Caer anneron a MARK BRNOVICH Attorney General (Firm State Bar No, 14000) Matthew du Mee (State Bar No. 028468), Bryce Clark (State Bar No. 034080) Office of the Attorney General 2005 North Central Avenue Phoenix, AZ 85004 ‘Telephone: (602) 542-3725 Facsimile: (602) 542-4377 Email: consumer@azag.gov Attorneys for Plaintiff IN THE SUPERIOR COURT OF THE STATE OF ARIZONA IN AND FOR THE COUNTY OF MARICOPA STATE OF ARIZONA, ex rel. MARK Case No. BRNOVICH, Attorney General, Plaintiff, CIVIL COMPLAINT FOR INJUNCTIVE AND OTHER vs. RELIEF CHW GROUP, INC. d.b.a, CHOICE HOME | (Non-classified: Consumer Fraud) WARRANTY, a New Jersey corporation, and HOME WARRANTY ADMINISTRATOR OF ARIZONA, INC., an Arizona corporation, Defendants.Plaintiff, State of Arizona, ex rel, Merk Bmovieh, Attorney General (“the State”) alleges as follows: I INTRODUCTION Defendants sold residential “home warranty” services in Arizona and throughout the U.S. Defendants promised consumers that in return for consumers paying Defendants hundreds of dollars a year, Defendants would repair or replace home appliances and systems if they broke. But what consumers actually got was far different, Defendants provided a “service contract” riddled with exclusions, denied claims for spurious reasons, and paid consumers a fraction of the cost of repair or replacement, if anything. Defendants collected millions of dollars in revenue from consumers, but frequently refused to follow through on their advertised promises. Accordingly, the State brings this action under the Arizona Consumer Fraud Act (the *CFA"), ARS. § 44-1521, et seq. A. Background 1. CHW Group Ine. d.b.a, Choice Home Warranty (“CHW”) advertised and sold consumers “home warranties,” which, as CHW admitted on its own website, were actually home service contracts, in Arizona and throughout the United States since December 2008, 2. CHW advertised its service contracts, which CHW sold for $420-§750 per year, on its websites, through television commercials, through direct solicitation to consumers through email, and through various other methods. 3. CHW’s advertising was misleading in at least seven ways. 4. the “high cost” of unexpected repair or replacement of home systems and appliances, including irst, CHW advertised that its service contracts would protect consumers against refrigerators and air conditioning systems. 5. In reality, CHW did not protect against the high cost of unexpected repair or replacement. CHW’s basic service contract excluded refrigerators and air conditioners from coverage. Even the “total” service contract excluded many common appliance issues from coverage, and contained a $1,500 cap on CHW’s payment, even if far more money was -l- #7872166Cer aneon 10 ll 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 necessary to repair or replace an air conditioner or a reftigerator. For plumbing issues, CHW’s service contract capped CHW’s payment at a mere $500, 6. Second, CHW advertised that if an appliance broke down, CHW would repair or replace it “even if it [was] due to normal wear and tear.” 7. In reality, CHW only covered appliance breakdowns that CHW deemed to be “normal wear and tear,” and a CHW-selected technician made that designation. Even then, CHW would often declare that the issue was not “normal wear and tear,” and deny the claim under other exceptions, such as blanket exceptions for rust, corrosion, or lack of maintenance. If lack of maintenance was cited, consumers could only overcome that finding by producing comprehensive maintenance records. 8. Third, CHW promised that consumers would save money and did not need to maintain an emergency fund, because CHW would repair or replace their appliances. 9, Inreality, even if the consumer managed to avoid User Agreement exclusions and payment caps, kept comprehensive maintenance records, and avoided unwarranted denials, CHW often still would not repair or replace the appliance if doing so would be expensive. Instead, CHW sent consumers a check for a fraction of the actual cost to repair or replace the system and declared that it had no obligation to do anything further. 10. Fourth, CHW claimed that if consumers” appliances stopped functioning, their “home warranty [would] kick in and [they would] pay only the service fee specified in [their] contract.” 11, Inreality, due to User Agreement exclusions, payment caps, and CHW’s policy of sending checks for a fraction of the cost to repair or replace expensive appliances, consumers were often forced to pay far more for appliance breakdowns than CHW’s service fee. 12. Fifth, CHW promised that it worked with repair professionals that it would dispatch to provide “swift and timely” service, so consumers would never have to “scramble” to get a repair done quickly. 13. In reality, CHW often failed to arrange for technicians to service consumers* claims in certain geographic areas in Arizona because CHW had no contracted technicians in -2- #7872166Cw rane wene 10 i 12 13 4 15 16 7 18 19 20 21 22 23 24 25 26 27 28 those areas. Thus, consumers in certain areas were left to find technicians on their own and then attempt to obtain reimbursement from CHW at a later time. 14. Sixth, CHW promised consumers “fast repair” that would be “swift and timely” thanks to “24/7 customer service.” 15. In reality, CHW’s service contract allowed CHW to wait up to four days before even contacting a technician about the issue. CHW could then wait additional days after the technician reviewed the issue before CHW cecided whether it would cover the issue. 16. Seventh and finally, CHW advertised that it had exceptional customer reviews, including aggregate five-star consumer ratings from two different review sites. 