Court Opinion

ID: 6763618
Source: CourtListenerOpinion
Date Created: 2022-07-21 00:34:11.204567+00
Date Added: 2024-06-11T16:02:39.605904
License: Public Domain

Wright, J.,
dissenting. This case evolved out of a number of complaints against Griffin Systems, Inc. (“Griffin”) concerning fraud in the inducement and failure to pay claims, filed directly with the Ohio Department of Insurance (“ODI”) and out of an investigation instigated by ODI, with the assistance of the Cleveland Better Business Bureau and others. A full-scale hearing was held by ODI covering these matters. Thereafter, the Superintendent of Insurance ordered Griffin to “cease and desist from violating R.C. 3901.20 by advertising, soliciting, selling or underwriting the Vehicle Protection Plan without authorization from the Department of Insurance; from placing before the public advertising which contains untrue, deceptive or misleading assertions and representations; and from entering into contracts with the public that substantially amount to the business of insurance * * *.”
The court of appeals upheld the Superintendent, noting that Griffin neither manufactured nor sold any of the goods in question. The court of appeals held that the Vehicle Protection Plans (“VPPs”) offered to the consumers were not warranties as described by this court in State, ex rel. Herbert, v. Standard Oil Co. (1941), 138 Ohio St. 376, 20 O.O. 460, 35 N.E.2d 437. The record in this case militates in favor of affirming the court of appeals.
During the last twenty years, factory and dealer warranties on various consumer goods have proliferated, particularly in the automobile business. In recent years, a much more comprehensive warranty has been offered by various dealers covering almost every aspect of the future functioning of the automobiles sold and the component parts thereof. This sort of warranty has proved attractive to the buyer and highly profitable to the dealer. In this instance, Griffin had no relationship with the consumer whatsoever until after the consumer had purchased the automobile, at which point Griffin directly solicited the consumer by mail for sale of its VPP. Having signed up the consumer, Griffin reinsured its business with the Great Plains Insurance Company, a Nebraska corporation, which is a wholly owned subsidiary of Griffin and is unlicensed to sell insurance in the state of Ohio. Therefore, without considering whether the VPPs before us here insure against contingencies other than product defects, we have a contract that is totally distinguishable from the warranty we found in Herbert. It is perfectly apparent that the VPP is not a warranty proposed by a manufacturer-seller and used for the purpose of inducing or increasing sales of the product in question. In a word, we have a case of first impression here which is certainly not controlled by either Herbert or State, ex rel. Duffy, v. Western Auto Supply *560Co. (1938), 134 Ohio St. 163, 11 O.O. 583, 16 N.E.2d 256. Indeed, the Duffy case seems to directly support the holding of the court of appeals.
Griffin has argued and the majority has inexplicably found that the VPPs involved here do not constitute contracts “substantially amounting to insurance” pursuant to R.C. 3905.42 and, thus, the superintendent has no authority to order a halt to these sundry violations of law. I must vigorously disagree. The majority appears to overlook the difference between the contract sold by Griffin and the warranty described in the Herbert case. Here, Griffin is not the warrantor of a product it has manufactured or sold but is rather the insurer of the performance of component parts in a product manufactured and sold by a third party. The Herbert case certainly did not exclude all warranties or guarantees from control by ODI but only those warranties guaranteeing “satisfactory service under ordinary usage” of products being sold to a purchaser by the manufacturer or seller of that product. Id. at paragraph five of the syllabus.
The Ohio General Assembly has given ODI the broadest authority to regulate all forms of insurance by way of R.C. 3905.42, which states in pertinent part: “No company * * * shall engage * * * in the business of insurance, or enter into any contracts substantially amounting to insurance, or in any manner aid therein, or engage in the business of guaranteeing against liability, loss, or damage, * * * unless it is expressly authorized by the laws of this state, and the laws regulating it and applicable thereto, have been complied with.” In the Duffy case, we “ ‘[bjroadly defined insurance * * * [as] a contract by which one party, for a compensation called the premium, assumes particular risks of the other party and promises to pay to him or his nominee a certain or ascertainable sum of money on a specified contingency. As regards property and liability insurance, it is a contract by which one party promises on a consideration to compensate or reimburse the other if he shall suffer loss from a specified cause, or to guarantee or indemnify or secure him against loss from that cause.’ * * * ” Id. at 168, 11 O.O. at 585, 16 N.E.2d at 258-259. In my view, the VPPs offered by Griffin are within this definition.
The appellee herein cites Vance, The Law of Insurance (3 Ed.1951) 2, Section 1, which lists the following five elements as distinguishing characteristics of insurance: (1) the insured possesses an insurable interest; (2) the insured is subject to loss through the destruction or impairment of that interest by the happening of some designated peril; (3) the insurer assumes the risk of loss; (4) such assumption is part of the general scheme to distribute actual losses among a large group of persons bearing similar risks; and (5) the insured pays a premium as consideration for the promise. There is *561no question that each of the above-described elements is present under Griffin’s VPP.
Griffin can hardly be likened to a manufacturer, supplier or seller offering an extended warranty on one of its products. As stated above, Griffin is clearly not involved in the manufacture or sale of automobiles, and has no control over the risk of defects in those products. It is an independent, for-profit entity offering a contract insuring against the risk of mechanical breakdown of a motor vehicle — an insurable interest. Griffin, for consideration of a stated premium from the policyholder, assumes the risk of certain specified losses and presumably distributes that risk among a larger group of persons bearing similar risks. This case does not involve a warranty because a warranty is a statement or representation made by the seller or manufacturer of goods contemporaneously with and as a part of the contract of sale.3
Appellee has drawn our attention to opinions from out of state and under federal law in support of its position. Griffin Systems, Inc. v. Washburn (1987), 153 Ill.App.3d 113, 106 Ill.Dec. 330, 505 N.E.2d 1121, examined the same VPPs at issue in this case and concluded that they are insurance contracts. That opinion distinguished Griffin’s VPPs from a warranty or service contract. The court stated, “ * * * the distinguishing feature which sets * * * [manufacturer’s or seller’s service contracts and warranties] apart from an insurance policy is the fact that the respective companies] manufacture or sell the products which they agreed to repair or replace. No third parties are involved nor is there a risk accepted which the company, because of its expertise, is unaware of. * * * ” (Emphasis sic.) Id. at 117-118, 106 Ill.Dec. at 333, 505 N.E.2d at 1124.
As further evidence that Griffin’s VPP is insurance and not a warranty, appellee cites a Federal Trade Commission (“F.T.C.”) regulation, Section 700.11, Title 16, C.F.R., promulgated pursuant to the authority granted to the F.T.C. to enact rules implementing the Magnuson-Moss Warranty Act, Sections 2301 et seq., Title 15, U.S.Code. See Sections 2309 and 2312(c), Title 15, U.S.Code. The rule is relevant to the issue before us today in that it determines that VPPs such as the ones offered by Griffin are policies of insurance. Part (a) of the rule reads as follows:
*562“The [Magnuson-Moss Warranty] Act recognizes two types of agreements which may provide similar coverage of consumer products, the written warranty, and the service contract. In addition, other agreements may meet the statutory definitions of either ‘written warranty’ or ‘service contract,’ but are sold and regulated under state law as contracts of insurance. One example is the automobile breakdown insurance policies sold in many jurisdictions and regulated by the state as a form of casualty insurance. The McCarranFerguson Act, 15 U.S.C. 1011 et seq., precludes jurisdiction under federal law over ‘the business of insurance’ to the extent an agreement is regulated by state law as insurance. Thus, such agreements are subject to the MagnusonMoss Warranty Act only to the extent they are not regulated in a particular state as the business of insurance.” (Emphasis added.) Thus, the F.T.C. considers such contracts ripe for insurance regulation.
Griffin urges this court to focus on whether it would “make sense” to apply the insurance statutes and regulations to its VPPs. The real issue, however, is whether each VPP contains the requisite elements of insurance such that it is a contract that “substantially amount[s] to insurance.” See Mein v. United States Car Testing Co. (1961), 115 Ohio App. 145, 20 O.O.2d 242, 184 N.E.2d 489. As shown above, Griffin’s VPP contains those elements and is, therefore, insurance. Because it is insurance, under R.C. 3905.42, ODI has the authority to regulate it.4
Accordingly, I strongly dissent.
Moyer, C.J., and Holmes, J., concur in the foregoing dissenting opinion.

