What Home Warranties Don't Cover: Exclusions in the Real Contracts

Nearly every home warranty sold in the United States excludes the same six things: cosmetic damage, pre-existing conditions, code and permit costs, secondary damage, improper installation, and failures blamed on lack of maintenance. This page quotes those clauses from three published contracts, Choice Home Warranty's user agreement, American Home Shield's specimen plan, and First American's sample contract. The wording is the point, because on three of the six the largest providers no longer say the same thing, and the version you signed decides your most likely claim.

The short answer

Read the exclusions and limitations section before the covered-items list, and read it in the provider's own published contract rather than in a plan-comparison table. The six categories below appear in almost every agreement on the market. Two of them, improper installation and lack of maintenance, have quietly flipped to covered causes in some current contracts while staying denial grounds in others. Knowing which of those two contracts is in your hand is worth more than a few dollars of monthly premium, because it changes whether the first big failure gets fixed or gets a denial letter.

The six exclusions that recur in nearly every contract

1. Cosmetic damage

First American disposes of this in five words: "Cosmetic defects are not covered" §. American Home Shield's specimen lands in the same place, refusing to repair cosmetic damage that "does not also cause a Covered Breakdown." A refrigerator with a dented door that still holds temperature is a cosmetic case. So is cracked oven glass, a chipped porcelain sink, and the scratch the movers left on the cooktop. If the unit still runs, the contract owes nothing, and no provider on the market deviates here.

2. Pre-existing conditions

Here the contracts split. Choice takes the broadest denial position in print: "Known or unknown pre-existing conditions are not covered" §. The word doing the work is unknown: a hidden defect the homeowner had no way to find is still out. American Home Shield draws the line somewhere else, excluding only breakdowns that predate the agreement and "were either known by you or were reasonably detectable by you" §. Same exclusion name, two different standards, and no inspection at enrollment to settle it. How that determination actually gets made at claim time is the subject of pre-existing conditions.

3. Code and permit costs

The contract fixes the broken item; getting the surrounding work up to current code is the homeowner's bill. Choice states it plainly: "We are not responsible for service to meet current building or zoning code requirements or to correct for code violations" §, and the next clause excludes permit costs too. American Home Shield and First American write the same base exclusion, then hand back a sliver of it: a modifications allowance capped at $250. That $250 ceiling, and where a code-triggered repair blows straight through it, is the whole subject of code violation exclusions.

4. Secondary damage

A warranty pays for the failed component and nothing the failure ruins on its way out. The specimen contracts list the carve-out the same way: no reimbursement for food spoilage, lost income, utility bills, additional living expenses, or damage to the house itself. A burst supply line is a covered plumbing repair; the soaked drywall and buckled flooring under it belong to the homeowners insurance policy, with its own deductible. One failure, two products, and a gap between them that the homeowner usually discovers in the middle of the claim. The same gap shows on a summer air-conditioning outage: the contract repairs the covered compressor, but the food that spoiled and the hotel nights during the failure are the additional living expenses the specimen writes off. A home warranty is a service contract, not insurance, and this is the seam where the difference bites.

5. Improper installation

This is where "nearly every" earns its qualifier. First American's base terms list improper installation alongside fire, flood, and vandalism, then sell the fix as an upgrade: its First Class Upgrade package "will repair or replace a system or appliance (excluding roofs and ductwork) that was improperly installed, modified or repaired" §. American Home Shield goes further and folds it into the base plan, naming "Improper Installation or Repair" that was "not known or reasonably detectable by you" as a covered cause. The exposed buyer is the same everywhere: an older home with undocumented DIY work, where the diagnosis surfaces at the first claim, on the report of the contractor the provider dispatched.

6. Lack of maintenance

The classic denial ground, and the second place the market has split. Choice covers only "failures due to normal wear and tear" and denies "malfunction due to misuse, abuse, neglect." American Home Shield runs the other way, listing "Insufficient Maintenance" and "Rust, Corrosion, or Sediment" as covered causes in its specimen §. That gap decides real claims, and it is also the denial a homeowner can actually fight with paperwork. The clause-by-clause comparison and the records that overturn a denial are in lack-of-maintenance denials.

How to read the exclusions section before you buy

All three documents quoted above are public. Choice posts its user agreement, American Home Shield posts specimen plan agreements, and First American publishes its sample contract as a PDF. The Federal Trade Commission's consumer alert on home warranties gives buyers the governing habit: a home warranty is a service contract that often covers only part of a product, so read what the plan excludes rather than the sales pitch §. That is the frame for reading the six clauses above, not the marketing grid on the sales page.

Two checks separate a usable contract from a coin flip. The first is the causation language. A contract that names its covered causes, the way the American Home Shield specimen names insufficient maintenance and undetectable improper installation, is structurally friendlier than one that covers wear and tear alone and lets the dispatched contractor's report sort every other failure into a denial. The second is what happens to a contested call. A contract that reviews a denial against maintenance records and inspection reports gives the homeowner a lever; one that rests entirely on the diagnosis of the contractor the provider sent does not. When a denial does land, the appeal path and the state agency that handles it run separately from the diagnosis, and which agency holds jurisdiction depends on the state.

Exclusions are only half of the denial math. The dollar caps stacked on top are the other half, and a covered claim can still cost the homeowner most of the repair once the per-item limit lands. Claim caps and aggregate limits does that arithmetic, and any add-on you buy carries its own exclusion list on top of the base contract, which optional add-ons sorts through.

The six clauses do not hit every buyer equally. A newer home with documented work and clean inspection reports mostly fears the cap, not the exclusions. An older home with undocumented DIY, aging equipment, and no service file is exposed on four of the six at once: pre-existing, improper installation, lack of maintenance, and the code work a replacement triggers. For that second buyer, the contract that names insufficient maintenance and undetectable improper installation as covered causes, and reviews a contested denial against records, earns its higher premium. The premium gap is small next to the denial it prevents.

The buyer these six clauses are written against is easy to name: aging equipment, no service paperwork, and a wear-and-tear-only contract chosen on premium alone. That homeowner has bought a product designed to deny the most likely claim, and the exclusions section says so in plain language before the first payment clears. For what a warranty does pay once the exclusions are cleared, start with what a home warranty covers.