Canada: Alberta Court Of Appeal Considers Whether Extended Warranties Are Insurance Products

On July 21, the Alberta Court of Appeal released its decision in Brick Protection Corporation v. Alberta (Provincial Treasurer), in which it upheld a lower court's decision that a company selling extended warranties on appliances and furniture was not carrying on the business of insurance in Alberta at the relevant time. Although the Alberta insurance regulatory regime now captures certain extended warranty products, the Court's analysis has broad implications in other provinces in which extended warranties are not currently regulated as insurance products.

The respondent in the case, the Brick Protection Corporation, offered customers extended warranties on the furniture and appliances sold at its sister retailer, Brick Warehouse. Brick Protection was assessed by the appellant for taxes for the years 1987 to 1993 on the basis that Brick Protection was an insurance company. At issue on appeal, therefore, was whether the business of offering extended warranties made Brick Protection an insurance company for tax purposes.

Legislative scheme

In the majority opinion written by Mr. Justice Côté, the Court of Appeal began by reviewing the legislative scheme under which insurance companies are taxed in Alberta. Specifically, the relevant Alberta corporate tax statute includes a provision taxing persons or companies carrying on the business of insurance "within the meaning of the Insurance Act". The tax statute, however, does not define "insurance" nor does it refer to a specific definition within the insurance legislation. Rather, the tax statute refers to the insurance statute as a whole. Turning its attention to the Insurance Act, the Court of Appeal described the aim of the legislation as the regulation of the "traditional insurance industry" and the protection of the public from unscrupulous companies and unfair types of policies and claims processes. While the tax statute's reference to the Insurance Act could be assumed to refer to the definition of "insurance" in the Insurance Act, the Court of Appeal found the definition to be vague and ambiguous. The definition of "insurance", which is substantially the same in most other provinces, read as follows at the time:

the undertaking by one person to indemnify another person against loss or liability for loss in respect of certain risk or peril to which the object of the insurance might be exposed, or to pay a sum of money or other thing of value on the happening of a certain event.

According to the Court of Appeal, taking the definition of "insurance" literally would include "a host of things which no one in Canada would ever consider when using the word 'insurance'" and lead to absurd results. Thus, the Court of Appeal found that, in order to determine whether a certain business was "insurance", it would be necessary to

give some weight to actual practices and commercial reality. The Legislature must be presumed to legislate with reference to what actually occurs in the real world, not to theoretical nonexistent possibilities. That is doubly so when the new taxing legislation expressly refers to an existing well-known industry plus its regulation.

Insurance vs. extended warranties

Considering actual practices, the Court of Appeal noted that Brick Protection's business was not licensed under the Insurance Act, and consequently was not subject to the regulatory or consumer protection obligations of an insurance company. Notably, the Superintendent of Insurance was aware that Brick Protection was not licensed under the insurance regulatory scheme and had not required Brick Protection to become so licensed. According to the Court of Appeal, Brick Protection was also not part of "the known and very well-established insurance industry." In concurring reasons, Mr. Justice Graesser considered the Superintendent's position in not regulating Brick Protection to be "virtually conclusive" in determining whether extended warranties were properly considered insurance.

The Court of Appeal also considered the features typical of insurance coverage, namely the concepts of outside risks, indemnity, and risk assessment, and identified their absence in the case of extended warranties.

Outside risks

Insurance typically involves protecting against external risks created by neither the insurer nor the insured. It does not cover the risks associated with bad workmanship or design, and the insurer assumes only widely spread risks. In this case, however, the extended warranty only covered product failure resulting from defects in materials or workmanship. Meanwhile, coverage was limited only to products sold by Brick Warehouse. As colloquially described by the Court of Appeal, all the respondent's eggs remained "in the same basket" as loss was "neither spread nor pooled." The Court of Appeal also noted that if Brick Warehouse reverted to issuing the warranties itself rather than offering them through Brick Protection, any possible claim that the retailer could be taxed as an insurance company would be negated. In relation to extended warranties in such a case, the Court of Appeal noted, "no one would have thought to suggest that they were insurance. It would just be a clause in the sale contract."

Indemnity

The Court of Appeal also noted that insurance companies typically pay money by way of indemnity, unlike in the case of warranties, which generally only provide for the repair or replacement of the covered goods. The extended warranties in this case did not provide coverage for loss or damage to items or persons beyond the very item sold, and Brick Protection was also permitted to cancel the warranty and refund the price of the warranty if repair or replacement of the item proved impossible. The last condition was described by the Court of Appeal as "the antithesis of insurance."

Assessment of risk

Further, insurance typically involves paying a premium based on the risk incurred, and insurers generally require an application containing information about the person seeking insurance in order to ascertain the risk. In this case, however, only a flat fee was charged, calculated as a percentage of the purchase price of the item sold. There was no process to determine how the purchaser intended to use the item or whether the purchaser had any history of previous losses. The extended warranty could also be transferred without the permission of Brick Protection if the original purchaser transferred the item.

Disposition

Accordingly, the Court of Appeal ultimately rejected the notion that the respondent was in the business of insurance and upheld the decision of the Court of Queen's Bench. The definition of "insurance" in the Insurance Act was found to be ambiguous and broad, and the objective of the Insurance Act was considered to be the regulation of the traditional insurance industry, whose business and products differed from those of the respondent.

Subsequent developments and broader implications

The legislative scheme existing in Alberta during the time period at issue has since been amended and the Alberta Superintendent of Insurance has expressed the view that extended warranties do now constitute insurance under Alberta law. For example, the Classes of Insurance Regulation under the Insurance Act now include an "equipment warranty insurance" class, which is defined as "the sub-class of boiler and machinery insurance that comprises insurance against loss of or damage to a motor vehicle or to recreational, marine, farm implement or construction equipment, arising from its mechanical failure, but does not include automobile insurance or insurance incidental to automobile insurance" and the Insurance Act requires automobile, marine, recreational equipment, farm implement and construction equipment dealerships to hold a special limited class of insurance license in order to sell such equipment warranty insurance. In addition, the Miscellaneous Provisions Regulation under the Insurance Act now includes a definition of "household appliance insurance" ("a contract of insurance that indemnifies a person who has an interest in a household appliance against the appliance's malfunction, failure or breakdown") but exempts such insurance from application of the Insurance Act where the premium is less than $200.

Insurance statutes and regulatory practice relating to extended warranties vary across Canada, with some provinces (such as British Columbia) expressly regulating extended warranties as insurance, while in other provinces (such as Ontario), the legislation does not expressly consider such warranties and the administrative practice, for the moment, is not to regulate extended warranties. In that context, the Brick Protection case provides valuable insight into how courts may consider extended warranties in other provinces in the absence of express regulation.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
Chomicki Baril Mah LLP
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Chomicki Baril Mah LLP
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions