Warranty Waivers and Liability Limits

Jodee Redmond
A written contract is needed to waive the provisions of a warranty.

Warranty waivers and liability limits can be difficult to understand.

An Overview of Warranty Waivers and Liability Limits

Warranty Waivers

A product that a consumer purchases may include a warranty as part of the terms of the sale. Generally speaking, the manufacturer warranties that the product is free of defects and agrees to incur the cost of repairing the product, if necessary, for a certain amount of time.If the warranty is not going to be honored by the manufacturer or seller, it is waived by the seller. Some basic provisions that must be followed by the seller with respect to a warranty waiver are as follows:

  • The warranty waiver must be clearly stated.
  • The warranty waiver must form part of a written contract.
  • The warranty waiver provision must be brought to the customer's attention and explained to them before they sign any sales contract or documentation.

The customer may sign a warranty waiver document as part of a sales transaction. A regular, out-of-the-box product is usually covered under the basic manufacturer's warranty. If it is not, or if a customer wants to buy a custom item or needs a product on a "rush" basis, the seller may ask the customer to sign a warranty waiver.

A warranty waiver agreement can also come into play when a person is buying a home. The seller may agree to pay the premium on a home warranty for the first year. If the buyer does not want this coverage, they should sign a warranty waiver.

Liability Limits

The term liability limits refers to the amount of coverage an insurance policy provides to the policyholder. Homeowner's policies, auto insurance policies, and liability insurance policies all have specific liability limits listed on the policy documentation. This limit is the maximum amount the company will pay for any one claim, no matter how many people are injured or the level of property damage incurred. This is called a single-limit liability policy. One way to think about a single-limit liability policy is to imagine a pie chart. The total amount represented by the pie chart is the maximum available to pay claims under the policy. The pie can be divided in any way - for a $100,000 policy, $90,000 could be paid out to an injured person and $10,000 would be paid for property damage.

Liability insurance policies (home or auto) may include a provision for split-limit liability. A policy with split-limit coverage will have certain amounts specified as the maximum amount payable for one injured individual, for damage to property, and for all people injured in the same incident.

A $100,000 policy with split-limit liability limits will have a cap on the amount payable for bodily injury to one person. The cap might be set at a specific figure (for example, $25,000). The cap might be set at $50,000 as the total payable to a number of injured people, with the remaining $50,000 designated for paying property damage claims. If five people were injured in the same incident, they would have to share the $50,000 coverage since the most they could recover under the policy limits is $50,000.

Read Before You Sign

Before you sign any type of document that includes warranty waivers and liability limits, it's important to read the document thoroughly. If you don't understand something, ask questions until you do. You wouldn't want to overlook something and find it after the fact that it will have major consequences on your financial affairs.

Warranty Waivers and Liability Limits