These extended warranties on automobiles are typically issued by a dealer obligor or an administrative obligor. Dealer obligors provide an extended warranty when they sell new and used cars, and are deemed to be the financial resource standing behind the service contract. Often dealers will use the services of an extended warranty administrator to issue the contracts, handle claims and provide the customer service support. Administrator obligors do not sell automobiles. The rules for dealer obligors and administrator obligors are different in all 50 states.
Some states recognize both types of obligors, while others only recognize dealer obligors.
Moreover, some states treat service contracts as insurance while others only allow them to be sold when backed by an insurance product. The two methods may be needed as certain states may insist on what may be called the insurance approach as opposed to the second, guaranteed approach. In the guaranteed approach, shown in the following example, the RRG issues a contractual liability policy guaranteeing that the obligations of the warranty administrator or dealer will be met. The RRG is only called upon to perform in the event that the administrator or dealer is unable to perform. The RRG's liability policy, in effect, provides an aggregate protection to the consumer.