Court Opinion

ID: 6763617
Source: CourtListenerOpinion
Date Created: 2022-07-21 00:34:11.200258+00
Date Added: 2024-06-11T16:02:39.602944
License: Public Domain

Sweeney, J.
The determinative issue presented in this appeal is whether appellant’s vehicle protection plans are contracts “substantially amounting to insurance” within the meaning of R.C. 3905.42. For the reasons that follow, we answer such inquiry in the negative, and therefore reverse the judgment of the court of appeals and reinstate the trial court’s judgment.
R.C. 3905.42 provides as follows:
“No company, corporation, or association, whether organized in this state or elsewhere, shall engage either directly or indirectly in this state in the business of insurance, or enter into any contracts substantially amounting to insurance, * * * unless it is expressly authorized by the laws of this state, and the laws regulating it and applicable thereto, have been complied with.”
Appellee ODI argues that the vehicle protection plans offered and sold by appellant are “contracts substantially amounting to insurance,” and, thus, should be subject to the full array of insurance regulations within R.C. Title 39. ODI contends, and the court of appeals below agreed, that the key element that subjects appellant’s protection plans to insurance laws and regulations is that appellant is neither the seller nor the manufacturer of the product it purports to warrant. ODI essentially asserts that extended warranties offered by sellers and manufacturers are part of the inducement process of making the product more desirable to the prospective buyer. Since appellant is an independent third party to the transaction, ODI submits that the claimed warranty appellant offers and sells is in reality a contract “substantially amounting to insurance.”
The appellant, on the other hand, citing State, ex rel. Duffy, v. Western Auto Supply Co. (1938), 134 Ohio St. 163, 11 O.O. 583, 16 N.E.2d 256, and State, ex rel. Herbert, v. Standard Oil Co. (1941), 138 Ohio St. 376, 20 O.O. 460, 35 N.E.2d 437, contends that since its vehicle protection plans cover only those repairs necessitated by mechanical breakdown of defective parts, the protection plans constitute warranties and not contracts of insurance. Appellant relies on Duffy, supra, and argues that the instant vehicle protection plans limit reimbursement to loss due to defects in the product, and do not promise to reimburse loss or damage resulting from perils outside of and unrelated to defects in the product itself. Appellant submits that the issue of *555whether the seller or manufacturer (as opposed to an independent third party) offers or sells the type of contract in issue is wholly irrelevant.
In Duffy, supra, this court was asked to determine whether written guarantees issued by Western Auto covering tires it sold constituted contracts “substantially amounting to insurance” under G.C. 665.1 The language of one of the Western Auto guarantees stated that it protected the tires “ ‘against blowouts, cuts, bruises, rim-cuts, under-inflation, wheels out of alignment, faulty brakes or other road hazards that may render the tire unfit for further service (except fire and theft).’ It then provided that ‘In the event that the tire becomes unserviceable from the above conditions, we will (at our option) repair it free of charge, or replace it with a new tire of the same make at any of our stores, charging......th of our current price for each month which has elapsed since the date of purchase. The new tire will be fully covered by our regular guarantee in effect at time of adjustment. Furthermore: every tire is guaranteed against defects in material or workmanship without limit as to time, mileage or service.’ ” Id. at 165, 11 O.O. at 584, 16 N.E.2d at 257.
In finding that the Western Auto guarantees were contracts substantially amounting to insurance, this court held in Duffy, supra, at paragraphs three and four of the syllabus:
“A warranty promises indemnity against defects in an article sold, while insurance indemnifies against loss or damage resulting from perils outside of and unrelated to defects in the article itself.
“A contract whereby the vendor of automobile tires undertakes to guarantee the tires sold against defects in material or workmanship without limit as to time, mileage or service, and further expressly guarantees them for a specified period against ‘blowouts, cuts, bruises, rim-cuts, under-inflation, wheels out of alignment, faulty brakes or other road hazards that may render the tire unfit for further service (except fire or theft),’ or contracts to indemnify the purchaser ‘should the tire fail within the replacement period’ specified, without limitation as to cause of such ‘failure,’ is a contract ‘substantially amounting to insurance’ within the provisions of Section 665, General Code, which requires such guarantor or insurer to comply with the laws of the state authorizing and regulating the business of insurance.”
The foregoing syllabus language clearly indicates that the “guarantees” in Duffy were found to be contracts substantially amounting to insurance *556because such guarantees promised to indemnify for losses or damages to the product outside of and unrelated to defects inherent in the product itself.
Several years later, in Herbert, supra, this court was faced with another tire warranty/guarantee that was challenged by the Attorney General of Ohio. Therein, the tire warranty offered by Standard Oil promised repair or replacement for a limited period under certain conditions and provided in pertinent part:
