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California has some of the strictest extended warranty regulations. Learn about the state rules and best extended warranty options.
California has some of the strictest extended warranty regulations. Learn about the state rules and best extended warranty options.
Browse information about extended-warranty plans and providers, and you’ll likely see “not available in California” more than a few times.
That can prompt a lot of questions, the first of which is “why?”
When it comes to extended warranties—technically vehicle service contracts—California has a stronger regulatory framework than other states.
That’s designed to protect consumers. We’ll break down how below.
You may or may not be familiar with the term “lemon law.” It refers to a crucial consumer protection law that’s designed to protect consumers from being stuck with defective cars.
California’s lemon law, one of the most comprehensive in the country, requires manufacturers to either replace or repurchase defective vehicles. Those terms apply to trucks, SUVs, cars, vans, and other specified vehicle types.
The Song–Beverly Act, a consumer protection law passed in 1970 and in effect since 1971, is the framework for California’s lemon law.
The Act came into being because vehicle manufacturers were consistently refusing to honor the terms of their own warranties. The law rectified the lack of consequences.
Under the Song–Beverly Act, if a product sold in California comes with a warranty, the manufacturer is required to carry out the stated terms.
Either the manufacturer or their representative is legally obligated to service or repair goods. If they are unable to make the repairs after a reasonable number of attempts, they are required to replace the product or reimburse the buyer.
Enacted in 1982, the Tanner Consumer Protection Act supplements the Song–Beverly Act and outlines the terms of California’s lemon law.
It defines what a lemon is, what a reasonable number of attempts is, and what happens if a car is deemed to be a lemon.
The lemon law presumption only applies to cars still under factory warranty, and only if the problem
Used vehicles generally don’t qualify for the new-vehicle refund or replacement remedy merely because some of the original manufacturer's warranty remains. Other warranty protections may still apply depending on the sale and warranty.
A new car is considered to be a lemon if
If the manufacturer is unable to conform a qualifying new vehicle to the applicable express warranty after a reasonable number of attempts, California law may require the manufacturer to replace the vehicle or make restitution.
The lemon law illustrates an important point: California takes consumer protection seriously, and that attitude extends to vehicle service contracts (VSCs)—the more accurate term for extended warranties.
The new-vehicle lemon law provisions discussed above are one part of California's broader consumer-warranty framework. So what about VSCs?
VSCs are governed by a separate set of California statutes and regulations, and the state tightly regulates VSC sales.
The California Department of Insurance (CDI) regulates both insurance and VSCs. In practice, that means stricter oversight and a more complex regulatory framework.
California classifies vehicle-repair coverage differently than other states.
The state recognizes three categories of repair agreements, and they’re all regulated differently. The categorization is based on who acts as the legal obligor—the entity responsible for carrying out the terms of the service contract.
Let’s break down each category.
In this instance, a third-party provider, not a dealer, is responsible for covering the cost of repairs.
These providers must hold a CDI-issued license that allows them to legally sell service contracts in California.
To get that license, the provider needs to have an underwriting partnership with a licensed insurance carrier.
The CDI has to authorize the insurance provider first. In other words, both parties need to first be approved by the CDI before a VSC provider is legally allowed to sell their product in the state.
The “backup” insurance company—the underwriting partner—guarantees the provider’s promise to cover repairs. The backup insurer serves as a financial backstop. If the obligor fails or refuses to satisfy a covered contractual obligation within the statutory period, the purchaser may seek performance from the insurer in accordance with California law and the contract.
Here’s how it works in practice. If you file a claim that the VSC provider doesn’t honor, you can take the claim to the insurance provider, who will review it.
If the claim is valid and the VSC provider refuses to pay it, or is unable to, the insurance company is responsible for covering the cost.
An important requirement is that the insurance company’s name and address need to be printed on the service contract.
If the obligor or its qualifying parent establishes at least $100 million in net worth to the Commissioner's satisfaction, it may use that financial strength alternative instead of backup insurance.
Unlike in other states, VSC providers aren’t allowed to sell their product to consumers over the phone, through the mail, or online. They have to work through DMV-licensed dealerships and lessor-retailers.
If you’re a California resident, you therefore won’t be able to buy an extended warranty through a discount online dealer or telephonically from another state.
It’s possible for a dealership to stand in as the obligor, meaning that they take financial responsibility for coverage. In this case, there isn’t a third-party VSC provider.
