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Bad faith claimed in home warranty lawsuits

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When homeowners buy an extended warranty, they do so thinking that the costs of any repairs or services will be covered.

But these types of warranties have been under the microscope lately, after a series of home warranty lawsuits claim that many third-party administrators practice bad faith insurance because claims have been improperly denied.

Bad faith insurance can include improper activity such as not filing paperwork in a timely manner, using unreasonable grounds to deny a claim or failure to conduct a thorough investigation.

Many homeowners buy warranties from a third party to cover major purchases, including appliances and home heating systems. However, many people who have been denied claims due to what the company said were “a preexisting condition” or “lack of maintenance.”

A 2011 home warranty lawsuit against one such company - American Home Shield - also alleged that contractors were paid a bonus for denying claims.

And according to Consumer Reports, the high price of extended home warranties may just not be worth the cost. The news publication said homeowners might want to consider putting the money into a maintenance fund instead.

If you or a loved one has been denied a legitimate claim, you may want to seek advice from a litigation attorney to determine if any legal action should be taken.