“ ‘This Warranty and Adjustment Agreement does not cover punctures, tires ruined in running flat, tires injured or destroyed by fire, wrecks or collisions, tires cut by chains, or by obstruction on vehicle, theft, clincher tires, tubes used in any form, or tires used in taxicab or common carrier bus service.
“ ‘This Warranty and Adjustment Agreement does not cover consequential damages.’ ” Id., 138 Ohio St. at 378, 20 O.O. at 461, 35 N.E.2d at 439.
In finding that the Standard Oil tire warranty was indeed a warranty, and not a contract substantially amounting to insurance, this court held in paragraphs four and five of the syllabus as follows:
“A warranty or guaranty issued to a purchaser in connection with the sale of goods containing an agreement to indemnify against loss or damage resulting from perils outside of and unrelated to inherent weaknesses in the goods themselves, constitutes a contract substantially amounting to insurance within the purview of Section 665, General Code. (State, ex rel. Duffy, Atty. Geni, v. Western Auto Supply Co., 134 Ohio St., 163 [11 O.O. 583, 16 N.E.2d 256], followed.)
“A written warranty delivered to a purchaser, representing that the articles sold are so well and carefully manufactured that they will give satisfactory service under ordinary usage for a specified length of time, and providing for an adjustment in the event of failure from faulty construction or materials, but expressly excluding happenings not connected with imperfections in the articles themselves, is not a contract substantially amounting to insurance within the meaning of Section 665, General Code.”
In summarizing the law enunciated in both Duffy and Herbert it is readily apparent that a contract “substantially amounting to insurance” in this context is one that promises to cover losses or damages over and above, or unrelated to, defects within the product itself.
A careful review of the instant vehicle protection plans indicates that losses or damages sustained by the purchaser of the product which are unrelated to *557defects within the product itself are specifically excluded from coverage.2 Thus, it would appear that under both Duffy and Herbert, the instant vehicle protection plans are indeed warranties, and are not contracts substantially amounting to insurance.
However, as mentioned before, ODI asserts that the crucial distinction, as noted by the court of appeals below, is that warranties not sold by either the vendor or manufacturer of the product are not made to induce a purchase of the product, and therefore constitute contracts substantially amounting to insurance. While the foregoing assertion may appear to be facially valid, we find it to be unpersuasive. Obviously, the distinction made in this vein was of *558no apparent consequence in Duffy, supra, inasmuch as it was the seller of the product therein who issued the “warranty” that this court found to be a contract substantially amounting to insurance.
In our view, the crucial factor in determining whether a contract is a warranty or something substantially amounting to insurance is not the status of the party offering or selling the warranty, but rather the type of coverage promised within the four corners of the contract itself. Under the rule of law announced in both Duffy and Herbert, it is clear that warranties that cover only defects within the product itself are properly characterized as warranties (as was the case in Herbert, supra), whereas warranties promising to cover damages or losses unrelated to defects within the product itself are, by definition, contracts substantially amounting to insurance (as was the case in Duffy, supra).
The fact that appellant herein is not the manufacturer, supplier, or seller of the products it purports to warrant is, in our view, of little or no consequence in determining whether its protection plans are subject to R.C. Title 39. Common experience in today’s marketplace indicates that a large number of consumer products carry a short-term warranty, but that agreements that extend the warranty beyond the period of time offered by the manufacturer may often be purchased for additional consideration. Certainly, it can be safely surmised that most people are not induced to buy a specific product based upon an extended warranty agreement that may be purchased at an extra cost. Carrying ODI’s arguments to their logical extreme, however, a seller of consumer products can offer such extended warranties to cover losses or damages, while independent third parties would be subject to insurance regulations even if the extended warranties specifically exclude losses or damages unrelated to defects in the product. Under such circumstances, we reject the status-determinative approach urged by ODI and adopted by the appellate court below, in favor of the substance-of-the-contract approach urged by appellant. Such a substance-of-the-contract approach was implemented by the court in Mein v. United States Car Testing Co. (1961), 115 Ohio App. 145, 20 O.O.2d 242, 184 N.E.2d 489, and is abundantly more consonant with the law and analysis set forth in both Duffy, supra, and Herbert, supra.
Therefore, based on all the foregoing, we hold that a motor vehicle service agreement which promises to compensate the promisee for repairs necessitated by mechanical breakdown resulting exclusively from failure due to defects in the motor vehicle parts does not constitute a contract “substantially amounting to insurance” within the purview of R.C. 3905.42.
Accordingly, the judgment of the court of appeals is hereby reversed.