17. Inreality, CHW’s aggregate rating was at or below four stars on both review sites, and CHW manipulated consumer reviews by paying consumers to leave positive reviews. Furthermore, CHW also suppressed negative reviews through the use of “goodwill payments” that required consumers to keep quiet about CHW’s actual practices in order to get any payment for their previously denied claim. 18, Since the beginning of 2016, the Arizona Attorney General’s Office has received 139 consumer complaints against CHW rela:ed to the company’s business practices. 19. Further, 82 consumer complaints against CHW from Arizona residents for CHW’s business practices have been filed with the Better Business Bureau (“BBB”) since May 15, 2018. 20. In the consumer complaints filed with the Attorney General’s Office and the Better Business Bureau, Arizona consumers claim that CHW owes them a total of at least $335,000 for conduct related to Defendants” failure to cover claims. 21. Over 4,800 total complaints have been filed with the BBB against CHW nationally in the last three years. I, JURISDICTION AND VENUE 22. ‘The State brings this action under the CFA to obtain restitution, civil penalties, disgorgement of profits, injunctive relief, attorneys’ fees and costs, and other relief to prevent -3- #7872166Secwmuraueun WL 13 4 15 16 7 18 19 20 ai 2 23 4 25 % 2 28 the unlawful acts and practices alleged in this Complaint and to remedy the consequences of past unlawful acts and practices. 23. This Court has jurisdiction to enter appropriate orders both prior to and following a determination of liability pursuant to the CFA. 24. The Court has personal jurisdiction over CHW because CHW has marketed, advertised, and sold its products in Arizona and to Arizona consumers since at least October 2013. 25. ‘The Court has personal jurisdiction over Home Warranty Administrator of Atizona (“HWAA”) because it is an Arizona corporation operating within Arizona. 26, Venue is proper in Maricopa County, Arizona, pursuant to A.R.S. § 12-401(5) because Defendants CHW and HWAA contracted to perform obligations in Maricopa County, Arizona. Wi, PARTIES 27. _ Plaintiff is the State of Arizona, ex rel. Mark Brnovich, Attorney General, who is authorized to bring this action under the CFA. 28. Defendant CHW is a New Jersey privately held corporation that sells service contracts to consumers throughout the United States. 29, Defendant HWAA is an Arizona privately held corporation that is a subsidiary and agent of CHW and operates in Arizona. 30. ‘The term “Defendants” shall refer to both CHW and HWAA in this Complaint. IV, FACTUAL ALLEGATIONS 31, CHW has advertised its service contracts in Arizona since at least October 2013. 32, CHW has operated since at least December 2008. 33, HWAA is the obligated party for CHW’s service contracts in Arizona, 34. ‘In Arizona, HWAA, as a subsidiary and agent of CHW, serves as the administrator of claims under the User Agreement. 35. HWAA works in concert with or on behalf of CHW and is jointly responsible for CHW’s conduct in Arizona -4- #7872166Cor nanaevune 10 I 12 13 4 15 16 17 18 19 20 21 2 23 24 25 26 27 28 36. CHW has maintained a webs:te at www.choicehomewarranty.com (the “Primary Website”) since at least December 2008. 37. _Alll citations from the Primary Website in this Complaint, unless otherwise stated, were on the Primary Website on August 13,2019. 38. CHW has also maintained a website directed at Arizona consumers (the “Arizona Website”), which is located at www.choicehomeaz.com. All citations from the Arizona Website, unless otherwise stated, were on the Arizone Website as of August 13, 2019. 39, In addition, CHW has a specific Arizona page on the Primary Website at www.choicehomewarranty.com/arizona-home-warranty. 40, Defendants used the websites and other advertising to engage in deceptive and unfair practices aimed at Arizona consumers. A. ‘CHW Misrepresented What Appliances It Would Repair or Replace. 1, CHW’s Deceptive and Unfair Advertising 41. On the home page of the Primary Website, under a heading titled “What is a Home Warranty?”, CHW stated, “A home wartanty is a protection plan that offers coverage for ‘common home repairs. For a simple annual fee, this type of plan offers financial security from unexpected problems with your home appliances and systems that are not covered by homeowners insurance.” 42. Under the same heading, CHW stated, “As of 2019, home warranties allow homeowners to pay an annual fee for repair and replacement service of covered appliances and systems. A home warranty is also known as a service contract,” «Se #7872166ea ane nne i 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 43. On the home page of the Primary Website, under a heading titled “What Does a ‘Home Warranty Company Cover?” CHW stated, “These contracts protect homeowners from high repair costs. Home warranties cover sudden appliance breakdowns and system failures. ‘These are not covered under an insurance policy. With a home warranty, you'll be covered if your refrigerator stops running or your plumbing backs up. That saves you money and time.” 44. Under a heading entitled “Why is a Home Warranty Necessary in Arizona?”, the Primary Website stated that if your refrigerator, air conditioner, or clothes washer or dryer “stop[s] functioning, your home warranty will kick in and you'll pay only the service fee specified in your contract. A professional will then diagnose your problem and provide a repair or replacement. Most of these solutions are covered by your home warranty plan, so you don’t have to pay another di Why is a Home Warranty Necessary in Arizona? ‘Atvom wauranty helps protect you lor the inconvenience ef ecpersive reps and replacerants when something goes vwtongin the home. A standard plan wl cover ctl systems ae your home's plumbing electrical, water heater and most letehen appliances. This