Home Warranty Lawsuits Allege Bad Faith by Companies

San Diego, CAWhen people make significant purchases, such as appliances, for their homes, they often buy home warranty insurance to ensure their purchases are protected. But home warranty lawsuits allege that some of the companies offering this "protection" are not at all interested in providing peace of mind to their customers. The lawsuits allege that some home warranty companies are guilty of bad faith insurance, improperly denying their customers' claims to increase profits.

One such class-action lawsuit was filed by Laura and Stephen Faught against American Home Shield Corporation, alleging American Home Shield failed to fulfill its obligation to customers.

American Home Shield entered into a settlement in 2009 with the Faughts and class members but denied any wrongdoing. Included in the settlement was the requirement that American Home Shield establish a review desk, to review claims denied during the class period, and that the company would change its business practices to ensure customer agreements are properly honored.

Lawsuits filed against various home warranty companies allege that the companies improperly deny their customers' claims. This includes denying coverage on the basis that appliances have been improperly maintained, even if no inspection of the appliance was conducted when the policy was issued, or claiming "pre-existing condition" as a basis for a denial when no pre-existing condition was proven.

Furthermore, plaintiffs allege some home warranty companies fail to provide adequate repair or replacement services, even when those services were required and covered by the policy. In some cases, customers claim contractors were paid a bonus for improperly denying claims or for providing inadequate repairs to reduce costs. Finally, some companies have been accused of delaying the claims process so that policyholders eventually give up and pay for repairs that should have been covered by their policy.

Some companies have entered into settlement agreements to end the home warranty lawsuits, although they have not admitted any wrongdoing in their actions. Meanwhile, various states have been involved in home warranty lawsuits, including New York state, which filed a lawsuit against National Home Protection, alleging the company defrauded customers out of hundreds of thousands of dollars.

Among the allegations made by New York Attorney General Andrew M. Cuomo are that National Home Protection denied legitimate claims, committed false advertising and cheated consumers. The lawsuit was settled in 2009.