Mandatory Arbitration Upheld by Courts: A Case Study by RWC’s Warranty Resolution Manager, Diane Naguski

All of RWC’s home warranty programs feature mandatory binding arbitration of Unresolved Warranty Issues.* RWC and its builder members have been very successful at persuading courts to recognize and enforce the warranty’s mandatory binding arbitration provision. Courts across the country have removed cases from the courthouse and directed them to arbitration under RWC’s Limited Warranty Program.

A good example can be found in this case study. RWC had issued a warranty on a home, which was in Year 1 of home warranty coverage, and the homeowners filed a lawsuit against the builder. The builder was well-equipped to defend himself with the warranty book, the application for warranty and his own contract, which included language that made the RWC builder warranty, including the warranty’s binding arbitration language, applicable to any alleged warranty defects in the home. Even though the homeowners argued that RWC’s warranty should not be enforced in that state, the court endorsed RWC’s warranty, and the motion brought by the Builder to compel arbitration and dismiss the homeowners’ lawsuit was granted in its entirety.

Consequently, the homeowners initiated a request for home warranty performance with RWC. Prior to arbitration, the warranty provides for informal mediation. The parties agreed to use RWC’s mediation to try to settle the disputes about the alleged house warranty defects. RWC became actively involved mediating between the homeowners and the builder. Through this mediation, communication between the homeowners and the builder has improved and several items have been amicably resolved. We are encouraged that most, if not all warranty items, will soon be resolved in the same way. At the conclusion of mediation, if any items remain unresolved, the homeowners and builder will proceed to binding arbitration under the terms of the warranty.

This is a real case and a great example of how RWC’s mandatory binding arbitration provision is an effective tool in preventing litigation. It also supports the value of using RWC’s mediation process to resolve disputes about alleged warranty defects in the homes you build.

*Note that the mandatory arbitration provision is removed by the HUD addendum, and thus mandatory arbitration does not apply to home warranties placed on HUD homes.

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