means youd have help on hand ithe heat and dust overwhwims your ceiling fens, clogs exhaust fans oF makes amess of the ductwork. A total pan is the best choice for Auizona residents because it adds many ofthe appliances that see the most wear here hitincludes your reigeratar. sir conditioner and thes washer and doer. any ot these appliances stop functioning, your home warranty wilkick in are youll pay only the service fe specifedin your ‘contrac. A protessiona wil then dlagrose your problem and previse 2 repalr or replacement. Mest ofthese solutions are ‘covered by yout home warranty plan, so you den have to pay another dime, 45. Under a heading of the Primary Website entitled “Home Warranty Benefits,” CHW claimed, “While the breakdown of appliances and home systems is unavoidable for any homeowner, the high costs of repair or replacement can be avoided if a home warranty is in place.” -6- #7872166ScocwrurdMauneun i B 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 46. Under the same heading, CHW advertised two of the benefits of having its service as the following: * Save Money — Avoid paying for repair or replacement of your appliances and home systems each time they break down or malfunction. * Peace of Mind - Rest assured that your home appliances and systems are covered when service is needed. You are covered even if it is due to normal wear and tear. Home Warranty Benefits since ade tes ba down Tasco be le by myhome Tio ea oreacnen cn be les tha ene army He stam! he bre etonmag acne Hoe arty + Saatomy- fos rae yo waa thot kit docs + petites owe nce es eed ere oe Yr eee nie a + Coherent atone eh sie een Sg ilo 217 ene seven we Bn eee + catntnten-Drrcmnge yee ony op eecoen txt roe Sten, 47, On its Arizona Website, CHW advertised in large print, “Never Pay for Covered Home Repairs Again!!!”, next to a picture o° appliances including a refrigerator. 48. ‘The same page also advertised that CHW covered “All Your Systems ONE LOW PRICE!!!” -7- #7872166CESS Peat ERS ren SRL 13 49, Further, on the Arizona-specific page of the Primary Website, under the heading 14 | “Protect Your Arizona Home and Appliances” it stated, “A broken air conditioner will leave 15 |] your family in an extremely uncomfortable situation, so it’s best to have a plan in place for fast 16 || repairs if something should go wrong.” 7 50. The same page stated, “[I]f you have a refrigerator or freezer in the garage or 18 || another part of the home that’s not air-conditioned, it will have to work much harder to keep 19 || cool.” -8- #7872166ean ek ee 10 a 12 13 14 1s 16 17 18 19 20 21 2 23 24 25 26 27 28 Protect Your Arizona Home and Appliances [At ower elevations, arizona’ climate is warm and dry throughout the yea, with average highs in the upper 60s through the ‘winter and well above 100 during the summer months this extreme heat can make things dificult for your appliances. Ifyou have aetigeatororfeezerin the garage or another pat of the home that’s not air-conditioned it will have to work ‘much harder to keep cool. Though most rlrgerators can work wel at temperatures up to 95 degrees, they struggle beyond this point, ‘Arizona one ofthe few places where atidge may wel face temperatures inthe triple-digit for an extended period of time. Your ar conditioner wil ned to work much harder to teep your home cool in extreme temperatures While the spring ad fall {in Arizona wil offer manageable conditions, sweltering summers can put seo strain on tis appliance. | broken ar conditioner wil eave your farilyinan extremely uncomfortable situation so t's best tohavea plan in place for {ast cepairs if something should go wrong, Another side effect of he Arizona climate is more laundry. Hot summer days fled with pool visits and sweaty sports willeeve you cunnitg lad aftr load. This wil wear down any washer and dyer. 51. CHW also utilized television advertising, 52. In a television advertisement featuring legendary boxer George Foreman (the “CHW George Foreman Commercial,” Geerge Foreman claimed that, if a consumer signed up for a CHW service contract, the consumer would “NEVER PAY FOR COVERED HOME REPAIRS AGAIN.” (1:25/2:00). -9- #7872166800-360-1279 Chainalama nam 53. Later in the advertisement, the words, “If we can’t fix it, We'll replace it!*” appeared on screen. (1:28/2:00) 54, The relevant portion of the asterisk footnote reference was in small print at the bottom of the sereen. 58, The footnote read: “Limitations and exclusions apply. See plan terms and conditions for details.” -10- #7872166If we can't fix if, We'll replace it!* 800-360-1279 ChoiceHome.com Unusohons ond excuses op6H. ea shan rms and conclona fot delat Rol price fr Cut baie lon comon b 81.380 day coverage tapos sr nt 33 aye tarngs may wary bowed nthe ylue Your chart fin ron Pe wit sng Bayram tichigan 9 merce calf pet vel by on eroved weview cll rover Cove trea to Normol Year ccd ter We con ot awn toch tay crept or epuseamrt ol ery eememd nen, nthe eves! we ota such'G poymert weil provise wien ratte ‘tina boat of io omar atthe payment Fyeaiting eondthens ore nat eqrewd Tite hot ieamonce, Not avast Mo ston For @ ‘Sepy ot hel wom one enchosonreal BEESIT-49 or mle Br Chee Home Worrony TORO Rong Onctoes Pot Laon W-O8837 56. The commercial could also be found online as of September 5, 2019, at TKtG/eh 2. Defendants’ Actual Pra 57. Despite all of these representations, Defendants frequently would not repair or replace a consumer’s major appliances. 58. Defendants offered two plats, one of which did not cover several major appliances. 59. Defendants’ “Basie Plan” did not include protection for consumers’ air conditioners, reftigerators, and washers and dryers, despite the prominent placement of those appliances in advertising on the Primary Website and the Arizona Website. 