The Office of General Counsel issued the following opinion on March 6, 2007, representing the position of the New York State Insurance Department.
Re: Warranty of Automobile Windshield Chemical Bond
Would the proposed “Standard Warranty” that is included with the sale of a chemical application to an automotive windshield constitute the doing of an insurance business in New York?
Based upon the facts presented, the provision of the “Standard Warranty” would not constitute the doing of an insurance business in New York.
The inquirer reports that its client markets and sells a product (“the treatment”) that involves the application of a chemical to an automotive windshield that “forms a covalent bond to the glass.” More specifically, the chemical supposedly fills in the microscopic ridges and valleys on the surface of the glass, making them harder, smoother and optically clearer. The chemical reportedly bonds to the glass surface, which creates a number of attributes: the treated glass repels water four times more than untreated glass, and increases visibility in rain and snow. The inquirer also states that the chemical helps dramatically in the removal of ice and snow from the windshield, and resists salt water corrosion and staining on marine vehicles.
In conjunction with the sale of the treatment, the inquirer’s client provides a “standard warranty”. There is no separate charge for the warranty, which provides as follows:
Beginning on the purchase date of treatment and continuing for four years thereafter, the Standard Warranty will cover improper application of the chemical bond and failure of the chemical bond subsequent to its application. Coverage includes reapplication of the chemical and repair to any damage to the windshield that results directly from such improper application or failure of the chemical bond.
The Standard Warranty does not cover damage caused by collision, vandalism, hail, other weather related hazards, factory defects or any windshield damage other than as described above. Damage resulting from war, invasion, civil war, insurrection rebellion or revolution, nuclear radiation or radioactive contamination, or any act of terrorism is also excluded. The term “failure of the chemical bond subsequent to its application” does not include damage that results from any fortuitous event.
In the event of “failure” of the chemical treatment to perform its intended function, or in the event of improper application thereof, the remedy is limited to reapplication, repair or replacement, as the case may be. There is no refund involved. The “standard warranty” excludes damage to the windshield, other than as specified therein. Specifically, the inquirer indicates that no representation is made that the treatment will prevent damage caused as a result of foreign objects hitting the windshield.
The inquirer’s query raises the issue of whether the standard warranty program involves the doing of an insurance business, or constitutes a warranty. We begin with a general discussion of the issues involved.
N.Y. Ins. Law § 1101 (McKinney 2006) provides, in pertinent part:
(a)(1) “Insurance contract” means any agreement or other transaction whereby one party, the “insurer”, is obligated to confer benefit of pecuniary value upon another party, the “insured” or “beneficiary”, dependent upon the happening of a fortuitous event in which the insured or beneficiary has, or is expected to have at the time of such happening, a material interest which will be adversely affected by the happening of such event.
(2) “Fortuitous event” means any occurrence or failure to occur which is, or is assumed by the parties to be, to a substantial extent beyond the control of either party.
(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.
N.Y. Ins. Law § 1102(a) (McKinney 2006) also is relevant. It prohibits any person, firm, association, corporation, or joint-stock corporation from doing an insurance business in New York unless authorized by a license in force pursuant to the Insurance Law, or exempted by the provisions of the Insurance Law from such requirement.
While the Insurance Law does not define “warranty”, a warranty in general 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).
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). 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.
Under the terms of the “Standard Warranty” about which the inquirer asks, if the chemical treatment can in fact provide the protection indicated, then its client agrees, in the event the product fails to perform as promised under ordinary usage where the product has been properly applied, to take remedial steps to reapply, repair, or if necessary, replace, the windshield. Such agreement constitutes a genuine warranty under New York Law and not insurance, because the client sells and “installs” the chemical treatment. Therefore, the warranty would be incidental to the client’s vocation of selling and installing the product. However, damage to the windshield caused by collision, vandalism, hail, other weather-related hazards, factory defects, or any other fortuitous event would constitute insurance and not a warranty.
For further information you may contact Supervising Attorney Sam Wachtel at the New York City Office.