Most denied auto warranty claims fall into five categories. The repair shop, the warranty contract, the warranty company itself, something the owner did or didn’t do, and pre-existing conditions.
The Repair Shop
A primary reason for a denied claim is the repair shop recommending unnecessary repairs and parts. Most dealerships and repair shops increase their profits by adding additional repairs to your original problem. For example, if your right front brake caliper fails they might say “if one failed they are all going to fail and we need to replace all four”. It sounds reasonable but it is far from the truth and will turn a $250 repair into a $1,000 repair. You wouldn’t accept this and neither does the warranty company. Warranties, whether the originally factory warranty or an extended warranty, will replace and repair parts that have failed. They do not replace parts that maybe could fail.
The next big reason for denied claims is a misdiagnosis or an inability to diagnose a problem by the repair shop. According to a government study, 73% of repairs are misdiagnosed the first time.
If your repair shop calls in a claim for a repair that seems highly unlikely to be causing the problem, or if they say “we don’t know exactly what’s causing the problem but we want to replace these parts”, the claim will be denied. You wouldn’t stand for a repair shop guessing at the problem and replacing good parts at your expense. Neither does the warranty company. The warranty company wants it fixed right the first time and so would you.
Sometimes a warranty will only pay a portion of the repair bill. This is due to the repair shop “padding” hours. Every car maker publishes a book listing the hours it takes to make a specific repair. This is known as “book time”. For example, on a Ford Focus it should take 1.5 hours to replace the alternator. Some shops may pad these hours and give you an estimate for 3 hours of labor to complete the repair. This is just putting money into their pockets. Warranties will always pay the exact book hours.
Another reason for only a portion of your bill being covered is the repair shop is overcharging for parts. For example, the repair shop is charging you $550 for a new air conditioner compressor when the published retail price is only $400. Warranties will not pay jacked-up prices and neither should you. They will only pay the retail price for a part.
The Warranty Contract
A major reason for a claim being denied, is the part or component is simply not covered under the warranty. There are many different levels of coverage you can purchase. Some will cover most of your vehicle while others will only cover a few components. Most people don’t understand the limits of the warranty they purchased. All warranties, including the original factory warranty, will only cover exactly what is listed in the contract or warranty booklet.
Some people may think anything that causes a component to stop working is covered when in a lot of cases it is not. For example, a powertrain warranty covers the engine and if it stops running you would expect it to be covered. However this may not be the case. The engine is covered but it may have stopped running because of an electrical problem. A powertrain warranty does cover the engine but not the electrical system, and in a case like this the repair would not be covered. It would be like having a warranty on a lamp and saying the lamp is broken and doesn’t work when it’s actually just a bad light bulb. The lamp is fine. In many cases the covered part is fine and a non-covered part is causing the problem.
This is why it is important to always purchase the highest level of coverage you qualify for. Paying a few hundred dollars more for a higher level of coverage can save you a lot of money in the long run. It’s also important to note that some unscrupulous companies and car dealers will try to sell you a low level of coverage because they think you are more focused on the price rather than the coverage. They also might try to sell you a limited coverage plan saying its bumper to bumper coverage. Always make sure you are purchasing from a reputable company and getting the best coverage possible. (Additional Resources: Choosing the Right Warranty, Auto Warranty Scams)
Damage caused to a covered part by a non-covered part is also not covered. Even though a warranty might cover a specific part, if it’s damaged by a part that is not covered, the repair would not be paid for. Let’s say you had your tires rotated and the mechanic forgot to tighten the lugs. You’re driving away and the tire falls off dragging your brakes and suspension on the road. Your brakes and suspension may be covered parts under the warranty but they did not fail on their own. They were destroyed by the tire falling off and tires are not covered parts. Warranties only cover parts that fail and not damage caused to them by non-covered parts. On the other hand, if one covered part failed and caused another covered part to fail, both would be covered.
Every warranty has an exclusions section that explains the circumstances of when or how a part will not be covered. Besides damage caused by a non-covered part, it would typically include breakdowns caused by rust or corrosion and contamination of fluids, fuels, coolants or lubricants. Breakdowns caused by fire, freezing, theft, collision, explosions, lightening and acts of nature are also excluded. There is even one company that excludes damage caused by nuclear attacks.
