Are 'Extended Warranties' Insurance Products? The UK High Court Decides

The recent decision of the England and Wales Court of Appeal in the case of Re Digital Satellite Warranty Cover Ltd & Ors [2011] EWHC 122 (CH) has clarified that extended warranties for the repair or replacement of consumer goods in the event of breakdown or malfunction can be regulated insurance products, with the consequence that the providers of such warranties in the United Kingdom are subject to regulation by the Financial Services Authority ("FSA").

Background

The appellants, Digital Satellite Warranty Cover Limited and Satellite Services (the "Appellants"), each carried out the business of providing extended warranty contracts under which they agreed to repair and replace customers' television dishes, digital boxes and associated equipment in the event of breakdown, malfunction or damage caused by external forces (the "Warranties").

The respondent, the FSA, sought winding-up orders in the High Court of England and Wales against each of the Appellants on the basis that the Appellants had failed to obtain authorisation from the FSA for providing the Warranties, an activity which the FSA claimed was required to be regulated under the Financial Services and Markets Act 2000 (the "FSMA"). It was argued by the FSA that the Warranties were contracts of general insurance, within the meaning of the FSMA (Regulated Activities) Order (2001 SI 2001/3544), being "contracts which provided insurance against the risk of loss attributable to the insured incurring unforeseen expense". The Appellants, on the other hand, submitted that the Warranties did not amount to contracts of general insurance, arguing that the risk insured against under the Warranties was not attributable to the customers incurring unforeseen expense but was in fact the risk...