60. In order for consumers to have coverage for those appliances, they had to purchase the “Total Plan,” which supposedly included coverage for these appliances as well. 61. After a consumer agreed to purchase a service contract through Defendants, Defendants sent the consumer a “User Agreement” in the mail or by email. 62. In other words, consumers ofien saw the User Agreement for the first time after they purchased a service contract from Defendants. 63. A full copy of the User Agreement is attached as Exhibit 1. Ale #787216664. A copy of Defendants’ User Agreement could be found on the Primary Website. 65. Defendants’ User Agreement was riddled with exclusions for all major systems and appliances to which the User Agreement applied, a) Refrigerator 66. For example, as noted above, the Primary Website warned consumers that they needed CHW’s protection because a refrigerator in a garage or another part of the home may break down due to Arizona’s summer heat. 67. But Defendants’ User Agreement stated that a refrigerator would not be covered unless it is “located in the kitchen.” Even the “Total Plan” did not cover a refrigerator that was not located in the kitchen. 68. In addition, Defendants would refuse to repair many common refrigerator parts, including the water line, ice maker, thermal shell, doors, hinges, shelves, racks, handles, and freon: 3. KITCHEN REFRIGERATOR NOTE: Must be located inthe kitchen, INCLUDED: All components and parts, including integral freezer unit, except: EXCLUDED: Racks ~ Shelves ~ Lighting and handles - Freon Ice malers, ice crushers, beverage dispensers and thelr respective equipment - Water fines and valve to ice raker ~ Line restrictions ~ Leaks of any kind ~ interior thermal shells - Freezers which are not an integral part of the refigerator - Wine coolers or min retigerators ~ Food spoilage ~ Doors ~ Door seals and gaskets ~ Hinges ~ Slass ~ Audio/Visual equipment and intemet connection components. b) Air Conditioners 69, Defendants’ exclusions on air conditioners were also problematic, especially given the importance of air conditioners to Arizonans, which CHW emphasizes in its advertising, 70. For air conditioners, Defendants would refuse to repair water leaks, condenser casings, condensate pumps, drain line stoppages, and many more issues -12- #7872166i 12 2B 4 15 16 7 18 19 20 2 22 23 24 26 27 28 4. AlR CONDITIONING /COOLER NOTE: Not exceecting 5 (five) ton capacity and designed for residential use. INCLUDED: Ducted electric central air conditioning, ducted electric wall ait conditioning. Allcomponents and parts, {or units below 13 SEER and when We are unable to facif:ate repair/replacement of failed covered equipment at the current SEER rating, repair/replacement will be performed with 13 SEER equipment and/or 27 HSPF or higher compliant, except: EXCLUDED: Gas ar conditioning systems - Condenser casings ~ Registers and Grills ~ Filters ~ Electronic air cleaners = Window units — Non-ducted wall units - Water towers - Humcifiers - improperly sited units ~ Chillers ~ All exterior condensing, cealing and pump pads ~ Reof mounts jacks, stands of supports ~ Condensate pumps ~ Commercial grade equipment ~ Cost for crane rentals ~ Air conditioning with mismatched condensing unit and evaporative coil per manufacturer specifications — Improper use of metering devices ~ Thermal expansion valves ~ Refrigerant conversion ~ Leak detections - Water leaks - Drain line stoppages ~ Maintenance - Noise, No more than two systems covered unless purchased separately & time of enrollment, We are not responsible forthe costs associated with matching dimensions, brand or color made. We will not pay for any modifications necessitated by the repair of existing equipment or the installation of new equipment. 71. ‘To make matters worse, Defendants’ User Agreement included a $1,500 payment cap on any repair or replacement. 72, Few, if any, air conditioners can be replaced for $1,500, and the average air conditioner costs thousands of dollars 73, Nevertheless, CHW continued to promise Arizonans in its advertising that if an air conditioner stopped functioning, consumers would pay “only the service fee” to get the ait conditioner repaired or replaced. ©) Plumbing 74, As noted above, on the home page of the Primary Website, CHW promised that “[wlith a home warranty, you'll be covered . . . if your plumbing backs up.” 75, But the User Agreement contained over 30 exclusions related to plumbing, including “stoppages or clogs in drain and sewer lines that cannot be cleared by cable or due to roots, collapsed, broken, or damaged lines outside the confines of the main foundation (even if within 100 feet of access point).” 76. In addition, the User Agreement contained a monetary cap for plumbing issues that was even more restrictive than the $1,500 payment cap on all other issues, which limited Defendants’ payment on plumbing issues toa mere $500. -13- #787216677. The User Agreement also stated that Defendants would not repair or replace sinks, faucets, bathtubs, or showers. B. CHW Misrepresented What Appliance Problems Defendants Would Fix. 1. CHW’s Deceptive and Unfair Advertising 78. In addition to the advertising listed above, under a heading on its Primary Website entitled “Who Should Pay for a Home Warranty?”, CHW stated, “A home warranty is smart if: © You plan to purchase a home. * You have older appliances. * You don’t have access to an emergency fund for repairs. © You want to simplify home repairs and replacements.” Who Should Pay for a Home Warranty? ‘hore waranty smart it + Youpantopurchasea home, + Youhave ser apne + Youdantnov cesstoan emergency fond fr eas. + Youwantta sri he reps ntepiceents, 2. Defendants’ Actual Practices a) — Contract Exclusions 79. As noted above, Defendants would not repair or replace several major appliances under the “Basic Plan,” would not repair many common issues with major appliances, and would never pay more than $1,500, even if the cost to repair or replace an air conditioning unit greatly exceeded that amount. 