Changes to the Alberta Insurance Act (the “Act”) went into effect on July 1, 2012. One such change is the addition of a new class of “product warranty insurance” in the Classes of Insurance Regulation enacted under the Act (the “Classes Regulation”).
“product warranty insurance” means insurance not incidental to any other class of insurance against loss of or damage to personal property other than a motor vehicle under which an insurer undertakes to pay the costs of repairing or replacing the personal property.
The addition of this new class challenges reliance on the Alberta Court of Appeal decision in Brick Protection Corporation v Alberta (Provincial Treasurer), 2011 ABCA 214 (“Brick Protection”) for insurance regulatory purposes. In Brick Protection, the Court of Appeal upheld the lower court’s decision that extended warranties on appliances and furniture sold in Alberta are not insurance for purposes of the Insurance Corporation’s Tax Act (Alberta). After the Brick Protection case, the Alberta Office of the Superintendent of Insurance (“Superintendent”) took the position 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. Brick Protection dealt with the years 1987 to 1993 in which the Act did not deal with warranties. Subsequent amendments to the Act have introduced provisions relating to warranties, including the recent addition of the class of “product warranty insurance”, giving the Superintendent further support in its position that extended warranties should be regarded as insurance.
The Superintendent has indicated to us that the new class has been added to the Classes Regulation to provide for future amendments to the Act that may allow more flexibility in respect of the distribution and administration of “product warranty insurance” – such as an exemption from intermediary licensing or a restricted licensing regime. However, with no set timeline or serious discussion at this time in respect of such amendments, stakeholders must comply with the underwriting and insurance intermediary licensing regimes that are currently in place.
What does the new class mean for insurance companies in Alberta?
The Superintendent has also indicated to us that insurers should add the new class of “product warranty insurance” to their Alberta insurance licence if they intend to write such coverage in the province (for federally regulated insurers operating in Alberta, the Superintendent also expects to see the class of “other” in their Federal Order). In contrast, the existing class of equipment warranty insurance is a sub-class of boiler and machinery insurance in Alberta, and insurers authorized to write boiler and machinery insurance in Alberta are authorized to write equipment warranty insurance as well. It should be noted that for some types of product warranty insurance, insurers may rely on the household appliance insurance exemption found in the Miscellaneous Provisions Regulations enacted under the Act. Subsection 4(2) of that regulation provides that the Act does not apply to “household appliance insurance” if the total compensation payable for the insurance is $200 or less.
What does the new class mean for third party administrators, agents/brokers and retailers in Alberta?
The Superintendent has indicated to us that businesses and individuals should be licensed as insurance agents or insurance adjusters if acting in such capacities in dealing with product warranty insurance in the province. Unfortunately, Alberta’s restricted licensing regime (which is less onerous than full insurance agent or insurance adjuster licensing) is only available in limited circumstances, such as in respect of the distribution of, and adjustment of claims under, equipment warranty insurance but not product warranty insurance. However, the household appliance insurance exemption (noted above) provides an exemption from the Act for the sale and distribution of some types of product warranty insurance, namely household appliance insurance of $200 or less.