Judgment reversed.

*559Douglas, H. Brown and Resnick, JJ., concur.
Moyer, C.J., Holmes and Wright, JJ., dissent.

. General Code 665, 116 Ohio Laws, Part I, 234, is the predecessor statute to R.C. 3905.42, and the relevant language of both provisions is substantially similar. The language of G.C. 665 can be found in Herbert, supra, at 380-381, 20 O.O. at 462, 35 N.E.2d at 440.

. The vehicle protection plans offered by appellant contain nearly identical exclusions from coverage, of which the following excerpt is representative:
“LIMITATIONS AND EXCLUSIONS — YOUR VEHICLE PROTECTION PLAN DOES NOT APPLY:
“1. If your described motor vehicle, or any part of it, is covered by a warranty issued by the manufacturer of your motor vehicle.
“2. If repairs result from fire, water, freezing, riot, windstorm, hail, lighting, earthquake, theft or nuclear contamination.
“3. If repairs arise out of or are revealed by a collision or upset, or malicious mischief or vandalism.
“4. If repairs are caused by negligence, misuse, or your failure to perform required service maintenance.
“5. For the grinding of valves, as such, to raise your engine compression without the necessity of replacing covered units or parts.
“6. If any mechanical alterations are made not recommended by the manufacturer.
“7. If any mechanical failure is caused by overheating or results from the lack of coolants or lubricants.
“8. If repairs or replacement of any part or parts is not specified in this Vehicle Protection Plan.
“9. If your motor vehicle is used to pull a trailer weighing more than 1500 pounds unless authorized ‘Trailer Tow’ package is installed.
“10. If there has been any tampering or alteration to your odometer so that true and actual mileage of your motor vehicle is not shown.
“11. If any mechanical breakdown results from a structural or mechanical defect for which the manufacturer has publicly announced its responsibility by a recall to correct such defect.
“12. If any mechanical breakdown occurs after repossession of the motor vehicle.
“13. If the motor vehicle described on this certificate is used for commercial, livery or delivery purposes, or for racing or competitive speed.
“14. If you have any delays, however caused, the company will not be responsible, nor for the value of loss of use of your described vehicle.
“15. If directly or indirectly you suffer loss of expense due to lack of your performing all periodic service maintenance which is required by the company or the manufacturer, or due to a condition where your vehicle is out of the care, custody or rented from the holder named hereon.
“16. To expenses, losses or charges to the holder listed hereon for all ‘consequential’ items of a commercial nature, such as hotel or motel accommodations, telephone calls, meals, loss of goods or loss of salaries or commission resulting from time down for repair, etc. or for loss of life.”