80. But even if consumers managed to avoid the User Agreement’s specific exclusions ‘and needed a repair or replacement costing less than $1,500, Defendants would often deny the claim. 81. Defendants typically denied such claims by citing a number of catch-all exclusions in their User Agreement. “14. #787216682. The Defendants’ User Agreement not only contained many specific exclusions for cach type of appliance, it also generally excluded the following: “(i) malfunction or improper operation due to rust or corrosion of all systems and appliances, . .. and (iii) known or unknown pre-existing conditions.” 83. In addition, the User Agreement stated that Defendants would not cover any “repairs or failures that result{ed] from the contract holder’s failure to perform normal or routine maintenance.” 84, _ In the same provision, Defendants tated that the consumer was required to obtain routine maintenance and cleaning pursuant fo manufacturers’ specifications, and Defendants had “the right to request routine maintenance records” from the consumer. 85. _ In addition to these broad catch-all exclusions, Defendants’ User Agreement also narrowly limited any inclusions, stating that Defendants would only cover appliances that became “inoperative due to normal wear and tear.” 86. This limitation contrasted with CHW’s claim that it would repair or replace appliances “even if it [was] due to normal wear and tear”—in fact, Defendants would repair or replace appliances only if it was due to what Defendants deemed to be normal wear and tear. b) Claim Denial Process 87. Before filing a claim, a consumer was required to contact Defendants and have a CHW-selected technician sent out to examine the appliance at issue. 88. The consumer had to then pay the CHW-selected technician an $85 “service fee.” 89. After inspecting the system or appliance, the CHW-selected technician sent a report with a diagnosis to Defendants, sometimes with pictures, which briefed Defendants on the issues with the malfunctioning system or appliance, 90. After receiving the report from the CHW-selected technician about the problematic system or appliance, Defendants made a determination about whether the system or appliance was covered under the consumers’ policy and informed the consumer. -15- #7872166Bon Sowa anu 12 1B 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 91. Defendants often denied claims based on the catch-all exclusions cited above: lack the CHW-selected of maintenance, rust or corrosion, or preexisting conditions, even technician did not report any of those issues to Defendants in his or her report 92. Under the User Agreement, even if the CHW-selected technician reported that a problem was from “normal wear and tear,” Defendants had “the sole right to determine whether a covered system or appliance [would] be repaired or replaced.” 93. Defendants often denied claims by stating that issues with covered systems or appliances did not constitute normal wear and tear. 94. For example, as noted above, Defendants did not consider rust ot corrosion to be part of normal wear and tear, even though rust and corrosion frequently occurred over time through no fault of the consumer. 95. Typically, Defendants refused to provide the specific reasons behind claim denials in writing, preferring instead to inform consumers verbally over the phone, 96. If Defendants denied claims cue to lack of routine maintenance or other reasons and consumers challenged the denial, Defendants typically required consumers to send in maintenance records 97. On many occasions, upon the submission of maintenance documents to Defendants, consumers were told that the maintenance records were insufficient for varying reasons 98. Defendants required maintenance records that predated the home warranty purchase. 99. In fact, Defendants often stated that maintenance records were insufficient because they were not provided for the entire life of the unit. 100. For example, if consumers parehased an appliance in 1998, purchased a home warranty in 2015, and had maintenance records showing yearly maintenance from 1998-2004, and 2006-2019, Defendants would deem the maintenance records insufficient because the consumer was missing maintenance records from 2005. -16- #7872166101. This requirement was especially difficult for consumers to meet if they have older appliances—despite CHW advertising that consumers “should pay for a home warranty” if they had “older appliances.” 102. CHW never disclosed to consumers—prominently or otherwise—that if consumers lacked comprehensive maintenance records for the entire fife of the unit, CHW would be able to deny a repair or replacement claim. 103. In addition, Defendants frequently denied claims by stating that the issue was a “pre-existing condition.” 104, Defendants did not do any kind of initial inspection to identify “pre-existing conditions” before issuing a service contract. 105, Defendants did not warn coasumers—prominently or otherwise—what a pre- existing condition might be. 106. Instead, Defendants simply declared after the fact that an appliance had a “pre- existing condition,” in some cases even afler the CHW-selected technician had declared the ‘opposite. ©) “Goodwill Payments” 107. After Defendants denied claims, if consumers complained enough about the denial under the terms of the User Agreement, Defendants would typically offer consumers “goodwill payments.” 108. These “goodwill payments” were significantly less than the amounts required to repair or replace covered systems or appliances. 