Lawsuits Allege Home Warranty Companies are Deliberately Scamming Homeowners

In researching our recent story on home warranty companies “Are you risking your Client Relationships by Recommending a Home Warranty Company” we became aware of several class action lawsuits filed against two of the biggest companies in this space: Old Republic and First American.

The actual class action complaints are: Michael D. Friedman vs. Old Repbulic Home Protection Company case no: EDCV 12-1833 and Nancy Carrera, Anna Hershey, Karene Jullien and Brent Morrison v. First American Home Buyers Protection Company case no: 13-cv-1585 H.
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Both suits were filed in the US District Court, Southern District of California as class action lawsuits by attorneys from Bottini and Bottini in La Jolla, California.

The Old Republic complaint specifically alleges “False Advertising to Real Estate Agents”. Old Republic sells its home warranty plans primarily through real estate agents and they have a memo specifically designed for agents entitled “How to Offer a Home Warranty Plan to a Home Buyer”. The plaintiffs claim that information listed under “The Benefits of Buyer’s Coverage” section of this memo deceives the public because they fail to deliver on their promises as detailed by Old Republic customers with their experiences with the actual company and their service providers (see sections 50 and 54 of the complaint.

Both lawsuits share many common characteristics and the following allegations can be found in both:

  • Contractors are chosen based on their average claim, and only the lowest average contractors are called
  • This encourages contractors to refuse expensive repairs (i.e. especially replacements as they are more costly)
  • If a contractor refuses, the repair will take additional time as the warranty company will try to find a contractor that will repair vs. replace the product
  • Contractors will do the least amount of work possible in order keep claim costs low
    • In some cases this has put homeowner safety at risk

And if you think licensed contractors are always sent out by home warranty companies you might be surprised to know that in California if a repair cost is under $500 the contractor does not need to be licensed.

According to these lawsuits, Old Republic and First American pay their contractors far below the market average for repairs:

  • They encourage contractors to charge customers additional fees which are not covered by the warranty
  • To cover their tracks, the warranty providers keep extensive records about the fees which they pay to their contactors, but little to no records of what the contractors are charging the homeowners

Additionally contractors are also encouraged to ALWAYS repair rather than replace:

  • When several contractors investigate a problem, they all give different reasons for appliances not working, performing repairs which only last a short period of time if at all.
  • One contractor even reported this practice to a homeowner upon service.
  • In the Old Republic case, one homeowner had six different contractors come to repair unit. The first claimed the unit needed to be replaced and was promptly dropped from the service by Old Republic. After six attempts to repair it was deemed that the unit needed to be replaced, so Old Republic dropped the homeowner from service.

These lawsuits claim that Old Republic and First American have committed:

  • A breach of good faith and fair dealing
  • False advertising
  • Breach of contract
  • California Civil Codes:
    • 1710(3) – The suppression of a fact, by one who is bound to disclose it, or who gives information of other facts which are likely to mislead for want of communication of that fact
    • 1710(4) – A promise, made without any intention of performing it
  • California Business and Professional Code:
    • 17200 – Any unlawful, unfair or fraudulent business act or practice and unfair, deceptive, untrue or misleading advertising and any act prohibited by Chapter 1 (commencing with Section 17500) of Part 3 of Division 7 of the Business and Professions Code.

It’s not clear exactly what liability you might have as an agent when recommending a home warranty company to a client, but if you are providing a home warranty plan with the hope of keeping a buyer happy and to possibly have them as a client in the future you should be wary of the potential damage an unresponsive home warranty company could do to that relationship.

We reached out to Bottini and Bottini in La Jolla to see if they would comment on the cases but they didn’t want to comment on the open cases at this point.

There are many online sites with information about home warranty companies but several sites we found worth checking out before recommending a home warranty company include:

http://www.home-warranty-company-reviews.com/
http://www.homewarrantyreviews.com/reviews
http://www.consumeraffairs.com/homeowners/aaa_warranties.html
https://www.bbb.org

Have you had clients share complaints with you about the home warranty providers you have recommended? What are your thoughts?