Making the Other Guy Honor Its End – Enforcing Used Car Service Contracts

When buying a used car, you are usually offered the chance to protect that purchase with an extended warranty or service contract. The agreement is usually straightforward: if you experience car trouble within a certain time period or mileage after you buy the car, the service contractor will foot the bill for covered repairs. While you need to make a hefty payment up front to get that contract, it can be comforting to know you won’t have to worry about most repairs for a while. You also probably take it for granted that if something goes wrong, the service contractor will hold up its end of the bargain.

Unfortunately, this is not always the case, and you may encounter a situation where you pay for the warranty or service contract and experience car trouble, but the service contractor refuses to honor the contract you paid for. For example, it may deny the claim by saying the damage falls into one of its policy exceptions, even when your mechanic insists there is no evidence of this. In fact, one of our clients recently had this same problem; the service contractor not only refused to produce its adjuster’s report that supposedly contained evidence that the damages were not covered, but was so brazen that they simply told him he was welcome to find an attorney.

Fortunately, federal law provides some protection against this kind of bad faith conduct. On top of the fact that this refusal is a clear breach of contract, a consumer can sue under the federal Magnusson-Moss Warranty Act when a supplier, warrantor, or service contractor fails to comply with a warranty or service contract. See 50 U.S.C. § 2310(d)(1).

This federal law is particularly helpful because if a consumer wins such a lawsuit, he or she may be awarded reasonable attorneys’ fees and costs in addition to damages. See 50 U.S.C. § 2310(d)(2). Without this protection, unscrupulous service contractors could gamble that even if they shirk their responsibilities under a contract, the consumer will not want to go through the expense of suing, particularly when those expenses could be greater than the cost of repairing the car. Accordingly, the Magnusson-Moss Act gives consumers leverage to stick up for themselves when a service contractor unreasonably denies their claim or simply ignores them.

In our client’s case, the service contractor continually refused to honor his claim, and we were ultimately forced to call their bluff by suing. Almost immediately after, the service contractor saw we were not going to give up, and reached out to offer to honor the claim. In the end, the service contractor paid the full amount of the repairs, plus the majority of the attorneys’ fees and costs that were needed to force their compliance.

Every case is different, and a service contractor may not always be so quick to give in. However, the Magnusson-Moss Act can shift the balance in favor of consumers when a normal breach of contract suit would not be cost-effective, and help ensure that service contractors honor their agreements.

If you have questions, have experienced a similar problem with a service contractor, or would like more information on this subject, please feel free to contact attorney Thomas Fox at 847-705-7555 or tfox@lavellelaw.com.