109. As a condition of sending the “goodwill payments,” Defendants required consumers to sign releases of liability against CHW. 110. A copy of a release utilized by Defendants is attached as Exhibit 2. 111. The release utilized by Defendants contained a non-disparagement clause. 112, The non-disparagement clause of the release reads: “Releaser agree [sic] not to make any statements, written or verbal, that defame, disparage or in any way criticize the personal or business reputation, practices, or conduct [sic] Choice Home Warranty. Releaser -17- #7872166Sexwr dau eon il 13 4 15 16 7 18 19 20 au 2 23 24 25 26 27 28 acknowledges and agrees that this prohibition extends to statements, written or verbal, made to anyone, including but not limited to, the news media, investors, strategic partners, vendors, ‘employees (past and present), and clients.” 113. In other words, in many cases, consumers had to agree not to criticize CHW’s business practices or post negative reviews about the business before Defendants sent them any money at all for repair or replacement of their broken appliance or system. C. CHW Misrepresented That It Would Repair or Replace Covered Appliances and That Consumers Didn’t Need to Maintain an Emergency Fund. 1, CHW’s Deceptive and Unfair Advertising 114, As noted above, CHW advertised its home warranties as a “smart” purchase if consumers “[didn’t] have access to an emergency fund for repairs.” 115, CHW also claimed that consumers would “Save Money” through # CHW home warranty. 116, In addition to the advertising listed above, on its Arizona Website, CHW stated: “IU’s simple! If a covered system in your home breaks down just call the 24/7 claims hotline and CHW will dispatch a local, licensed, and insured technician to service your claim. If the covered item is beyond repair, CHW will replace it!*” 117. The relevant footnote stated, in small print, “Click here to view complete limits of liability and any exclusions. See policy for specifics on response times. CHW reserves the right to offer cash back in lieu of repair or replacement in the amount of CHW’s actual cost (which at times may be less than retail) to repair or replace any covered system, component or appliance.” 118. Similarly, a footnote in tiny print at the bottom of several pages of the Primary Website stated, “CHW reserves the right to offer cash back in lieu of repair or replacement in the amount of CHW’s actual cost (which at times may be less than retail) to repair or replace any covered system, component or appliance.” (In the picture below, the footnote is above the large text saying “Why wait?”.) -18- #7872166Choosing a Home Warranty aching ane sray its aac force hare a Roem es year sit ee home tposandte venient te, Aone ars aout hr nase neg ee Why wait? Sign up today a VOUa sina 2. Defendant’s Actual Practices 119. Consumers were required to pay an $85 “service fee” to the CHW-selected technician in order for Defendants to review any problem. 120. Defendants did not reimburse the service fee, even if they agreed that the problem was covered. 121. As noted above, in contrast to CHW’s broad advertising promises, the coverage Defendants actually provided was extraordinarily limited. 122. As noted above, Defendants’ payment caps contrasted with their advertising, and left consumers in danger of needing an emergeney fund. 123, But even in the few cases where Defendants agreed that they were was obligated to pay up to their $1,500 limit for an expensive repair or replacement of an appliance, Defendants had one last trick up their sleeves—the “cash back in lieu” provision. 124, Defendants often informed consumers that Defendants were invoking the clause in their User Agreement that they reserved the right to offer cash back in lieu of repair ot replacement, supposedly in the amount of CHW’s “actual costs” to repair any covered system and appliance. -B- #7872166ew aAM een 10 u 2 13 “4 15 16 7 18 19 20 ai 22 23 24 2s 26 27 28 125. Defendants offered no proof to consumers that the amounts that consumers were offered under this provision were actually CHW’s actual cost. 126. Indeed, if the amounts given to consumers were truly the “actual cost” to repair or replace the appliances, one would think Defendants would have simply used those amounts to pay for the repairs or replacements, thus keeping their promises to consumers. 127. Instead, Defendants often used this clause to increase their profits by sending checks for amounts far less than it would actually have cost consumers or Defendants to repair or replace covered systems and appliances. 128. For example, Defendants offered one Arizona consumer only $700 for a covered air conditioner compressor when a new compressor would actually cost the consumer $1,600 excluding costs for installation, and a new unit would cost $2,300 excluding costs for installation. 129. Defendants offered another Arizona consumer only $700 for a replacement air conditioning compressor as well. 130. That consumer stated that she could not find a replacement compressor for less ‘than $2,000, and that it would cost her over $5,200 to replace the entire unit. 131. In addition, although CHW promised consumers that they would receive the “cash back in lieu” payments from Defendants within 30 days, multiple consumers reported not receiving payments from Defendants within this time frame. 132. This provides further stress fo: consumers who believed CHW’s advertising that a home warranty was a good fit for someone who did not have an emergency fund. 133. Typically, Defendants would end up paying consumers the “cash back in lieu” i the consumers continued to follow up with Defendants, but the process frequently took longer than 30 days. 134. As a result of all of the acts and practices listed above, consumers did not save money by using Defendants. 