Extended warranties

Extended warranty policies are commonly offered when electrical goods are sold. In essence, such a policy provides cover for repair or replacement costs in the event the appliance fails outside any guarantee period.

In Ombudsman News 1 the FOS identified three points of concern:

  • The policies are frequently narrow in the cover offered, which may be subject to numerous exclusions. Consequential losses are often not covered – so, for example, the damage caused to clothes when a washing machine fails will be excluded.
  • The policies are sold by relatively untrained sales staff, who may not understand the cover themselves. As a result, policyholders can be under the impression that the policies cover everything that might go wrong with the product.
  • Claims may be subject to complex procedural requirements being met. This is also an issue with “cashback” offers – where the policyholder can obtain a refund of premium if no claims are made. Frequently the policyholder has to register for such offers and claim the cashback within a short specified period.

The FOS may take a robust view on complaints which touch on these concerns. For example, in one case a policyholder had 21 days to register for a cashback. She failed to register until over a year later. The insurer argued that she had thereby breached a policy condition, and that the breach had prejudiced its position – depriving it of the accurate information it required to arrange reinsurance. This argument met with little sympathy from the FOS, which instructed the insurer to allow late registration and pay the policyholder £25 in costs. It seems clear that the FOS is cynical about the motives of insurers in such cases:

... it was not acceptable that largely procedural obstacles should be placed in the way of policyholders, primarily to minimise the number of otherwise justifiable claims. “Small print” procedural requirements such as this were wholly inappropriate and might well be considered unfair contract terms.

More recently, in Ombudsman News 69, the FOS has considered extended warranties relating to building work, furniture and cars. Once again the FOS has rejected attempts by insurers to rely on technicalities in declining claims. In one case the warranty related to some damp-proofing work. When a claim arose some nine years later, the insurer refused to make any payment because the policyholder could only provide copies – not originals – of certain documents, including the original report on the work required, the quotation for the work and the guarantee. The policyholder explained that he had never held the originals. The FOS pointed out that the requirement to provide originals only appeared in a document issued after the contract had come into force. More importantly it set out the general principle:

... in any event, we considered it would be unfair of the insurer to demand that Mr M should produce original or authenticated copies of the documents, when there was no real doubt that Mr M was entitled to the benefit of the policy.

A further case involved a motor vehicle breakdown warranty purchased on a new car. Under the terms of the warranty, a service was required every 24 months or every 12,000 miles. The policyholder breached this requirement. By the time the second service was arranged, the car had covered 13,377 miles since the first service. Relying on this breach, the insurer declined to pay a claim. The FOS pointed out that there was no link between the delay in the service and the claim and that in any event the insurer had waived its rights in respect of the breach by meeting an earlier claim. Although there was a technical breach the FOS did not allow the insurer to reject the claim on this basis:

…we did not consider that there had been a significant delay in getting the car serviced. Mr J had exceeded the permitted mileage by something over 10%, but had remained within the 24-months timescale.