New York State Seal
STATE OF NEW YORK
INSURANCE DEPARTMENT
ONE COMMERCE PLAZA
ALBANY, NEW YORK 12257

George E. Pataki
Governor

Howard Mills
Superintendent

The Office of General Counsel issued the following opinion on May 12, 2006 representing the position of the New York State Insurance Department.

Re: Tire and Rim Elite – Extended Service Contract/Application.

Question Presented:

May a service contract provide for the repair or replacement of tires or wheels for damages due solely to a defect in materials or workmanship?

Conclusion:

Yes, a service contract may provide for the repair or replacement of tires or wheels that experience a failure due solely to a defect in materials or workmanship. The service contract may not provide coverage for tires damaged by fortuitous events.

Facts:

The inquirer represents a registered service contract provider. In addition to the question above, the inquirer submitted a proposed service contract. She asked whether the contract may constitute a service contract under the Insurance Law.

Over the course of our discussions, the inquirer amended the proposed contract. The analysis contained herein is limited to the contract in question.

The contract provides for reimbursement for the costs of tire or rim replacement or repair for defects in material or workmanship; and for road service to change or repair a tire to enable the customer to drive to a repair facility. The contract specifically excludes damages due to vandalism, acts of God and nature, flood, theft, accident or road hazards.

Analysis:

N.Y. Ins. Law § 7902(k) (McKinney 2000), defines the term "service contract" as follows:

(k) "Service contract" means a contract or agreement, for a separate or additional consideration, for a specific duration to perform the repair, replacement or maintenance of property, or indemnification for repair, replacement or maintenance, due to a defect in materials or workmanship or wear and 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, and may also provide for the repair, replacement or maintenance of property for damage resulting from power surges and accidental damage from handling. Service contracts may also include contracts to repair, replace or maintain residential appliances and systems. (emphasis added)

Thus, a service contract may provide for the repair or replacement of tires or wheels for a defect in materials or workmanship. However, the service contract may not provide coverage for tires damaged by fortuitous events, such as road hazards. See Opinion of General Counsel No. 05-03-30 (March 22, 2005).

Since the contract that the inquirer submitted on behalf of her client provides for the repair or replacement of tires or wheels that experience a failure due solely to a defect in materials or workmanship and specifically excludes fortuitous events, such as road hazards, the contract meets the definition of a service contract. In addition, the road service benefit provided by the contract constitutes emergency road service and is thus provided for within the definition of the term "service contract" as defined by N.Y. Ins. Law § 7902(k).

For further information you may contact Assistant Counsel Brenda M. Gibbs at the Albany Office.