135. Asa result of all of the acts and practices listed above, consumers needed access to an emergency fund even if they buy Defendants’ services. -20- #7872166cCnmraHueon 10 i 12 13 4 15 16 7 18 19 20 ai 2 23 24 25 26 27 28 136. As a result of all of the acts and practices listed above, consumers were forced to pay more than the service fee listed in CHW’s User Agreement for appliance breakdowns. 137. Defendants rarely provided the costly repairs or replacements promised by their advertising. 138. Defendants denied many claims that should have been covered according to Defendants’ advertising, 139. Defendants denied many claims that should have been covered according to Defendants’ User Agreement. 140. Defendants provided “cash back in lieu” of repair or replacement, and the cash offered was not the actual cost to repair or replace the appliance or system. 141. Defendants limited their maximum payout in such a way that a consumer who needed to replace an air conditioner or fix a serious plumbing issue would likely need access to thousands of additional dollars. D. _ CHW Misrepresented That Consumers Would Not Have to Scramble for a Repair Professional. 1. CHW’s Deceptive and Unfair Advertising 142. On the Primary Website, CHW advertised one of the benefits of having their service as the following: 143, “Convenience ~ With Choice Home Warranty, you never have to go out and look for the right service professional. Simply call our 24/7 customer service and we will send the right professional to your home.” 144. On the Arizona Website, CHW stated: “It’s simple! If a covered system in your home breaks down just call the 24/7 claims ‘otline and CHW will dispatch a local, licensed, and insured technician to service your claim.” 145. Similarly, in the CHW George Foreman commercial, George Foreman stated, “You never have to worry about getting ripped off or scramble for trusted repairmen.” (0:55/2:00) -21- #7872166146. At the same time, words appeared on the screen which stated, “NEVER HAVE TO SCRAMBLE.” (0:58/2:00) NEVER HAVE TO SCRAIVIBLE Gusise~ 800-360-1279 a ChoiceHome.com 2. Defendants’ Actual Practices 147, In actuality, Defendants only had technicians to cover certain parts of Arizona, 148. For those who lived in areas outside of major cities in Arizona, Defendants were often unable to provide in-network technicians to provide service for consumers’ claims. 149, Instead, when consumers lived in areas where Defendants had no in-network technicians, consumers found out when they called Defendants for service that the consumers had to scramble to find technicians on their own to address their issues. 150, When consumers had to find their own technicians, Defendants deemed those technicians to be “out-of-network,” and re“used to allow the technicians to submit diagnostic reports in advance to check whether claims would be covered under the policy. 151. Thus, consumers were unable to find out before paying technicians for repairs or replacements whether Defendants would actually cover the claims. 152, Consumers were forced to pay technicians for the repair or replacement of home systems and appliances at the time of service and seek reimbursement from Defendants later. -22- #7872166Cwm a anh wD 10 Ll 12 13 14 16 7 18 19 20 21 22 23 24 25 26 27 28 153. In these situations, Defendants often denied the reimbursement requests, citing exclusions in the User Agreement. 154. ‘Thus, consumers who expected full reimbursement for repairs or replacement as advertised by CHW were forced not only to scramble to find a technician and pay up front for repairs, they were forced ultimately to bear the cost of repair and replacement of home systems and appliances. 155. Consumers living in areas where Defendants had no in-network technicians were not told at the time of purchase that Defendants did not have technicians in their area to cover claims. 156. CHW’s advertising also did not disclose this material fact. 157, Instead, CHW’s advertising tuted how “simple” it was for consumers to call and have Defendants “send the right professional to [their] home,” and promised consumers that they would “NEVER HAVE TO SCRAMBLE.” 158. Therefore, many Arizona consumers purchased Defendants’ service contracts unaware that Defendants have no service providers in their areas. E. CHW Misrepresented the Speed at Which It Would Repair or Replace Air Conditioners. 1. CHW’s Deceptive and Unfair Advertising 159. As noted above, the Arizona-specific page of the Primary Website highlighted the need for air conditioners to be fixed quickly in Arizona, stating “A broken air conditioner will leave your family in an extremely uncomfortable situation, so it’s best to have a plan in place for fast repairs if something should go wrong.” 160. On the Arizona page of the Primary Website, CHW also said, “Our repair service is swift and timely. We do our best to have a technician dispatched to your home as soon as ‘possible (see our policy for response time).” 161. As noted above, CHW touted its “24/7 customer service” and their “24/7 hotline.” -23- #78721662. Defendants’ Actual Practices 162. In direct contradiction to CHW’s Arizona-specific website, Arizona consumers with a service contract from Defendants often did not receive “fast repairs” when their air conditioners broke. 163. Consumers with broken air conditioners frequently had to wait multiple days in the Arizona heat for CHW to send out a technician. 164, According to Defendants’ User Agreement, although Defendants could be contacted by consumers “24/7,” Defendants gave themselves multiple days to actually contact a technician. 165. In fact, Defendants only prom:sed to contact an authorized service provider within ‘two days of consumers filing claims during normal business hours or within four days if consumers submitted claims on weekends or holidays. 