Products sold to commercial purchasers typically include a standard manufacturer’s warranty. Should the manufacturer’s distributor sell an extended warranty at the time of purchase, is that extended warranty considered insurance such that it would be subject to state regulatory or reporting obligations? For foreign manufacturers that distribute products through an independent dealer and are interested in selling extended warranties to commercial end-users at the time of purchase, do any states set rules on the provision of extended manufacturers’ warranties at point of sale?
Most statutory laws governing extended warranty contracts pertain to consumer products, and in that context are regulated for the protection of the consumer. Since commercial buyers would not need the same protections, any licensure or registration requirements would not apply to the manufacturer in the commercial context, suggesting that the seller of the extended warranty would not be required to be licensed or registered.
Forty-six U.S. states do not consider the seller to be engaging in the business of insurance, and thus do not require licensing; however, 5 of these 46 states (Florida, Hawaii, Illinois, Kentucky and Oregon) require the seller to register as a service contract provider or service warranty association. See “An Extended Warranty/Service Contract in a Commercial Transaction: Is Anyone Buying This?” FORC Journal, Vol. 23 Edition 4, Winter 2012. To be clear, the registration requirement applies to the retailer or seller, and not to the manufacturer. Thus, the manufacturer would not need to be registered for its dealer to be able to offer an extended warranty to the buyer, but the dealer may need to be registered.
Of the remaining four states, Alaska, New Hampshire and South Dakota consider the seller to be engaging in the business of insurance and will require some type of insurance license, while Maryland is unclear on this issue. Alaska and New Hampshire believe the dealer falls within the insurer requirements, and South Dakota believes the dealer falls within the surplus lines agent requirements. The insurance licensing requirements, however, apply to the dealer and not to the manufacturer. The manufacturer would not be required to be licensed for the dealer to be able to offer an extended warranty to the purchaser.
There appear to be no states that regulate a manufacturer’s offering an extended warranty/service contract in the commercial context, and several states limit, or eliminate entirely, regulatory oversight of manufacturers that issue service contracts. This is particularly true in Florida, Oklahoma and New York. In New York, manufacturers are not subject to the insurance laws as there is an exemption for manufacturers in the consumer context.
A manufacturer does not have any legal obligation to register or be licensed as an insurer for extended manufacturers’ warranties issued at the time of sale of products to commercial purchasers. The registration and regulation requirements are imposed on the dealer, not the manufacturer.
However, from a practical standpoint, the manufacturer probably should negotiate with their dealer to contractually obligate the dealer, as seller, to assume all responsibility for any applicable registration or regulatory requirements associated with the sale of the products. Dealers are in the best position to comply with individual state regulations, as they know where the product is being sold. Furthermore, the regulations speak to the obligation of “seller” or “dealer,” not “manufacturer.”