Why not all the criticism is justified
The HBW 2-10 and other home owner warranty products have been criticized for, among other things, not being broad enough in their coverage and not paying out enough in claim dollars. The authors of a new article attempt to refute those allegations, at least those concerning HBW 2-10.
Here are the salient points of the article:
- The design blueprint for much of the HBW 2-10 warranty arose from U.S. Department of Housing and Urban Development requirements for the homeowner to qualify for mortgage insurance through FHA. The requirements for a 10-year insurance-backed warranty are codified in the Code of Federal Regulations at Title 24 C.F.R. 203.200 et seq. 2-10 and are incorporated verbatim by HBW 2-10.
- HUD requires the insured 10- year protection plan to provide a 1) one-year workmanship warranty; 2) two-year systems warranty (wiring, piping, and duct work); and 3) 10-year structural warranty.
- Since HUD does not define “defective workmanship or systems,” the HBW 2-10 Warranty adopted the Residential Construction Guidelines published by National Association Of Home Builders.
- The intent of NAHB’s Residential Construction Guidelines as adopted by HBW 2-10 is not to provide a complete warranty for every conceivable problem. Such a warranty would be too expensive and unaffordable to the home owner.
- Most of the complaints against HBW 2-10 arise from the 10- year structural warranty and the definition of “structural defect.” Once again, the definition used by HBW 2-10 was taken from HUD and requires physical damage to the designated load-bearing elements of the home. That damage must be caused by failure of such elements and must affect their load-bearing function to the extent that the home becomes unsafe, unsanitary, or otherwise unlivable. Therefore, damage to non-structural elements (siding, drywall, roof, systems, etc.) is not covered under the warranty unless such damage is caused by failure of load-bearing elements.
- Since 2000, HBW 2-10 has paid out more than $112 million in claims nationwide and $2.7 million in South Carolina.
- The reason more claims have not been paid out is due to the stringent underwriting requirements for builders to qualify under the program, including financial strength, construction experience, building volume requirements, and satisfaction or risk management requirements.
- Arbitration is per the Federal Arbitration Act which provides for a speedy resolution of claims versus litigation. Less than six percent of all claims filed go to arbitration. The majority are settled by the dispute resolution procedures. Of those that do go to arbitration, HBW 2-10’s determination is upheld 60 percent of the time with the remaining cases settled in 50 percent in favor of the builder and 50 percent in favor of the homeowner.
HBW 2-10 can be an effective tool to reduce builder General Liability claims if the HBW 2-10 claims representative works closely with the General Liability claims adjustor. Many General Liability claims adjusters don’t understand how warranty products work or how they can be used to their advantage.