Last March 27, 2009, the Quebec Autorité des
marchés financiers (AMF) published a notice stating
that it considered certain vehicle replacement cost warranties to
On April 30, 2010, the AMF published two more notices respecting
products relating to a vehicle: one on products relating to
vehicles generally (which includes a discussion of marking
warranties) (the "Vehicle Product Notice") and one on GAP
warranties (the "GAP Warranty Notice"). The AMF considers
both marking and GAP warranties to be insurance products if the
criteria set out below are met.
An insurance product
According to the Vehicle Product Notice, a product that relates
to a vehicle is considered insurance if the product:
is offered on the sale or lease of a vehicle or one of its
components or parts; and
gives the right to an indemnity upon the occurrence of a risk
covered in the contract (e.g. loss, theft, accident, vandalism) in
exchange for the price of purchasing the protection.
In the AMF's view, all the criteria necessary for a product
to be considered insurance are present in such products: (i) the
payment of a benefit; (ii) upon the occurrence of a risk; (iii) for
a consideration. The difference between an insurance product and a
warranty is that insurance protects the consumer from
risk while a warranty protects the consumer from
defects in quality.
However, a product providing for:
reimbursement of its cost; and
cancellation of the contract in the event that the good sold
does not work effectively is not an insurance product.
The consequences of being qualified as an insurance product are
the product must be issued by an insurer duly registered with
the AMF; and
the product (if it is not a replacement warranty, which can be
distributed through the distributor regime) can only be distributed
by AMF-certified representatives (damage insurance brokers and
Specific types of products
In the Vehicle Product Notice, the AMF discusses marking
warranties. "Marking" a vehicle means identifying it
through a technical process by which the parts of a vehicle are
marked with an engraving or in some other way.
In the AMF's view,
A marking is not in itself an insurance product.
However, if the "marking warranty" provides for
payment of an indemnity to replace a stolen marked vehicle - and
not just an indemnity for the cost of marking the vehicle - it will
be considered to be an insurance product.
Sellers of marking products that will now be considered to be
insurance (e.g. which provide for replacement cost indemnity) have
a three-month transition period beginning April 30, 2010 to either
modify their products so that they comply with the new guidelines
(e.g. by removing payment of the replacement indemnity), or
withdraw their products from the market. Products sold prior to
April 30, 2010 and throughout the transition period must be
honoured up to their expiry date.
According to the GAP Warranty Notice, a GAP warranty covers the
difference between the balance of the debt incurred to acquire a
vehicle (pursuant to a purchase or a long-term lease) and the value
of that vehicle at the time of the event resulting in its loss
(value as determined by the motor vehicle insurer) (the
In the AMF's view,
When offered by a third party, the GAP warranty is an insurance
However, an agreement by the creditor or lessor to assume the
cost of the GAP (which amounts to the unpaid cost of the lost
vehicle not covered by the insurance indemnity) is not an insurance
product but only a waiver by the creditor or lessor in favour of
the purchaser or the lessee.
Sellers of GAP warranties that are considered to be insurance
must comply with the GAP Warranty Notice as of April 30, 2010.
Warranties sold prior to this date must be honoured up to their
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about your specific circumstances.
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