. See, also, 1958 Ohio Atty. Gen. Ops. No. 2897, which states:
“ * * * There is a definite distinction between (1) those cases in which the seller wishes to make his merchandise more desirable by guaranteeing its quality or its use for a certain period, where the guarantee is limited to happenings actually connected with imperfections in the articles themselves, and (2) those cases where the sole objective is to sell contracts designed to distribute risks among many purchasers. * * * ” (Emphasis sic.) The transaction then being considered by the Attorney General was an automobile mechanical breakdown contract offered by a party not in the vendor/vendee relationship — precisely as Griffin’s situation.

. I offer yet further support for the appellee’s position. Webster’s defines “insurance” in part as “coverage by contract whereby for a stipulated consideration one party undertakes to indemnify or guarantee another against loss by a specified contingency or peril[.]” Webster’s Third New International Dictionary (1986) 1173. Black’s defines “insurance” similarly: “A contract whereby, for a stipulated consideration, one party undertakes to compensate the other for loss on a specified subject by specified perils. * * * ” Black’s Law Dictionary (6 Ed.1990) 802.
All forms of warranties and guarantees meet this definition on some level. A simple manufacturer’s limited warranty that comes with the product protects a purchaser from a specified loss (usually the value of the product) from a specified contingency or peril (usually a manufacturing defect). In fact, looking at Black’s definition of “insurance,” I am sure an accountant with the relevant actuarial and financial data could specify the amount of the product’s price traceable to the warranty. At the same time, however, a manufacturer’s warranty included in the price of the product is also a refinement of the manufactured product purchased: you do not just purchase a toaster, but rather you purchase a toaster that works, and a breach of the warranty means the product you received was not the product for which you contracted. I subscribe to this latter view of manufacturers’ warranties where they are *563received as part of the product price; they are not contracts “substantially amounting to insurance.”
However, any and all warranties sold apart from a product seem to fall into the definition of “insurance.” This is particularly apparent under the “modus operandi” before us. This form of insurance is ripe for abuse by the less than scrupulous and, as such, is ripe for regulation by ODI. The record in this case surely supports this premise.