The Office of General Counsel issued the following opinion on September 3, 2003, representing the position of the New York State Insurance Department.
Re: State Warranty and Service Contract Requirements
1. In what way do state requirements on warranties offered on used vehicles differ from the federal requirements under the Magnuson-Moss Act (15 USC §§ 2301 et. seq.)?
2. Are there any restrictions or prohibitions regarding the party obligated to perform under the terms of a warranty? Specifically, is it permissible for either the selling dealer or the program administrator to act as the warranty obligor in regard to used vehicles?
3. Are there any filing requirements for warranties?
1. Insurance Law requirements governing warranties and service contracts are governed by N.Y. Ins. Law §§ 1101 and 1102 (McKinney 2000 & Supp. 2003) and N.Y. Ins. Law Art. 79 (McKinney 2000 & Supp. 2003). While the Magnuson-Moss Act refers to "warranties" and service contracts", the definitions differ in certain respects.
2. The making of a warranty constitutes the doing an insurance business under N.Y. Ins. Law § 1101 if such warranty is made as a vocation and not as merely incidental to any other legitimate business or activity of the warrantor. Under the New York Insurance Law, service contract providers must register with the Department and comply with certain requirements.
3. If the warranty is not made as a vocation and is merely incidental to any other legitimate business or activity of the warrantor, the maker of the warranty is not required to make any filing with the Insurance Department. However, the maker of a service contract is required to register with the Department.
No specific facts are provided.
This Department will not attempt a section by section comparison of the Magnuson-Moss Act with New York State law. However, we can provide certain general information regarding the regulation of warranties and service contracts under the New York Insurance Law.
The Magnuson-Moss Act governs the making of "implied warranties" and "written warranties", as such terms are defined in 15 U.S.C. 2301(6) and (7). The act also applies to "service contracts", as defined in subsection (8) of such section. New York Insurance Law § 1101, which defines the doing of an insurance business in New York, includes the making of warranties as insurance under certain circumstances. Article 79 of the Insurance Law regulates the sale of service contracts in New York. In addition, the Superintendent has promulgated N.Y. Comp. Codes R. & Regs. tit. 11 §§ 390.0 390.13 (1999) (Regulation 155), governing service contracts.
Whether an agreement is a "warranty" or a "service contract" under Magnuson-Moss does not mean that such an agreement would correspondingly be a warranty or a service contract under the Insurance Law because the definitions under each law differ.
Section 2301 of the Federal law contains the following relevant definitions:
(1).The term "consumer product" means any tangible personal property which is distributed in commerce and which is normally used for personal, family, or household purposes (including any such property intended to be attached to or installed in any real property without regard to whether it is so attached or installed).
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(4).The term "supplier" means any person engaged in the business of making a consumer product directly or indirectly available to consumers.
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(6).The term "written warranty" means
(A) any written affirmation of fact or written promise made in connection with the sale of a consumer product by a supplier to a buyer which relates to the nature of the material or workmanship and affirms or promises that such material or workmanship is defect free or will meet a specified level of performance over a specified period of time, or
(B) any undertaking in writing in connection with the sale by a supplier of a consumer product to refund, repair, replace, or take other remedial action with respect to such product in the event that such product fails to meet the specifications set forth in the undertaking, which written affirmation, promise, or undertaking becomes part of the basis of the bargain between a supplier and a buyer for purposes other than resale of such product.
(7).The term "implied warranty" means an implied warranty arising under State law (as modified by sections 108 and 104(a)) [15 USCS §§ 2308 and 2304(a)] in connection with the sale by a supplier of a consumer product.
(8).The term "service contract" means a contract in writing to perform, over a fixed period of time or for a specified duration, services relating to the maintenance or repair (or both) of a consumer product.
N.Y. Ins. Law § 1101 (McKinney 2000), provides, in pertinent part:
(a)(3) "Contract of warranty, guaranty or suretyship" means an insurance contract only if made by a warrantor, guarantor or surety who or which, as such, is doing an insurance business.
(b)(1) Except as provided in paragraph two, three or three-a of this subsection, any of the following acts in this state, effected by mail from outside this state or otherwise, by any person, firm, association, corporation or joint-stock company shall constitute doing an insurance business in this state and shall constitute doing business in the state within the meaning of section three hundred two of the civil practice law and rules.
