Warranty Litigation in the Automotive Industry

Posted by Legalease Solutions on 19 Feb, 2019

A Brief Look at Automotive Liabilities, Warranties, and Regulations in the United States

Introduction

Automotive manufacturers in the United States have been increasingly at the receiving end of lawsuits ensuing from injuries and damages associated with their products. Plaintiffs frequently file lawsuits against these manufacturers due to repercussions from (i) poor quality of the automobile, (ii) inadequate care taken during manufacture, (iii) inefficient marketing strategy and (iv) below standard manufacturer responses to claims for injuries. Historical data has proven that Original Equipment Manufacturers (OEM) will face heightened warranty expenses this year while suppliers may have to contribute a greater per-vehicle percentage to these expenses [1] . The recent spike in negotiation and disputes in the automotive industry are also a result of improved ease in making warranty claims and bringing unresolved warranty cases to local courts.

Types of Liability

A plaintiff can sue an automobile manufacturer for negligence, breach of an express or implied warranty, or due to strict liability.

1. Negligence: When a manufacturer or an individual/entity within the chain of manufacture fails to exercise reasonable care to ensure design and manufacture safety of the product, the liability that results is said to be due to ‘negligence’. The nature and degree of the harm that the product causes determine if the manufacturer exercised reasonable care. The higher the risk of bodily harm, the stricter are the requirements in the manufacturing process. The consumer has the burden of proving negligence wherein he/she must prove a breach of duty on the part of the manufacturer and the causation of certain damage.
2. Breach of a warranty: A warranty is an express or implied contract between a manufacturer or seller and its customer, concerning the condition and performance of the product. Upon the sale of a defective product, a manufacturer or seller is legally required to replace, repair, or buy back the product for the warranty period.
3. Strict liability: In the case of a defective product being unreasonably dangerous to the user, consumer, or his/her property, strict liability deems the manufacturer or seller responsible for all injuries that the product causes. Unlike warranty claims, it does not matter whether there is a link between the user or consumer and the manufacturer. The action in strict liability in tort does not depend upon the fault or lack of care of the automobile manufacturer and is based solely on the presence of a defect that renders the product unreasonably dangerous.

Types of Defects

Product defects are generally classified into three categories: design defects, manufacturing defects, and marketing defects.

1. Manufacturing defect: A manufacturing defect occurs when the product manufacturer has failed to properly inspect the product and discover a fault during the manufacturing process. It is the duty of the consumer to demonstrate the existence of said manufacturing defect, to ascertain if the product has indeed been functionally unsafe.
2. Design defect: A design defect occurs when the manufacturer has designed a class of products in a way that leads to them being unsafe.
3. Marketing defects (failure to warn): The manufacturer or distributor is liable if a consumer suffers an injury as a result of failure to provide adequate and necessary warnings engendering proper use of the product. The manufacturer has the duty to instruct the consumer regarding correct use of the product, and to warn him/her against its hazardous or improper use.

Types of Warranties

Most automobiles have certain standard warranties which guarantee that a manufacturer will perform repairs during a specific period. In case there’s a failure to fulfill this warranty, consumers can sue the manufacturer.

There are different types of warranties associated with automotive products such as: new vehicle limited warranty, emissions warranty, powertrain warranty, corrosion warranty, and extended warranty. However, manufacturer’s warranty can be of three types, bumper to bumper warranty, powertrain warranty, and corrosion warranty.

1. Bumper to bumper warranty: A bumper to bumper warranty is available only for a new vehicle for a limited period and it covers almost all parts of the vehicle from the front end to the back bumper, excluding wear and tear.
2. Powertrain warranty: A powertrain warranty covers every part that contributes to keeping the vehicle in motion.
3. Corrosion warranty: A corrosion warranty covers all naturally occurring corrosion or rust that occurs on the surface of the vehicle during a specified period.

As soon as a consumer purchases a vehicle, he/she is entitled to both express warranty and implied warranty.

