In Brick Protection Corporation v Alberta (Provincial Treasurer),(1) the Alberta Court of Appeal recently examined the insurance boundary in the context of extended warranties. Since such cases are rare – especially at appellate level – this decision is important in clarifying the boundary between insurance and non-insurance.
Brick Protection offered extended warranty exclusively to customers of its sister retail company. Alberta sought to collect taxes imposed on persons "carrying on in Alberta the business of insurance within the meaning of the Insurance Act". As the Insurance Act does not define the 'business of insurance', the majority focused on the definition of 'insurance'. This definition is similar across the provinces/territories and thus the court's decision has broad implications.
Justice Côté, in his judgment on behalf of the majority, found Ballentine's reference work American Jurisprudence helpful in interpreting 'insurance':
"The nature of a contract as one of insurance depends upon its contents and the true character of the contract actually entered into or issued – that is, whether a contract is one of insurance is to be determined by a consideration of the real character of the promise or of the act to be performed, and by a consideration of the exact nature of the agreement in the light of the occurrence, contingency, or circumstances under which the performance becomes requisite."(2)
He also found helpful the following quote from the Supreme Court of Canada's Chieu(3) decision:
"this Court has long rejected a literal approach to statutory interpretation. Instead, [the statute section at issue] must be read in its entire context. This inquiry involves examining the history of the provision at issue, its place in the overall scheme of the Act, the object of the Act itself, and Parliament's intent both in enacting the Act as a whole, and in enacting the particular provision at issue."(4)
The judge found that in this case the risks dealt with were product failures, which were internal matters rather than the external factors that are the usual features of insurance. He also noted that no amounts were paid; rather, the products were repaired or replaced.
The judge further described how various contracts – from leases to lump-sum construction contracts to indemnities – allocate risks between parties. Just as it would be absurd to classify all of these contracts as 'insurance', he found it would be equally absurd to classify Brick Protection's extended warranty as 'insurance'.
While judges in other cases have found US jurisprudence helpful and sometimes persuasive, all three judges in this case rejected the US trend that holds that an extended warranty offered by a manufacturer or retailer on its product is not insurance, while such an extended warranty offered by a third party is considered to be insurance. Brick Protection was a sister company of the retailer.
Justice Graesser, in his concurring judgment, based his decision on the fact that the Alberta superintendent (the person responsible for administering the Insurance Act) did not require Brick Protection's input in order to comply with the Insurance Act's licencing and solvency provisions. As such, his reasons are less informative.
This decision provides legal practitioners with an additional milestone or 'brick' to help them in delineating the insurance boundary line.