166. Therefore, despite CHW’s claims of “fast repairs” and “24/7” service that was “swift and timely," Defendants gave themselves up to 96 hours before they were required even ‘to contact a technician. 167. The CHW-selected technician then contacted the consumer to schedule a mutually convenient appointment during normal business hours. 168. After the CHW-selected technician examined the problem, it often took several more days for Defendants to determine whether a claim was covered, 169. Then, Defendants often denied these claims 170. If Defendants claimed the denial was related to lack of maintenance, the consumer was required to collect and send in his or her maintenance records for Defendants’ review, a process that often took several more days. 171, Meanwhile, Arizona residents were stranded in dangerously hot homes. 172. For example, one Arizona consumer submitted a claim for her air conditioner to Defendants on July 27, 2018, which was a Friday. -24- #7872166173. Defendants scheduled an appointment with an in-network technician to look at the air conditioner on July 31, 2018—four days after the consumer submitted the claim, in violation even of Defendants’ generous two-day window for weekday claims. 174, Meanwhile, the consumer was forced to wait four days in Arizona heat that topped 110 degrees Fahrenheit. 175. Another Arizona consumer filed a claim with Defendants for a broken ait conditioner on July 9, 2018, which was a Monday. 176. Defendants’ technician did not come to the consumer's home until four days later on Friday, July 13, 2018 177, Defendants then denied the consumer’s claim on Saturday, July 14, 2018, for an alleged failure to maintain the unit. 178. While the consumer waited for the technician to visit the home, the consumer was forced to bear Phoenix temperatures in excess of 100 degrees without air conditioning. 179. Even if Defendants did cover a consumer’s broken air conditioner claim up to the $1,500 policy limit, the amount of the policy limit would be unlikely to cover the full cost of an air conditioning repair or replacement. F. CHW Misrepresented Its Consumer Ratings. 1. CHW’s Deceptive and Unfair Advertising 180. In order to induce consumers into believing that CHW was a reliable company that would deliver on the broad promises made by its advertising, CHW repeatedly assured consumers that it had superb ratings from customer reviews 181. For example, most pages of the Primary Website included a sidebar stating that CHW is “Top Rated” by Consumer Affairs and received an overall rating of nearly five stars. -25- #7872166Get a Quote Step: Genera nfouation sieeve Inc. 500 3a 6 emt ed 182. However, a visit to the Consumer Affairs website in summer 2019 showed that CHW actually received less than a four-star rating, out of a possible five stars. CONSUMERATFARS — Buyers udos News wom a EE emt Mente ae vanes 1 unnea cnearnaara Choice Home Warrai cacc® OSS Home Warronty ‘Cc Home Wanany ars conprohns proton pis a prec past ho ghee orepa or tepocomont of rept maintonod mae stems and apphancs. oa ‘Aco Homo Vasant son cn rordo wget eotetom and gence of mel Neem and can ‘nak your bono mere atectve olen bey spucloy covered mfx sens and appliances oe ort Sustcion Ring Vnrtee tok kk re 183. The Primary Website also touted CHW’s “Excellent” rating and overall five-star rating with TRUSTPILOT, including on the home page. -26- #7872166HIGHIRYZRATE CAS. 4 184. However, Trustpilot’s rating for CHW is, and has been since at least June 2018, 15 |lonly four stars, out of a possible five stars, which is a “Great” and not an “Excellent” rating by 16 || Trustpilot’s standards. 17 Saeco 08 rinsing A art Home Warranty ‘ guoreee . Q wwmann 25 Reviews 6,647 Faro tng © expan © 27 185. As Trustpilot noted on its page, CHW asked consumers to leave reviews with 28 || Trustpilot, -27- #7872166186. Notably, many of the positive reviews on Trustpilot and Consumer Affairs appear to have been posted at the end of the initial purchase process. 187. These reviews have little relevance to consumers wondering whether CHW will actually keep its promises to repair or replace appliances and systems. 188, On information and belief, CHW solicited these reviews during the sign-up process in order to boost its ratings, as consumers signing up to pay for CHW’s service typically believed that CHW would deliver on its promises. 189. CHW has previously admitted (o giving consumers a free month of service to post positive reviews. 190. As of June 21, 2018, CHW disclosed under the “Reviews” tab on its Primary Website that, “All of the reviews on these pages have been provided with the benefit of a free month of service, valued at $40.00, for their willingness to provide a timely review of their claims experience.” 191. As of July 11, 2019, that text was removed from the same page on the Primary Website: 192. As of August 15, 2019, CHW had removed the reviews tab from their Primary Website altogether. 193. A “Home Warranty Reviews” page still exists on the Primary Website, with uniformly positive reviews, several of whick refer to air conditioning repairs, 194. At the bottom of that page, small text admits that CHW’s average rating on Trusipilot is four-out-of-five stars, not five-out-of-five stars as advertised at the top of the same page and on most other pages of the Primary Website, 195. In addition to paying for positive reviews, Defendants took steps to stop consumers from leaving negative reviews. 196. As noted above, Defendants frequently denied claims and then offered “goodwill payments” that consumers could only obtain if they agreed to keep quiet about their negative experience with Defendants. -28- #7872166