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(B) making, or proposing to make, as warrantor, guarantor or surety, any contract of warranty, guaranty or suretyship as a vocation and not as merely incidental to any other legitimate business or activity of the warrantor, guarantor or surety.
While the Insurance Law does not define "warranty", in general, a warranty relates in some way to the nature or efficiency of a product or service. Commonly, the warrantor agrees to repair or replace a product that fails to perform properly, such as a contract covering a defect in materials or workmanship, or a contract otherwise covering the breakdown of the product. Ollendorf Watch Co., Inc. v. Pink, 279 N.Y. 32, 17 N.E.2d 675 (1938).
A "service contract" is defined, in pertinent part, in N.Y. Ins. Law § 7902(k) (McKinney 2000) to mean:
a contract or agreement, for a separate or additional consideration, for a specific duration, to perform the repair, replacement or maintenance of property due to a defect in materials or workmanship or wear or tear, with or without additional provision for indemnity payments for incidental damages, provided any such indemnity payment per incident shall not exceed the purchase price of the property serviced. Service contracts may include towing, rental and emergency road service . . .
In addition, § 7902(d) defines "maintenance agreement" to mean: "a contract of limited duration that provides for scheduled maintenance of property, other than contracts providing for the repair or replacement of such property due to a defect in materials or workmanship or wear and tear."
Under New York law, service contracts and warranties are similar in that both relate to the nature or efficiency of a product, but there are distinctions between them.
In order to be a warranty, the maker of the contract must have a relationship to the product or service, or do some act that imparts knowledge of the product or service to the extent of minimizing, if not eliminating, the element of chance or risk contemplated by N.Y. Ins. Law § 1101(a). However, generally speaking, a contract that relates to the nature or efficiency of a product is a warranty if made by the manufacturer, seller, or other person in the chain of sale of that product and would not constitute the doing of an insurance business, regardless of whether a fee is charged for the contract. The making of a warranty constitutes the doing of an insurance business if done as a vocation and not as merely incidental to any other legitimate business or activity of the warrantor, guarantor or surety.
Where there is no relationship to the product or service or act as described above, the maker of the contract undertakes an obligation involving a fortuitous risk, and the contract is an insurance contract and constitutes the doing of an insurance business unless the contract is a service contract issued in accordance with N.Y. Insurance Law Article 79. N.Y. Ins. Law § 1101(b)(3-a) provides, in pertinent part, that the marketing, sale, offer for sale, issuance, making, proposing to make or administration of a service contract pursuant to Article 79 shall not constitute the doing of an insurance business in this state. However, no person or other entity who is obligated to provide service under a service contract may issue, sell or offer for sale a service contract in New York unless it first registers with the Superintendent of Insurance as a service contract provider, pursuant to N.Y. Insurance Law § 7907 (McKinney 2000).
As can readily be seen, the definitions of the above terms under the Federal and state laws are not the same. One significant difference between the Federal law and New York law is that Magnuson-Moss applies to contracts made in connection with "consumer products". The applicability of New Yorks laws regarding warranties and service contracts are not so limited and apply regardless of the use of the property. Regardless of whether a particular contract would constitute a "service contract" or a "warranty" under Magnuson-Moss, in New York, the contract must be analyzed in regard to the above New York statutes to determine which of the insurance laws will apply to that contract.
In regard to the second question, generally speaking, the selling dealer of the product would be considered to be issuing a warranty as incidental to its vocation, and therefore would not be doing an insurance business in New York and would also not have to register as a service contract provider. However, if the program administrator were the obligor under the contract, it would have to register as a service contract provider.
In regard to the third question, if the contract is a service contract, the provider must comply with the requirements of Article 79 and Regulation No. 155. However, the actual contracts are not required to be filed with the Insurance Department.
This response is limited to interpretation of the N.Y. Insurance Law. However, please also see N.Y. Gen. Bus. Law §§ 198-a and 198-b (McKinney 1996), which are commonly referred to as New Yorks automobile "Lemon Laws". Section 198-a applies to new "motor vehicles", as defined in subsection (a)(2) thereof, and § 198-b applies to "used motor vehicles", as such term is defined in subsection (a)(2) therein. These sections provide certain rights to purchasers and lessees of motor vehicles.
For further information you may contact Principal Attorney Paul A. Zuckerman at the New York City Office.