Express Warranty

When the manufacturer makes a promise to repair certain parts of the vehicle, or regarding the quality of the vehicle, then an express warranty comes into play. The vehicle manufacturer’s written and spoken communication material, including advertisements, are references for the express warranties applicable to a vehicle. All states in the US, (except Louisiana), have adopted the Uniform Commercial Code, which regulates the sales of personal property and other business transactions. As per Section 2-313 of the Code, which deals with express warranties, there are three methods by which a seller can create an express warranty and they are:

• Any affirmation of fact or promise that the seller makes to the buyer which relates to the goods and becomes part of the basis of the bargain creates an express warranty that the goods shall conform to the affirmation or promise or
• Any description of the goods part of the basis of the bargain creates an express warranty that the goods shall conform to the description or
• Any sample or model part of the basis of the bargain creates an express warranty that the whole of the goods shall conform to the sample of models.

Implied Warranty

In the absence of an express warranty, the law implies certain warranties. Implied warranties apply to the purchase of every vehicle, even if there is no written or spoken warranty. The two types of implied warranties are the implied warranty of merchantability and the implied warranty of fitness. The Section 2-314 of the Uniform Commercial Code deals with the implied warranty of merchantable quality while Section 2-315 of the Uniform Commercial Code creates an implied warranty of fitness for a particular purpose under certain conditions. The Code provides that:

1. A contract implies that, unless excluded or modified (§2-316), the goods shall be merchantable if the seller is a merchant with respect to goods of that kind.
2. Goods to be merchantable must be at least such that they:
   • Pass without objection in the grade under the contract description.
   • (In the case of fungible goods) are of fair or average quality within the description.
   • Are fit for the ordinary purposes for which such goods are used.
   • Function, within the variations permitted by the agreement, of even kind, quality and quantity within each unit among all units involved.
   • Are adequately contained, packaged, or labeled as the agreement may require.
   • Conform to the promises or affirmations of fact made on the container or label, if any. Unless excluded or modified (§2-316) other implied warranties may arise from the course of dealing or usage of trade.

Regulations

There are federal laws as well as state laws which govern automotive warranty litigation; however, laws diverge from state to state. The following are some of the important statutes for the automotive industry:

1. The Magnuson-Moss Warranty Act: The Magnuson-Moss Warranty Act of 1975 is the federal law that governs consumer product warranties. It provides specific requirements for warranties and defines the rights of the consumers and the obligations of warrantors.
2. The Federal Trade Commission Act: The Federal Trade Commission Act of 1914 is the federal law that ensures fair competition and protection of the consumer against unfair trade practices. The Act established the Federal Trade Commission.
3. The Uniform Commercial Code: The Uniform Commercial Code (UCC) provides rights and remedies for both buyers and sellers, and all fifty states have adopted variations of this Code. It a comprehensive body of laws governing uniformity and fair dealing with transactions, providing remedies and rights for both buyers and sellers.
4. Lemon Laws: Lemon laws are state laws which provide a remedy for purchases of cars and other automotive goods, in order to compensate for quality and performance failings. Every U.S. state has its own lemon law and these laws differ from state to state.

Conclusion

This white paper sheds lights on the state of automotive warranty litigation in the United States and presents information about the types of liabilities, warranties, and regulations that both consumers and manufacturers need to be aware of. If you are interested in learning about how to deal with warranty litigation in the automotive industry, we recommend our article How to Manage Automotive Warranty Litigation.

LegalEase Solutions offers corporate legal departments and law firms innovative support with litigation, Contract Lifecycle Management, compliance, and legal intelligence. Over the past decade, we have become a premier legal service provider for the automotive industry. We provide litigation support including but not limited to Answers, Motions for summary judgments, and deposition summaries. We are designed to function as an extension to your legal department, providing you the capabilities and resources to stay up to date with your needs. If you have a project you need a hand with, feel free to reach out to us at contact@legaleasesolutions.com. Our team is happy to assist.

Reference

[1] https://www.supplychaindive.com/news/warranty-regulatory-commercial-litigation-risks/522557/