Those So-Called “10-Year” Warranty Policies Are Not Always What They Seem

         If you have bought a new home in Maryland during the last several years, including a new condominium, your purchase likely included what are commonly referred to as “ten-year warranty” policies.”  But a careful reading of the typical provisions of many of these policies reveals that the suggested coverage benefits are nearly non-existent.  In fact, the policies often offer little, if anything, beyond the warranty obligations that the law imposes on new home sellers regardless of whether a warranty policy is offered.  The initial coverage under these policies is usually not provided by the warranty company, but is the builder’s obligation alone; an obligation that the builder would have in any event.  Only in year three does the policy coverage usually commence, and then only for “structural defects,” and only if one of numerous exclusions does not apply.  Indeed, these policies do not provide any meaningful reason for homebuyers to feel assured that building defects in their new home will be corrected for a period of ten years.

            In 1990, the Maryland General Assembly enacted legislation allowing new home builders to offer “new home warranty security plans,” and set certain minimum warranty requirements.  Md. Real Prop. Code Ann. §10-601 et seq.  Builders were authorized to participate in a security plan offered by a warranty company.

            For the first year, the law requires, at a minimum, that the plan provide that “the new home is free from any defects in materials and workmanship.”  This appears to offer some special benefit, but it really does not.  In practice, most of these warranty plans provide that the builder, not the warranty company, is responsible for correcting defects during the first year.  But this obligation already exists by virtue of Md. Real Prop. Code Ann. §10-203, which requires a warranty that all new homes are (1) free of faulty materials; (2) constructed according to sound engineering standards; (3) constructed in a workmanlike manner; and (4) fit for habitation.  This statutory new home warranty runs for one year for defects in general, and two years for structural defects.

            Condominium purchasers receive further statutory warranties in addition to those provided to all new home purchasers.  Under Section 11-131 of the Maryland Condominium Act, every new condominium unit is also warranted for one year against “any defects in materials or workmanship in the construction of walls, ceilings, floors, and heating and air conditioning systems;” and it is further warranted that the heating and air conditioning systems will meet certain performance standards for maintaining temperature.  And the significant portions of the common elements of a condominium, including “the roof, foundation, external and supporting walls, mechanical, electrical, and plumbing systems, and other structural elements” are warranted by law for three years from the transfer of title to the first unit in the complex.

            The warranty plan law also requires that, for two years, there be a warranty against “any defect in the electrical, plumbing, heating, cooling, and ventilating systems.”  However, it is expressly provided that, if the mechanical “appliance, fixtures, and items of equipment” are covered by a manufacturer’s warranty, the warranty plan coverage “may not exceed the length and scope of the warranty offered by the manufacturer.”  In reality therefore, the warranty plans offer no coverage beyond the applicable manufacturer’s warranties that the homeowner would be entitled to in any event.  Moreover, like the first year coverage, most warranty policies make this two-obligation for mechanical systems the responsibility of the builder, and there is no coverage available from the warranty company itself.

            Finally, the warranty plan law provides that there must be coverage for five years providing that “the new home is free from any structural defect.”  However, a “structural defect” is defined as “any defect in the load-bearing portions of a new home that adversely affects its load-bearing function to the extent that the home becomes or is in serious danger of becoming unsafe, unsanitary, or otherwise uninhabitable.”  In other words, it has to be a condition that should cause the homeowner to run for their lives.

            Warranty companies have generally extended this coverage to ten years; giving rise to the common reference to ten-year policies.  But, as a practical matter, the coverage is quite limited.  In addition to the extreme nature of the condition that must exist to establish “a structural defect,” typical policies exclude coverage for building code violations.  It is difficult to envision a set of circumstances in which a significant structural defect could exist without the applicable building code having been violated.  Most warranty plan policies contain many more exclusions that preclude coverage even where the defective condition rises to the level of a “structural defect” as defined.  These include exclusion of specific building components which the policies choose to define as non-structural.

            New home buyers, therefore, should be very cautious with the extent to which they place confidence in builder warranty plans.  Special attention should be given to the specific terms of the applicable coverage so that the buyer has a clear understanding of whether the warranty plan truly offers any meaningful benefit.

3 Comments


  1. Very interesting post. I am a commercial insurance broker specializing in contractors insurance for California and Nevada based businesses and I am very familiar with these issues. Very informative. Thank you.


    1. Thank you for taking time to comment.


  2. Very interesting post. I am a commercial insurance broker specializing in contractors insurance for California and Nevada based businesses and I am very familiar with these issues. Very informative. Thank you.

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