UK: Supreme Court Finds That Extended Warranty Contracts are Contracts of Insurance

    In Digital Satellite Warranty Cover Limited v Financial Services Authority [2013] UKSC 7, the Supreme Court unanimously held that extended warranty contracts covering satellite television equipment were contracts of insurance. It was therefore found that Digital Satellite Warranty Cover Limited (the Appellant) was carrying out regulated activities that required FSA authorisation.

    The appeal arose out of an application by the Financial Services Authority (the Respondent) for an order to wind up the Appellant under s.367(1)(c) of the Financial Services and Markets Act 2000 (FSMA), on the ground that it "is carrying on or has carried on a regulated activity in contravention of the general prohibition." The general prohibition is that at s.19 of FSMA, which provides that no person may carry on a regulated activity unless he is either an authorised or exempt person.

    The Appellant sold and performed extended warranty contracts under which it contracted to repair or replace satellite television dishes, satellite boxes and associated equipment. It was common ground between the parties that the contracts in question were contracts of insurance and that the Appellant was not authorised under FSMA to carry on any kind of insurance business. However, the Appellant submitted that the extended warranty contracts were not of a type which required authorisation under FSMA because the classes of regulated activities did not extend to contracts which only provided benefits in kind, i.e. repair services and replacement goods.

    The Supreme Court rejected the Appellant's argument on the ground that there is no material distinction between a contract providing only for repair or replacement and a contract providing an indemnity for costs incurred by the insured, as the risk covered is essentially the same and both can be properly categorised as a contract protecting the insured from financial loss. As such, the appeal was dismissed.

    This case confirms that an extended warranty contract will be construed as a contract of insurance by the English courts. The judgment also highlights the willingness of the FSA to pursue those businesses it believes to be flouting the regulations and ought to act as a deterrent to any unauthorised firms that operate within the regulated insurance space.

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