The Alberta Court of Appeal released its decision in this case on July 21, 2011. Brick Protection Corp. (Brick Protection; now Trans Global Warranty Corp.) was a sister corporation of the Brick Warehouse Corp. (The Brick). Brick Protection sold extended warranties to consumers on appliances and furniture purchased through The Brick. The issue: Was Brick Protection Corp. doing business as an insurance company in Alberta? If so, they would be subject to insurance corporation tax under Part IX of the Alberta Tax Act (the Act; now in the Alberta Corporate Tax Act).
In Alberta, insurance companies are subject to a 2 or 3% tax on premiums they receive from insurance business they do in the province. The definition of "insurance company" in s. 86 of the Act is "a person or corporation carrying on in Alberta the business of insurance within the meaning of the Insurance Act". Unfortunately, the Insurance Act does not define what "business of insurance" means.
In 1994 the Alberta Treasury assessed against Brick Protection for the 1987 through 1993 tax years (for $1,151,423.63 in taxes, interest and penalties). In their opinion Brick Protection was operating as an insurance company within Alberta and was therefore subject to tax under s. 87(1) of the Act. Brick Protection did not agree and appealed.
At trial, Justice Gill of the Alberta Court of Queen's Bench held that Brick Protection was not in the "business of insurance" 2009 ABQB 744). He held that Brick Protection was offering extended warranties. Since warranty agreements have not been historically covered by insurance law, the Court held Brick Protection was not running an insurance business. It did not help that in Alberta insurance companies must be licensed and the government did not explain why they never required Brick Protection to have such a license.
At appeal, the Court was unanimous in affirming the trial decision, but gave two sets of reasons (2011 ABCA 214). Côté J.A. (Costigan J.A. concurring) said the primary issue was whether extended warranties can be considered a form of insurance in Alberta. Côté J.A. held that resolution of the issue required determining the proper meaning of "business of insurance" and undertook an exhaustive statutory analysis in order to do so. First, he considered the definition of insurance within the Insurance Act of Alberta, and found that the definition was so broad as to bring in many transactions and contracts not normally considered insurance. He then noted that the Dreidger principle requires interpreting a statute in the context in which it operates, and used that principle to narrow the meaning of "business of insurance" to the commercial realities of the insurance business. Since vendors offering warranties are not considered insurers, Brick Protection's business could not be a "business of insurance" simply because they were providing warranties on products sold by a sister corporation. He further stated that that the warranties sold were the "anti‐thesis of insurance" because Brick Protection (as a term of their agreement) could cancel the warranty and refund the price paid if repair or replacement of the defective goods proves impossible.
Graesser J. (sitting ad hoc from the Alberta Court of Queen's Bench) took a different approach in dismissing the appeal. The most important factor in his decision was that the Superintendent of Insurance did not treat extended warranties (except for those on vehicles) as insurance. He held it was a reasonable interpretation that being in the "business of insurance" means being a corporation regulated by the Insurance Act. Since the Superintendent did not enforce that act against Brick Protection (by requiring them to be licensed as insurers, for example), this created strong doubt that the intent of the legislature was to regulate extended warranties through the Insurance Act. Graesser J. resolved that ambiguity in favour of the taxpayer, saying extended warranties were not the "business of insurance."
It was also interesting to note that Côté J.A. awarded $800 in costs against Alberta for providing copies of documents that were so poor they were illegible, and stated: "normally I would...order that payment be made to the Deputy Registrar, but then the government would have been paying itself." Equity requires clean hands; Courts require clean copies.
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