On July 21, 2011, the Court of Appeal of Alberta released its decision in Brick Protection Corporation v Alberta (Provincial Treasurer), 2011 ABCA 214 (“Brick Protection”). In Brick Protection, the Alberta Court of Appeal upheld the lower court’s decision that taking fees for extended warranties on appliances and furniture sold by a closely-related company did not make Brick Protection Corporation liable to pay a tax levied on insurance companies under the Insurance Corporation’s Tax Act, S.A. 1987, Ch. 36. (“Tax Act”).
CLICK HERE to read the full Judgment.
For the years 1987 to 1993, the Provincial Treasurer of Alberta assessed the Brick Protection Corporation over $700,000 in taxes (plus interest and penalties) on the basis that it was an insurance company. During that time, the Brick Protection Corporation offered extended warranties on appliances and furniture sold by a closely-related company. The Provincial Treasurer of Alberta argued that the Brick Protection Corporation was carrying on the business of an insurance company by selling extended warranties to customers purchasing merchandise from the Brick Warehouse furniture and appliance stores and therefore subject to tax levied on insurance companies under the Tax Act. However, in a strongly worded judgment, the Court of Appeal rejected this argument and dismissed the appeal. Côté J.A., writing for the majority, emphasized the distinctions between insurance and warranties and stated at paragraph 41 of the decision that:
“[i]f the vendor retailer reverted to issuing these warranty plans itself, any possible claim to tax them as insurance would disappear. So the government’s claim rests entirely on there being a separate sister company. If not, and having a separate company were not critical, then every retailer in Alberta who gives explicit warranties of the goods which it sells would be an insurance company. But almost every retailer in North America gives warranties of goods sold, if only because of terms implied by the statutes codifying sale of goods law. And most manufacturers offer some sort of a warranty also. The idea that all retailers and manufacturers of goods are insurance companies would be the nadir of absurdity.”
The Alberta Superintendent of Insurance (“Superintendent”) has not as yet commented publicly on Brick Protection and it is unclear at this time whether the decision will impact the Superintendent’s position that extended warranties are insurance. The Superintendent’s stance with regard to the lower court’s decision was that extended warranties should continue to be regarded as insurance and should be regulated as such – considering the case to be a tax case and not a ruling on whether extended warranties are to be considered insurance for insurance regulatory purposes. In addition, the Superintendent noted that the lower court’s decision in Brick Protection dealt with the years 1987 to 1993. Although the Insurance Act (Alberta) (“Insurance Act”) did not deal with warranties during those years, subsequent amendments have introduced provisions relating to warranties. For example, the Classes of Insurance Regulation, Alta Reg 121/2001 enacted under the Insurance Act now provides for a class of “equipment warranty insurance” as follows:
“‘equipment warranty insurance’ means the sub-class of boiler and machinery insurance that comprises insurance against loss of or damage to a motor vehicle or to equipment, arising from its mechanical failure, but does not include automobile insurance or insurance incidental to automobile insurance.”
We expect that comments from the Alberta Superintendent of Insurance on Brick Protection will be forthcoming in the near future and that we will issue another e-LERT at that time. Until then, stakeholders should continue to consider the position of the Superintendent with regard to extended warranties as unchanged and conduct their business accordingly.