Home warranty companies are not created equal

Watching water drip from the ceiling in his Alpharetta home, Rick Turnbull was glad he paid $400 a year for a home warranty to cover repairs to the burst pipe.

But Turnbull, like many home warranty holders, was never able to collect on his claim.

SPOTLIGHT: BY ALISON YOUNG

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READ THE FINE PRINT
Home warranties, also called home service contracts, generally cover repair or replacement of an existing home's major systems or appliances for a one-year period.
Items typically covered include electrical, heating and indoor plumbing systems, water heaters, dishwashers, ovens and garbage disposals. Some warranties cover air conditioning, refrigerators, washers and dryers, pool and spa equipment.
If considering a home warranty, compare companies — and go beyond looking at brochures and read the actual contract. Georgia Insurance Commissioner John Oxendine advises asking for a sample copy of the contract. "If they won't send you a sample copy, you should be suspicious," he said.
Some things to be aware of, according to warranty industry officials, real estate agents and consumers:
• Uncovered repair costs: Sometimes, only certain aspects of a repair or replacement will be covered, excluding, for example, disposal of broken units. Some consumers complain warranty contractors charge unfairly high prices for these extras. Industry officials said if that happens, they want to know about it.
• Maintenance requirements: Warranties cover problems caused by normal wear and tear. But many will not cover problems caused by failure to perform required maintenance.
• Pre-existing conditions: Most warranties exclude coverage of items broken before the warranty was purchased. This is the most common source of complaints to the Iowa Insurance Division— and one that's difficult to disprove, spokesman Tom Alger said. The National Home Service Contract Association said 22 states have specific home service contract regulations; Iowa is one of them.
• Authorized contractors: Find out how many approved contractors are in your area and what response times are expected. Will the warranty company, with prior approval, let you use your own contractor?
• Service call fees: Most warranties require you to pay a service fee each time a contractor comes out to assess a problem. Fees can range from $35 to $100 — and can be assessed for each problem examined.
• Special systems: If the home has a septic system, well, pool, spa, solar panels or other specialty installations, examine whether they'll be covered.


GETTING HELP
To check out firms or file a formal complaint:
• Georgia Insurance Department: 404-656-2070 or www.inscomm.state.ga.us
• Better Business Bureau: 404-766-0875 or www.bbb.org
• Governor's Office of Consumer Affairs: 404-651-8600
• FBI Internet Crime Complaint Center: If the warranty was purchased over the Internet, go to www.ic3.gov /default.aspx.
• National Home Service Contract Association: Lists member companies at www.homeservice contract.org

First, his warranty company said he hadn’t renewed his contract. Turnbull proved he had and called a plumber in the meantime. Then, the company said he violated his contract by not getting the work approved in advance. Despite the payment confusion, that was still Turnbull’s responsibility, a company official said.

Denial of legitimate claims is a frequent complaint against home warranty companies from consumers like Turnbull.

“They just finally said to me one day: ‘Get it through your head. You will never get a penny from us,’ ” Turnbull said. “That’s when I said I’m going to make a project of this.” He has a complaint pending with state regulators.

In other cases, consumers didn’t read their contracts’ fine print and assumed the warranties covered things that in fact they did not cover. In the case of one Atlanta warranty company, policyholders were left with nothing after the firm abruptly closed down.

While Internet chat boards and Better Business Bureau files log plenty of complaints from angry home warranty customers, many other homeowners and real estate agents love the products. They say these warranties — which cost about $350-$500 a year and cover the repair of major systems and appliances in existing homes — can save owners thousands of dollars.

The state insurance office says they know of about 35 home warranty companies selling in Georgia.

The key to customer satisfaction, according to regulators and warranty company officials, is picking a reputable company and reading the contract.

“Any industry that deals with the public is going to have complaints,” said Art Chartrand, counsel for the National Home Service Contract Association, which represents several large home warranty companies. “It’s important for people to understand these are limited benefit contracts.”

For instance, the warranty may cover the cost of replacing a broken heating unit — but may not cover any of the costly work related to disposal of the old unit, changes to duct work, carpentry or obtaining permits.

Last year, Chartrand said, companies in the association paid out a half-billion dollars to take care of service calls by warranty holders. But Chartrand said the association doesn’t have statistics that would put that number in context, such as how often claims are denied.

Because home warranty companies — also called home service contract companies — are not considered insurance companies, their claims-handling conduct is not audited by regulators, nor do they face nearly as much government scrutiny.

Although home warranty companies selling in Georgia are required to have insurance or other financial backing, the state, unlike 22 others, has no law requiring companies to register and prove upfront they have a surety bond or insurance to back up the products they sell.

Last year, consumers were left in the lurch after Atlanta-based Affordable Home Warranty shut down. It had no bond or insurance, said Shawn Conroy, a spokesman for the Governor’s Office of Consumer Affairs, which went after the company in court for repayment.

Although warranties aren’t considered insurance, Insurance Commissioner John Oxendine said that when a consumer complains, his office will verify that the warranty firm has insurance and work with the insurance company to address the issue. His office has received about two dozen complaints and inquiries since 2007.

Oxendine said he’s personally had home warranties and found them useful. “But I know of others who have used their products and have not been happy,” he said. “It’s hard to say if it’s something you should have.”

Warranties are not required with home sales, but many homeowners have warranties because the coverage is rolled into the real estate transaction when they buy their house.

That’s how Turnbull said he got his initial warranty from New York-based National Home Protection: It came with the purchase of his Alpharetta home two years ago. He paid to renew it for coverage through 2008, bank records show.

But when water started dripping through the dining room ceiling last July, Turnbull said National Home Protection refused to send a plumber. A company representative said the warranty was not renewed and they had no record of payment.

Bank of America called the warranty company the same day at Turnbull’s request to verify an online payment had been sent on Dec. 5, 2007, but National Home Protection insisted on a canceled check.

“I had water coming out of the ceiling,” Turnbull said. So he went ahead and had the repairs made.

A few days later, National Home Protection was given a copy of the check — which showed the company cashed it on Dec. 11, 2007. The company still refused to pay: Now it said Turnbull had violated terms of the warranty by not getting the work authorized in advance.

“I couldn’t get authorization because they told me I didn’t have a policy,” Turnbull said. He’s pursuing a complaint through the Georgia Insurance Department seeking $250 for plumbing repairs and $500 in sheetrock costs.

Rick Sanders, National Home Protection customer service manager, said the denial was justified. “They didn’t submit any estimates to get any prior approval from us,” Sanders said. While he acknowledged his company initially said no warranty was in effect, Sanders said it was still Turnbull’s responsibility.

“I understand the confusion, but we have a contract in place that has terms and conditions that all customers have to abide by,” Sanders said. The company has hundreds of thousands of customers, he said.

National Home Protection has an “unsatisfactory record” nationally with the Better Business Bureau. In the last 12 months, the BBB has received more than 600 complaints and the company failed to respond to more than 460 of them.

Detective Lt. Steven Peters of the Ocean Township, N.J., police department, said Friday several key officials involved in National Home Protection were principals in another firm he’s investigating for taking consumers’ money, then shutting down in late 2007: United Home Warranty.

Sanders said National Home Protection is a different company, despite having some of the same owners as United Home Warranty. He said National Home Protection lives up to the terms of its contracts. The problem, he said, is consumers don’t read the fine print.

If they did, would they buy the warranty? “Honestly, no, I do not think they’d buy it,” Sanders said.

Does Sanders have a home warranty on his house? “Me? No, I do not,” he said, adding he has a friend who really likes warranties. “Would I buy one? Probably not.”

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