The Warranty Company
The biggest problem with denied claims, and the number one reason for complaints is the warranty company itself. There are a handful of reputable companies who have exceptional customer service and extremely good coverage plans and will treat you fairly. There are also dozens of companies who will fight every claim and attempt to pay the least amount possible. And there are literally hundreds of sub-standard companies who are only interested in selling you the warranty and taking your money.
It also has a lot to do with who is selling you the policy. Marketing companies and even car dealers may not have your best interests in mind and may push a low quality warranty just to get a sale.
Do your research and make sure you only purchase a policy from a reputable company. (Additional Resources: Not All Warranties are the Same, Where Not to Buy a Warranty, Top Rated Auto Warranty Companies)
The Vehicle Owner
A large portion of denied claims are actually caused by the vehicle owner. And the number one cause is not performing the standard maintenance. A warranty is actually a contract between you and the warranty company or vehicle manufacturer that says if you maintain your vehicle properly, they will pay for the repairs.
Car manufacturers have spent a lot of time and money analyzing the maintenance required to keep a vehicle in top running condition and lessen the chances for a failure. All cars wear and all cars will have breakdowns. By not performing the recommended maintenance, such as changing the oil and filters regularly, you are actually causing excessive damage to your car and you will have more problems. To maintain any warranty and avoid denied claims, and this includes the original factory warranty, you must perform the recommended maintenance.
Besides performing the standard maintenance you are also required to document that you did. Most people don’t realize they can also void their new car factory warranty by not documenting the service. Any reputable company will not ask you for documentation for every repair. The only time you would be asked for the documentation is if there was a failure that looked like it was caused by lack of maintenance.
If your engine failed and the mechanic reported the oil looked like burnt peanut butter, they would question if the maintenance was done. In this case they would ask for documentation. If your air conditioner went out, no reputable company will ask for oil service receipts. However, be aware there are unscrupulous companies who will require every single service receipt for every single claim and deny it if you can’t produce receipts, even for repairs that have nothing to do with whether you changed the oil or not.
Another reason for denied claims is not taking precautions to avoid additional damage. If a covered part fails, the repair is paid for. However, if you do additional damage by driving the car it would not be covered. For example, if your engine overheat light goes on and you pull over, the repairs are covered. You would be surprised how many people will continue to drive after it overheats to try and get somewhere and end up destroying the engine. They have voided their warranty by causing additional damage and the repairs will not be covered.
Whether it’s an extended warranty or the original factory warranty, to avoid denied claims and not void your warranty you must maintain your vehicle as required and document that you did. And if you ever have a failure or notice a problem starting, don’t continue to drive the car.
A pre-existing condition is a part that failed before the warranty was purchased. A lot of people buy a warranty to pay for a problem they already have. No warranty will pay for these repairs.
Pre-existing conditions are very easy to determine by any trained mechanic. A simple example which happens quite frequently, is someone buys a warranty and two weeks later files a claim for a bad water pump. The mechanic looks at the car and can see dried and caked anti-freeze all over the engine. It’s obvious the owner knew of the problem and kept adding anti-freeze until the pump would be repaired under warranty.
Other big areas for pre-existing conditions are suspension problems. It usually takes several months or thousands of miles for a suspension problem to get to the point where it actually fails. A bad ball joint claim 10 days after buying the warranty would more than likely be a pre-existing condition. It would have taken thousands of miles for the ball joint to have worn to the point of failure and it could not have possibly happened within 10 days.
The red flags for warranty companies and car manufacturers are any repair required within the first 30 days of the warranty becoming active. This doesn’t automatically mean it won’t be covered. It just means they are going to look at it closely. Also suspension issues, blown engines or failed transmissions that happen within the first 90 days are also regarded as possible pre-existing. After 90 days from the date the warranty was first purchased there really is nothing that can be considered pre-existing.
If it is determined a problem may have been pre-existing, the good companies will send an independent third party inspector to make the final determination. The unprincipled companies will deny it flat out.
What if you didn’t know you had a problem? It’s still a pre-existing condition.
To avoid a determination of pre-existing, have your car inspected by a licensed repair shop before or shortly after you purchase a warranty. It’s also not a bad idea to make sure your maintenance services are up to date at the same time. Some of the top companies will require an inspection before the warranty becomes active.