A Cautionary Tale: Are Home Warranties Worth It?
What follows is a case study on whether home warranties are “worth it.” I have been given permission to tell this story, but not to disclose the names of the parties involved. Therefore, I’ll call the homeowner in this story “Homer” and the home warranty company “HWC.” Incidentally, Homer is someone near and dear to me, so I know the details of this story well.
First, a primer on home warranties:
Home warranties are similar to insurance, but are not technically insurance. Rather, as described by the HWC in question, “[a] home warranty is an annual service contract that covers the repair or replacement of important appliances and systems components that break down over time.” Covered appliances and systems components are specified in the service contract, which typically also specifies certain limitations to and exclusions from coverage. Generally, home warranties require the payment of a monthly or annual contract fee, similar to insurance premiums, and a fixed service call fee for claims that arise during the contract term, similar to an insurance deductible. Typically, the service call fee must be paid even if the service contractor determines that the issue is not covered and no work is done.
And now, the story:
Homer originally purchased a home warranty when he purchased his home five years ago. He dutifully paid his contract fee of approximately $600 each year, but did not seek coverage for a claim until just this year. Essentially, this means that Homer received no benefit from the approximately $3,000 in contract fees he paid over the past five years other than the peace of mind of having the warranty in place. This year, however, Homer experienced a breakdown of two important appliances or systems components, both occurring at practically the same time.
First, Homer noticed that the hot water in his home had become… less hot. Homer investigated and discovered that water had collected in the drip pan underneath his water heater, so he promptly contacted HWC to open a claim. Homer paid a service call fee of $125, and a service contractor was dispatched to Homer’s home to assess the issue. The service contractor determined that the water heater was leaking, which is a condition covered by the home warranty. However, the contractor informed Homer that the service contract covered only the replacement of the water heater itself, and not the connections to the gas line, the cold water line, and the hot water line, for which the contractor quoted Homer an estimated cost of $487. The contractor then left, advising Homer that a new water heater would be ordered and that another service appointment would be scheduled to install it when it arrives.
Homer then called HWC to confirm the coverage limitations stated by the contractor, and HWC cited an exclusion in the service contract which states, in relevant part, “[e]xcept as otherwise specified in this contract, [HWC] is not responsible for . . . [c]osts of . . . modifications necessary to . . . install equipment.” Basically, HWC claimed that the gas and water line connections to the water heater are “modifications” needed to install the water heater. Homer begrudgingly accepted the charges for those connections despite disagreeing with HWC that they are “modifications,” which is a term not defined by the service agreement. Ultimately, Homer paid $487 in addition to the $125 service call fee to have his water heater replaced, which was finally completed three months after the initial service appointment. Incidentally, Homer and his family had to bathe and wash laundry and dishes in tepid water during those three months.
Additionally, during those three months of tepid water, Homer discovered that his dining room chandelier was slipping out of the ceiling as pictured below:
Wary of the exclusions HWC claimed applied to the water heater, and aware that he would have to pay the service call fee regardless of coverage, Homer reviewed his service contract to determine for himself whether this situation would be covered. Homer determined that the contract covers normal wear and tear; improper installations, repairs, or modifications; and undetectable pre-existing defects of covered electrical systems, including all components and parts of lighting fixtures. Having determine to his satisfaction that the chandelier fell into one of the above categories and would be covered, Homer promptly called HWC to open a claim; and, as with the water heater, paid a $125 service call fee for a service contractor to be dispatched to his home.
Upon arriving at Homer’s home, the service contractor visually inspected the chandelier while standing at ground level a few feet away. The fact that the inspection was only visual and from a distance will be relevant in a moment. At that time, the chandelier appeared as pictured above — hanging askew from the ceiling sheetrock. After the visual inspection, the Contractor stated that he would have to call HWC to see if the condition was covered, and then withdrew to his truck to make that call.
Several minutes later, the contractor returned and informed Homer that the condition would not be covered. Specifically, the contractor stated that the chandelier was too heavy for the ceiling box, which is a “light rated” box and should be a “ceiling fan rated” box to accommodate such a heavy fixture, and that the service contract does not cover failures due to “lack of capacity.” Homer immediately protested to the contractor that not only was the chandelier a light fixture, and not a ceiling fan, but also that the contractor had only visually inspected the chandelier and had not so much as touched it to determine how heavy it was, but the contractor merely reiterated his findings and that the condition was not covered.
Before going on his merry way, the contractor offered to help Homer take the chandelier down at no charge, noting that it was a hazard and could fall at any moment. Homer accepted the offer and held the chandelier aloft while the contractor climbed a ladder and disconnected the wires, being the only thing still connected to the ceiling at that point. While holding the chandelier aloft, Homer expressed that it did not feel all too heavy to him and suggested that the contractor lift it and see for himself, but from the time that the contractor arrived until the time he left, he never felt the weight of the chandelier for himself, despite declining coverage on the basis that it was too heavy.
With the chandelier and the ceiling box safely on the ground, Homer was able to look at them closely enough to see a manufacturer name and model number on both. After a little online research, Homer determined that the ceiling box is rated for up to 50 pounds, and that the chandelier is listed as weighing only 21 pounds (although Homer weighed his specific chandelier with a luggage scale and it weighs only 16 pounds). Also, having seen a photo online of what the ceiling box is supposed to look like, Homer discovered that parts of the box had been whittled off—the very parts that are supposed to secure the box to the ceiling joist, being a sort of pair of wings with large nails on the ends. With these parts whittled off, the box had instead been secured to the joist by two screws which had been driven through the body of the box, ultimately leading to the structural failure of the box and its separation from the joist, hence the chandelier hanging askew from the ceiling. Therefore, Homer believed that the failure was due to improper installation or modification, which is covered, rather than lack of capacity, which is not.
Homer contacted HWC to advise them of his findings and to seek recourse. He was given the option of scheduling a second opinion with another of HWC’s contractors, but was warned that he would have to pay another $125 service call fee to that contractor if their assessment did not differ from the first. Homer agreed to a second opinion under those terms and schedule the appointment. After examining the ceiling box and the chandelier, the second contractor agreed with Homer that the fixture was not too heavy for the ceiling box, that the ceiling box had been improperly modified, and thus that the chandelier had been improperly installed, and he reported his findings to HWC. Then, nearly a month after the second opinion report was filed, HWC informed Homer that the claim was again denied; this time not under the lack of capacity exclusion, but because HWC determined that the ceiling box is not included in the electrical system covered by the service contract, despite being defined to include “[a]ll components and parts, including . . . lighting fixtures.”
Homer’s case may not be typical, but it demonstrates the extent to which some home warranty companies will go to not have to cover something for their customers. In the end, Homer has essentially incurred a cost of $4,337 over the past six years, having only received a water heater replacement in return, and even that only after three months of going without hot water, one month of which coincided with going without light while waiting for his chandelier claim to ultimately be denied. Incidentally, I happen to know from my own experience that a water such as Homer’s could be replaced for as low as $1,400 total, meaning that Homer would have been better off forgoing the home warranty all these years and just paying for the water heater replacement himself.
Please do not rely on this article as legal advice. We can tell you what the law is, but until we know the facts of your given situation, we cannot provide legal guidance. This website is for informational purposes and not for the purposes of providing legal advice. Information about our real estate practice can be found here.