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Quebec Appeal Court says manufacturer’s extended warranty is not an insurance contract


October 10, 2008   by Canadian Underwriter


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The Quebec Court of Appeal has found that the “Extra Care Protection” contract of a vehicle manufacturer is a warranty, not an insurance contract, thus reversing a lower court decision that found the opposite.
In making its decision in the Automobile Protection Association [APA] v. Toyota Canada Inc., Quebec’s Court of Appeal defined the difference between a warranty or guarantee issued by a vehicle manufacturer and an insurance contract.
[The decision is in French only. Ogilvy Renault has provided the following English translation.]
“[T]here is an important distinction [between a warranty and an insurance contract],” the Quebec Appeal Court ruled. “A warranty relates to a defect in the goods sold and the person giving the warranty has an economic interest in the fact that the consumer is purchasing the goods, as is the case for a manufacturer, a distributor and a merchant.
“What is more, these persons have a legal obligation to warrant that the goods are free of latent defect.
“On the other hand, insurance is provided by someone who is not required to warrant the quality of the goods on account of the role played in putting them on the market and whose principal activity consists in risk speculation.”
APA launched a class action suit against Toyota after Toyota offered for sale an additional warranty product called Extra Care Protection (ECP).
ECP was intended to supplement the manufacturer’s “basic” conventional warranty for an additional period of up to six years.
ECP required purchasers to pay a transfer fee of Cdn$200 within 30 days of the vehicle purchase to take advantage of the additional protection. APA argued Toyota’s fee infringed the Consumer Protection Act.
The Quebec Superior Court disagreed with the APA. In the process, the lower court’s trial judge defined the ECP as a type of insurance contract that was separate and apart from Toyota’s “basic” warranty, and hence not subject to the Consumer Protection Act (as a warranty would be).
But the Appeal Court reversed this ruling, saying the lower court erred in describing the ECP warranty as a type of insurance contract.
“The decision of the Court of Appeal thus provides answers to certain very specific questions,” Ogilvy Renault notes in a statement on the case. “Others remain, however.
“The Court does not deal with the situation of a contract where the seller indemnifies the purchaser against any loss that may ensue as a consequence of a latent defect in the goods sold.
“For example, if a latent defect in an automobile results in the automobile exploding and the explosion causes the purchaser’s house to burn down, is the contract between the parties merely a contract of warranty or is it a contract of insurance?”


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