If you asked us, we would recommend that you not buy a third-party extended warranty for your car. If the main selling point for said warranty were that you would receive a full refund if you never filed a claim…we’d suspect that something might go wrong with this plan.

As it turns out, offering refunds to lowest-risk part of the risk pool is not a wise business strategy. (Otherwise, health insurance companies would refund your premiums if you didn’t get sick.) While this may not be the direct cause, the company that offered this exciting deal, Automotive Professionals, Inc., filed for bankruptcy in 2007.

One upstate New York woman bought such a warranty for her Subaru Forester, and true to the terms of her contract, drove her car less than 85,000 during the period she was covered and never filed a claim. Her refund may be a long time coming, though, or never come at all, learned a reporter who tried to help her obtain her refund.

It is unlikely that [the customer] will get a full refund, and she probably will have a lot of company from other consumers across the country in this wait, said Frances Gecker, the Chicago attorney appointed as API’s bankruptcy trustee. She said hundreds of thousands of the API service agreements were sold.

For the last two years, it has been Gecker’s mission to liquidate the assets of API and litigate with the various insurers, dealerships, states and others holding funds that can be used to settle claims.
“There is now about $6 million in the estate, but I continue to litigate with parties that could increase that amount,” she said Thursday.

Until now, the bulk of the progress for consumers has been toward fulfilling vehicle repair claims under current contracts.

We suppose it’s good that the focus has been on paying out claims, but let’s hope that the company is also able to pay all of its creditors.

Service contract refund is stalled by bankruptcy case [Times Union]
API Chapter 11 Case Administration [Official Site]
Extended warranties: A high-priced gamble

(Photo: Cranky Media Guy)

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