Warranty 101: Back to Basics

WarrantyWe all participate in the marketplace. And warranty law impacts virtually every sale and purchase made, in-store or on-line. So whether you are a seller of goods and services or a consumer, there is value to be had in understanding warranty law concepts and the policies they serve.

This being the case, the DrivingValue team shall present a series of “Warranty 101” posts that explore, examine, and and explain warranty concepts we encounter in our day-to-day transactions and the terms used to express them. Our goal is to present the material in posts that while short and easy-to-read, still provide accurate and useful information.

We hope you enjoy and find value in our efforts and we invite you to let us know how we’re doing.  

 

 

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No Halt to Hot Handle Class Action in New Jersey

The District Court for New Jersey has denied microwave distributor Electrolux Home Products, Inc.’s arguments that plaintiff’s breach of implied warranty and Magnuson-Moss Warranty Act claims are time barred.

In Gorczynski v. Electrolux Home Prods., the plaintiff brought claims stemming from an alleged defect in stainless steel microwave handles manufactured and distributed by the defendants, claiming these handles become excessively hot when a consumer cooks on an active stovetop below the over-the-range microwaves.

The defendants sought to dismiss these claims under a number of theories, but the court rejected all of them.

Most interesting is the court’s treatment of Defendant Electrolux’s argument that plaintiff’s breach of the implied warranty of merchantability and Magnuson-Moss Warranty Act claims were time barred.  Included in the last page of the subject microwaves’ user manuals, Electrolux included a statement that any claims based on the implied warranty of merchantability are limited to one year.  And as required by regulations promulgated under the Magnuson-Moss Act, the manual went on to state that some jurisdictions do not allow a limitation on the duration of implied warranties, so the limitation may not apply to a given consumer.  This additional language is crucial, but not in the way the court seems to believe. 

The Third Circuit has ruled that any reduction in the duration of the statute of limitations for breach of implied warranty must be conspicuous, defined as “so written that a reasonable person against whom it is to operate ought to have noticed it.” See Gladden v. Cadillac Motor Car Div., 83 N.J. 320, 331 (N.J. 1980).  However, where such limitation is not conveyed in “clear an understandable language[,]” they are “generally regarded as improper or invalid[.]” Id. at 335. Here, it is the federally mandated language that the court finds offensive and prevented the defendant from prevailing in its arguments.  Because the written warranty points out that a consumer may have other rights that vary from state to state, the court found an average consumer not fully versed in the specific limitations on a state-by-state basis is likely to be confused.  Accordingly, the court found it would not be clear and conspicuous to a consumer whether the limitation applied to him, and defendant’s motion to find plaintiff’s breach of warranty claim time barred was denied.  Because plaintiff’s Magnuson-Moss Warranty Act claims are coextensive with the underlying state warranty claim, the court likewise allowed these claims to proceed.

The court’s conclusion here runs contrary to 16 C.F.R. §701.3(a), the Federal Trade Commission regulation that requires consumer product warrantors to make detailed disclosures of information necessary to allow consumers to understand written warranties—specifically §701.3(a)(7), which requires any limitation on the duration of an implied warranty to include the language: “Some States do not allow limitations on how long an implied warranty lasts, so the above limitation may not apply to you.”

How can the same statement both be legally required as necessary for consumers to understand written warranties, and at the same time lead the court to find it likely to mislead or confuse customers?  The court may not have perceived this seeming disconnect, but if it did, it made no effort to make sense of it. One potential explanation is that the court took issue not with the language notifying consumers of varying state law, but with the year-long limitation itself, which was written with finality: “Claims…are limited to one year or the shortest period allowed by law.”  But the Uniform Commercial Code’s statute of limitations, which applies to Magnuson-Moss claims, permits a warrantor reducing the time for filing a breach of warranty claim from four years to “not less than one year.” The court also looked askance at the defendant’s statement that “[t]his written warranty gives you specific legal rights.  You may also have other rights that vary from state to state.”  This, too, is a federally mandated statement; it must appear in all consumer product warranties. The court’s lack of awareness of federal warranty requirements leaves manufacturers with uncertainty as to how to proceed in drafting future disclaimers, at least when their products are distributed in New Jersey.