Dealer-obligors are regulated by two bodies: the DMV, which licenses the dealership, and the CDI.
The same rules regarding backup insurance apply, but there is another stipulation.
A dealer obligor may use an administrator. If one is used, California imposes licensing and contract disclosure requirements.
It’s the administrator’s responsibility to handle claims, process cancellations, and answer questions about the VSC.
Their details (name, address, and phone number) must be on the service contract you receive, along with the backup insurer’s.
VSC providers may also have an administrator. A service contract administrator may perform or arrange several functions, including participating in claim adjustment, coordinating benefits, and collecting or disbursing funds for claims, repairs, or refunds.
The CDI breaks down the role of administrators more thoroughly in their VSC information guide.
Mechanical breakdown insurance (MBI), also known as car-repair insurance, looks very similar to a VSC in terms of what’s covered. Both cover electrical and mechanical breakdowns.
The main difference is in legal classification, sales restrictions, and coverage flexibility.
MBI is an insurance policy and is regulated accordingly. A VSC, on the other hand, is a repair agreement, not insurance.
Companies selling vehicle protection coverage directly to California consumers may use an insurance product such as mechanical breakdown insurance rather than a VSC, because California applies different sales and licensing rules to the two products.
Although the CDI oversees VSCs and restricts sales, it doesn’t regulate pricing.
The CDI allows dealers to make a profit on VSC sales. Individual dealerships may set their prices, and consumers are allowed to negotiate with them.
The same doesn’t go for MBI. The CDI regulates rates to keep them fair.
The rules are a little bit different. Policies can be sold online, but only by a California-licensed insurance company or agent.
Becoming licensed is no easy feat. The complex approval process is one of the reasons many of the national third-party VSC companies aren’t operational in California. Getting an underwriting partnership is also a challenge.
The CDI is the primary oversight body, but the DMV also has a role.
The CDI plays the most prominent role, as it’s responsible for regulating VSC providers and MBI. It also publishes buyer guidance.
These are some of the concerns the CDI may be able to assist with:
The DMV is responsible for licensing dealers and lessor-retailers, and the California Justice Department directs dealer complaints this way.
The stringency of California’s auto-warranty laws serves as a form of scam prevention.
Regulation doesn’t equate to adherence, though. The legal framework might be there, but that doesn’t mean you’ll never run into problems.
Some VSC providers ignore the ban on online and telephonic sales.
In extreme cases, noncompliance can result in huge fines (up to $500,000) and imprisonment. Sometimes, it can be both.
If you suspect misrepresentations by an agent or broker, you can report it to the CDI.
The CDI offers some safety tips for buyers:
The CDI has a license status inquiry page that allows you to search both individuals and companies.
When you Google the best extended-warranty companies, you’ll no doubt come up with a promising shortlist. And then you start checking whether they operate in California. Suddenly, that list has dwindled to a few names.
A company that wants to sell vehicle-protection coverage directly to California consumers may offer a properly licensed insurance product such as MBI. If it does, the company would need to conform to insurance laws.
Alternatively, California consumers can buy qualifying VSCs through authorized dealer channels.
Two national brands that you’ll find in California are Zurich and Endurance.
Zurich VSCs are available from dealerships in California. One of Zurich’s North American member companies, Universal Underwriters Service Corporation, holds the active license to operate in California.
Universal is the issuing provider and serves as the administrator.
Zurich is popular for its easy claims process, and plans come with appealing benefits. Pricing varies by vehicle, coverage level, term, deductible, dealer, and eligibility.
In California, Endurance is sold as an MBI. Security National Insurance Company underwrites the policies, and Marathon Administrative Company administers them.
There are three MBI plans advertised in California: Elite Plus, an exclusionary plan; Premium, a stated-component plan; and Standard, the most basic option.
Pricing varies based on coverage, vehicle make/model, mileage, age, and eligibility.
To explore more extended-warranty options for California residents, you can browse the state-filtered Chaiz directory.
When you see “not available in California” when you’re looking for extended vehicle protection, you should now have a better understanding of why.
The state centers consumers with strict laws that are designed to rectify some of the harm extended-warranty scams have done all across the country. But that legal framework doesn’t mean you’ll never run into shady business practices or fraudsters.
Knowing what the law specifies is a form of protection in and of itself. When your phone rings and Pam from the vehicle-service department wants to discuss your expiring factory warranty, you know to hang up and not think twice about it.
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