Extending The Murky Divide Between Warranty And Insurance

By Brian Casey and Jon Gillum (August 21, 2017, 12:03 PM EDT) -- The legal line between what is a warranty versus insurance can be difficult to draw, and the consequences on each side of that line are profoundly different. A warranty can typically be issued by a business without a governmental license. But, the issuance of an insurance policy requires a state insurance department-issued certificate of authority, and unlicensed insurance conduct can result in divestiture of profits, civil penalties and criminal sanctions. Although some warranties are subject to general state deceptive trade practices laws, Article 2 of the Uniform Commercial Code, and the federal Magnuson-Moss Warranty Act, such substantive requirements pale in comparison to the extensive regulations imposed by all 51 U.S. jurisdictions on the sale of an insurance product. With this backdrop in mind, a West Virginia federal court recently imposed its own stamp on the warranty-versus-insurance divide in Bare v. Innovative Aftermarket Systems LP, 2017 U.S. Dist. LEXIS 68746 (S.D.W.V. May 5, 2017). This decision continues a slowly developing trend that a product can be a warranty — and not insurance — even though the product's benefit payment is indirectly triggered upon the occurrence of what is otherwise a traditional insurance peril.[1]...

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