The court also rejected defendant’s argument that plaintiff’s claims would be subsumed under the New Jersey Products Liability Act; the court set this argument aside by observing that the plain language of the Act limits its application to situations where a product causes damage or harm to something other than the product itself. N.J.S.A. 2A:58C1(b)(3). As the plaintiff only alleged the defect in the microwave handle damaged the usefulness and value of the microwave itself, the court found the Act explicitly excluded plaintiff’s claims from its coverage. 

The court likewise rejected defendant’s argument – that plaintiff failed to state a claim under the New Jersey Consumer Fraud Act – finding plaintiff adequately alleged (1) unlawful conduct; (2) an ascertainable loss; and (3) a causal relationship between the conduct and that loss. See International Union of Operating Engineers Local No. 68 Welfare Fund v. Merck & Co., 929 A.2d 1076 (N.J. 2007).  Though defendants argued plaintiff failed to meet the heightened specificity requirements of Federal Rule of Civil Procedure 9(b) in bringing a claim founded on fraud or misrepresentation, the court opined that because plaintiff premised at least part of defendants’ alleged consumer fraud violation on an affirmative misrepresentation that the microwaves were suitable for over-the-range use, plaintiff sufficiently alleged the falsity of this representation.

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Litigation Practice Tips

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In a  recent webinar my Segal McCambridge colleague, Dan Ahasay, and I covered three key litigation topics:  telling your client’s story to the jury, understanding and applying the federal rule of evidence governing the use of expert witness testimony at trial, and defending against a trial tactic claimed to spur jurors to think with their “reptile” brain. While we couched our discussed in the context of products liability litigation, the thoughts and insights shared apply to just about any case. You can access the presentation materials here.

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Hot off the press: New Frontiers for Extended Warranties

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New Frontiers for Extended Warranties by Aleem Lakhani is a must read for warranty industry professionals. In the article, Aleem examines the impact disruptive technologies and changing consumer expectations are having on warranty, extended warranty and service contract operations. He analyzes the contours of the present day warranty marketplace, the digital transformation of how business is done in the space, and what this transformation means for key stakeholders.  Aleem observes that “[t]he primary challenge [disruptive technologies present] relates to how to harness the data to make intelligent use of it in a timely manner for relevant partners in the warranty value chain ecosystem,” and predicts that “[t]hose that take bold steps today will benefit from first-mover advantage, increased market share, and will establish trust, loyalty and confidence about their commitment to innovation with partners, including the expectation of today’s and tomorrow’s customers.”

Aleem, the EVP at AmTrust North America, Specialty Risk Division, is a warranty industry veteran and thought leader. He also serves as on the Board of Directors for the Global Warranty and Service Contract Association. (Full disclosure: I am presently serving as GWSCA president.)  

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Warranty 101: Seventh Circuit Affirms Wisconsin Interpretation of UCC §2-719

Courts across the country disagree about parties’ ability to contract around the UCC’s warranty remedy and damages provisions; the Seventh Circuit just ruled that Wisconsin’s limitations on UCC §2-719 remain in place, despite national trends in the opposite direction.

Consequential damages remain out of reach in Wisconsin when a limited warranty fails in its essential purpose.

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Damages and Disclaimers, the Finale

Here is the third and final post in my series on damages and disclaimers in consumer product warranty actions. (Parts 1 and 2 are here and here.) Continue reading

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Damages and Disclaimers cont’d.

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Here’s part two of my discussion of damages and disclaimers in cases involving claims that a warranty on a consumer product has been breached. (Part 1 is here.) Continue reading

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Does Offering a Service Contract Make Sense for Your Business?

Service contracts can be powerful tools for increasing revenue and customer loyalty. If you sell a product, you have almost certainly considered what type of warranty to offer. But, have you also thought about whether to also give customers the option of purchasing an additional service contract? Here are five things to consider: 

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Damages And Disclaimers in Actions for Breach of a “Repair or Replacement” Warranty

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How should damages be measured in an action for breach of repair-and-replacement warranty? And what elements of damages should available? I recently ran across a piece I wrote addressing these questions in 2005. Remarkably – or, perhaps, not so remarkably given the pace at which the law evolves – it remains relevant; so I thought I’d put it out there for comment.  Continue reading

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Warranty 101: Tug of War – The Origins of Warranty Law

For centuries, warranty law has been a back and forth between policies benefiting sellers and those protecting buyers. Current warranty law is a reflection of this. To better navigate today’s policies, an understanding of how history has dealt with warranty regulation is crucial. Continue reading

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