Brick Protection Corp v. Alberta (Provincial Treasurer) [2009] A.J. No. 1450 (Alta. Q.B.)

The plaintiff, Brick Protection, offered a number of protection plans to customers purchasing merchandise at Brick Warehouse stores. The plans generally provided that Brick Protection would replace or repair any defective items for a specific period of time and supplemented the manufacturers' warranty applicable to each particular item. Typically, such additional protection cost between 10%-15% of the retail price of the item. The defendants issued notices of assessment for "insurance corporation tax" against Brick Protection in 1994, covering the taxation years 1987 to 1993 and including tax, interest and penalties. As the plaintiff's position was that as it did not carry on in Alberta the business of insurance, it had not filed the relevant returns during the applicable taxation years. While the term "business of insurance" is not defined in the Insurance Act Alberta (the "Act"), its meaning may be derived from the definition of "insurance" under the Act. At issue, therefore, was whether the protection plans offered by Brick Protection fell within the definition of "insurance" under the Act.

In its submissions, Brick Protection distinguished between the two types of insurance (value insurance - which pays a fixed sum on the occurrence of a contingency - and indemnity for the value of a loss) and warranties. According to Brick Protection, its plans offered warranties, as they guarded against product defects or failure, rather than providing reimbursement based on an unrelated occurrence or accident. The defendants, meanwhile, argued that the plans were essentially insurance products, as the warranty contracts were sold for a price and Brick Protection agreed to provide a benefit to the purchaser and pay for repairs or replacement as obligated under the contract. The defendants further argued that the plaintiff's business model, which did not include the manufacture or sale of merchandise, was that of an insurance company.

While the Court found that the warranty plans offered by Brick Protection appeared to contain "the elements of an indemnity insurance contract", it ultimately found that the plans were not contracts of insurance. The Court came to this conclusion for several reasons. First, the Court distinguished between an "indemnity", where coverage is based on an assessment of a loss or damage, with the obligation under the plaintiff's plans, which the Court characterized as "simply a covenant to fix or replace a defective product." The Court cited numerous American cases recognizing such a distinction. Second, the Court cited R. v. Anderson and Teskey, [1940] 3 W.W.R. 505 (Alta. C.A.) for the proposition that "the definition of insurance must have some relation to the subjects of insurance dealt with by the Act." The definition of insurance and the classes of insurance regulated by the Act do not include warranties and consumer goods (except vehicle warranty insurance), leading the Court to find that there was no legislative intent to include warranties, other than those for vehicles, under the legislative scheme. Finally, the Court found that, although not determinative, it was "noteworthy" that the "only companies that can offer insurance are insurance companies." On this point, the Court cited the lack of action by the Alberta government to require licensing of Brick Protection as an insurance company.

As such, the Court found that Brick Protection's plans were "classic manufacturer's, or distributor's product, warranties". While very similar to insurance contracts, such plans have historically fallen outside the realm of insurance law. The Court drew a distinction between warranties, which cover "the risk that the covered product will fail due to some inherent fault or weakness in the course of normal use," and insurance, which covers "the risk of unforeseen events or perils to the product unrelated to an inherent weakness in the product itself." Thus, the plaintiff prevailed and was successful in appealing its notices of assessment.

The decision in Brick case can be distinguished with that of Association pour la protection des automobilistes inc. c. Toyota Canada inc., 2008 QCCA 761. While the Quebec Court of Appeal in Toyota also rejected the notion that the extended warranty offered could be classified as "insurance", in reaching its decision, the Court of Appeal focused somewhat on the characteristics of the party offering the warranty. According to the Court of Appeal, a contract is a warranty if it (i) warrants against manufacturing defects only; (ii) is simply an accessory to the contract of sale; and (iii) is offered by someone with an economic interest in the contract of sale such as the seller or manufacturer. Considering the facts of the case, the Court of Appeal found that the extended plan was a warranty, as it (i) was offered by a subsidiary of the manufacturer in the context of a purchase of a new vehicle from an authorized dealer; (ii) was titled "Mechanical Protection Continuation Agreement for New Toyota Vehicle" and described as an extension of the manufacturer's warranty; (iii) essentially provided for only the repair of the vehicle if there was a defect; (iv) was subsidiary to the basic warranty; (v) was offered by a party that was not an insurer but rather a merchant under the Consumer Protection Act (Quebec); and (vi) provided that it was not intended to be insurance and that, if it was held to be insurance, the respondent was replaced by an insurer.

Thus, the Court of Appeal in Toyota relied, to some degree, on the characteristics of the party offering the extended warranty. On the other hand, the Court in Brick focused exclusively on the nature of the warranty offered by the protection plan. The decision emanating from Alberta, therefore, appears to go further in providing flexibility to those offering extended warranties, as such warranties could presumably be offered by parties unrelated to the manufacturer of the merchandise to which the warranty applies.