Source: https://www.dfs.ny.gov/insurance/ogco2001/rg107131.htm
Timestamp: 2019-10-22 09:53:09
Document Index: 199913207

Matched Legal Cases: ['Art. 79', '§ 7902', 'Art. 79', '§ 7902', '§ 1101', '§ 7902', '§ 7901', '§ 1101', '§ 1101']

Maintenance Agreements, Service Contracts and Warranties | Department of Financial Services
The Office of General Counsel issued the following informal opinion on July 13, 2001, representing the position of the New York State Insurance Department.
This opinion revises and supercedes the opinion provided on June 29, 2001.
Re: Maintenance Agreements, Service Contracts and Warranties
1. Are maintenance agreements subject to regulation under the Insurance Law?
2. Is an "extended warranty" (a warranty that would be in addition to the standard manufacturers warranty that comes with the product and that is sold for an additional fee) considered to be a "service contract" under N.Y. Ins. Law Art. 79 (McKinney 2000); and does the answer change depending on who is the obligor on the contract?
1. A maintenance agreement, as defined in N.Y. Ins. Law § 7902(d) (McKinney 2000), is not an insurance contract or service contract and is not regulated under the Insurance Law.
2. An "extended warranty" that is sold for an additional fee is not considered to be a service contract or subject to N.Y. Ins. Law Art. 79 (McKinney 2000), when made by the manufacturer or seller.
There are no particular facts specified. General questions were asked of the Department regarding maintenance agreements and "extended warranties".
While the requestor did not specify what was meant by its use of the wording "maintenance agreement", we assume that the requestor was making reference to the following definition that is contained in N.Y. Ins. Law § 7902(d) (McKinney 2000):
N.Y. Ins. Law § 1101 (McKinney 2000), provides, in pertinent part:
(A) making, or proposing to make, as insurer, any insurance contract, including either issuance or delivery of a policy or contract of insurance to a resident of this state or to any firm, association, or corporation authorized to do business herein, or solicitation of applications for any such policies or contracts
A service contract is defined, in pertinent part, in N.Y. Ins. Law § 7902(k) (McKinney Supp. 2000) to mean:
a contract or agreement, for a separate or additional consideration, for a specific duration, to perform the repair, replacement or maintenance of property due to a defect in materials or workmanship or wear or tear, with or without additional provision for indemnity payments for incidental damages, provided any such indemnity payment per incident shall not exceed the purchase price of the property serviced. Service contracts may include towing, rental and emergency road service
Under a maintenance agreement, the maker of the agreement is obligated to perform regularly scheduled maintenance of property, such as regularly scheduled oil changes for an automobile. Since such an agreement does not provide services that are dependent upon the happening of a fortuitous event, it would not constitute insurance. In addition, since a maintenance agreement does not provide for the repair or replacement of property due to a defect in materials or workmanship or wear and tear, a maintenance agreement is not a warranty nor a service contract. Article 79 of the Insurance Law, which governs service contracts, expressly does not apply to maintenance agreements (N.Y. Ins. Law § 7901(b)(2) (McKinney 2000)).
Since a maintenance agreement is not an insurance, warranty or service contract, the Insurance Law does not regulate the making of such an agreement.
As can be seen above, service contracts and warranties are similar in that both relate to the nature or efficiency of a product, but there are distinctions between them. In order to be a warranty, the maker of the contract must have a relationship to the product or service, or do some act that imparts knowledge of the product or service to the extent of minimizing, if not eliminating, the element of chance or risk contemplated by N.Y. Ins. Law § 1101(a). Where there is no relationship or act, the maker of the contract undertakes an obligation involving a fortuitous risk, and the agreement is an insurance contract and constitutes the doing of an insurance business; except that N.Y. Ins. Law § 1101(b)(3-a) (McKinney 2000) provides that the marketing, sale, offer for sale, issuance, making, proposing to make or administration of a service contract pursuant to article seventy-nine of this chapter or warranty, service contract or maintenance agreement conditioned upon or otherwise associated with the sale or supply of heating fuel shall not constitute doing an insurance business in this state.
Prior to the enactment of Article 79, the Department concluded that the making of warranties by a manufacturer, seller, or other person in the chain of sale did not constitute the doing of an insurance business, regardless of whether a fee was charged for the warranty. After the enactment of Article 79, the Department opined that where the maker charges a fee for a warranty, as is the case with an "extended warranty", such an agreement is a service contract and the maker must be registered as a service contract provider. Upon reconsideration, the Department is now of the opinion that the mere charging of a fee does not convert a warranty into a service contract. If the contract is a warranty, and the warrantor does not make warranties as a vocation but as merely incidental to any other legitimate business or activity of the warrantor, then, even though a fee is charged, the contract remains a warranty and is not a service contract. However, where the contract is not a warranty, because the maker has not exercised the requisite control over the property, or if the maker would be doing an insurance business in making the warranties (as would be the case with a person that is not in the chain of sale), then the maker of the agreement would have to register as a service contract provider.
For further information you may contact Principal Attorney Paul A. Zuckerman.