Allegations of Wrongdoing Made Against Home Warranty Companies

Dallas, TXWith all the home warranty companies, extended warranty programs and insurance options, homeowners would be forgiven for thinking their homes and appliances were covered. After all, home warranty products offered by companies such as American Home Shield and First American Home Buyers are marketed as covering repairs and replacements to various appliances and systems in the home. But home warranty lawsuits allege claims made against home warranty programs can be difficult to get approved—mirroring many people's frustrations with insurance companies.

Much like with insurance claims, people with home warranty issues allege their claims have been denied for unfair or illegitimate reasons. They say they're appliance claims have been denied for failure to maintain the appliance even in situations where the appliance was not inspected when the warranty policy was bought. They also allege repairmen are encouraged to use the cheapest fix possible, to save the warranty company money.

Meanwhile, allegations were also raised that at least one home warranty company, American Home Shield Corp., paid kickbacks to real estate brokers and agents in exchange for them marketing the company's home warranty products. The settlement was worth an estimated $26 million, although each of the homebuyers and sellers who purchased the warranty received an average of $52. Approximately 500,000 people were affected by the settlement, which released real estate brokers and agents from liability.

In announcing the settlement, however, American Home Shield did not admit to any wrongdoing. The settlement was finalized on January 10, 2012.

In a separate lawsuit, settled in 2010, American Home Shield agreed to pay $5 million and further agreed to change policies about how it markets and carries out its home warranty contracts. American Home Shield was also ordered to train its employees in handling requests for service. Of the $5 million, $3 million was paid to the State of Texas. Another $2 million in charitable donations were ordered to be made to a variety of law schools. American Home Shield denied any wrongdoing in how it marketed and honored its contracts.

The settlement was the result of an investigation conducted by the State of Texas into American Home Shield's practices.