Warranty Exclusions

Many times Suppliers try to limit their liability by trying to either exclude responsibilities from the warranty or exclude their responsibility to provide warranty coverage in certain situations.  An example of the former is when a Supplier excludes parts from the warranty but includes labor or vice versa. An example of the latter is:

“These warranties do not extend to, or apply to, any Product which has been (1) subjected to misuse, neglect, accident, improper installation, or to use in violation of instructions furnished by Supplier, (2) repaired or altered outside of Supplier’s factory by persons not expressly approved in writing by Supplier, (3) evaluated, screened, or tested by an outside testing laboratory not previously approved in writing by Supplier, or (4) based on design features provided by Buyer.” 

Let’s take a look at what’s wrong with this type of exclusion.

1. “These warranties”. This is a very broad statement and would apply to not just the warranty against defects in material and workmanship but would apply to all of the listed warranties. If you had product impact warranties like whether the Supplier has the right to sell the product, the product doesn’t contain any liens, that the product is non-infringing? It probably does not. So if you are going to agree to an exclusion make sure it applies to the specific warranty.
2. “subjected to misuse, neglect, accident, improper installation, or to use in violation of instructions furnished by Supplier” this is very broad and very subjective. If you are going to agree to an exclusion you want to be clear and objective.  Require the Supplier to specifically define what each means so its clear that you know what you are not supposed to do.
3. As products are misused, neglected, have accidents occur to them, have improper installation and may still work, you also want to make sure that whatever you did or failed to do is the root cause of the problem or acceletrated the problem.
4. “repaired or altered outside of Supplier’s factory by persons not expressly approved in writing by Supplier”. What is a repair or alteration? Some products require a form of alteration just to use them. For example electronic components on their own do nothing. They need to be placed on a circuit card to use them. Is that an alteration?  Language needs to be clear and objective and you also want to make sure that the repair or alteration was the root cause of the problem or acceletrated the problem.
5. “evaluated, screened, or tested by an outside testing laboratory not previously approved in writing by Supplier”. This one was a little strange as evaluating, screening or testing a product should have no affect on the product unless you were doing stress testing outside the operating parameters of the Product Specification and that caused damage. Why would you ever want to effectively give up your right to have something tested for a defect because the cost of that would be the loss of warranty? I could potentially see agreeing to excusing it if, 1) the testing was done outside the operating parameters in the Specification and 2) that testing was the root cause of the problem or accelerated the problem.
6. “based on design features provided by Buyer.”  The impact of this is if Buyer provided any design features, it would excuse the Supplier from the warranty. The only problem with that is that the design features provided by the Buyer may not be the source of the problem. A design feature should excuse a manufacturing defect that has no direct relationship with the Design.  Be clear and make sure that they would need to prove that the Buyer provided design features are the root cause of the problem or accelerated the problem. I would also be specific on what Buyer provided design features are.  For example, If the Buyer either by its specification or by written direction tells the Supplier that the product must be implemented in a particular way, that may be something that would be reasonable to excuse the Supplier from responsibility for. If on the other hand Buyer provides certain features or functionality in the product that is up to the Supplier to determine how to implement or Buyer make suggestions that they Supplier has the option of accepting or rejecting, in both those situations I would argue that those are not design features provided by Buyer. Again, be specific and make sure that what you have done is either the root cause of the problem or without those design features that you required the problem would not have existed.