevail in the arbitration or lawsuit, you may be able to recover your reasonable attorneys’ fees and costs.  Attorneys’ fees and costs may also be awarded if a home warranty company violates the provisions of Chapter 634, Part II (per the Civil Remedy provision).

If you have a valid warranty claim and the warranty company is insolvent, you can seek to collect from the securities and/or bond the Department of Insurance required the warranty company to have in place to obtain its license.

The takeaway is that home warranties can be very beneficial for consumers who want to avoid having to pay unexpected home repair costs.  If you are purchasing a home or listing a home for sale, there can be significant peace of mind in knowing that if an appliance breaks or you have a plumbing issue, you may be able to avoid certain out-of-pocket costs.  For these consumers, home warranty companies provide a valuable service.  Unreputable companies can be screened out through the application process with the Florida Department of Insurance and by enforcing your rights if a home warranty company improperly denies your claim.

For advice regarding your warranty or potential claim, please consult a licensed attorney.

Please contact me at (813)825-0405 or at aking@akinglegal.com if you have any questions about home warranty companies or claims in Florida.