21 Sep Warranty clause or insurance contract?
More and more, we see that guarantee conditions of a product offered for sale on the market are presented as selling points. Guarantees thus become a competitive element. This can be explained through two examples. First, a car manufacturer offering several models of which the price comprises the annual maintenance, which covers the price of the used parts and workforce. Second example, a tour operator can offer a stay whose price includes a cancellation insurance.
Should this be qualified as a warranty clause or an insurance contract? The answer is important considering the fact that the insurance sector is strictly regulated, derogating to the Belgian Civil Code and under the control of the FSMA.
Article 5, 14° of the law of 4th April 2014 related to insurance defines insurance contracts as follows: a contract according to which, upon payment of an insurance premium, the insurer commits to provide a service foreseen in the contract, in the case where a random event would happen, while the insured (or the beneficiary) has no interest in its completion.
At first sight, guarantee clauses could also be covered by this definition. How can we make a distinction? The FSMA has taken a position in a communication about the essential elements of an insurance contract. The FSMA considers that warrantees clauses are no insurance contracts when they are accessory to a non-random principal operation (like a sales contract). On the contrary, an insurance contract has an autonomous nature.
According to the FSMA, a second element which distinguishes an insurance contract from a warranty clause is the fact that a warrantee clause or contract is limited to the compensation or the reparation of direct damages, due to the occurrence of an event of which the cause is inherent to the principal operation or its object (e.g., a malfunction caused by a manufacturing default).
If one of these conditions is not fulfilled, the provided coverage must be considered autonomous and arise in an insurance contract. Sellers thus have to be careful when they develop their warrantees, at the risk of crossing the line and being in a forbidden area!
If you wish to have more information about the subject, do not hesitate to contact M. Frédéric de Patoul (frederic.depatoul@cairnlegal.be).
Best regards,
The Cairn Legal team
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