Q&A Do warranties in purchase agreements qualify as insurance?

Answer:

It depends. The definition of non-life insurance in the Wft corresponds to the definition of insurance in Section 7:925 in conjunction with Section 7:944 of the Dutch Civil Code. For a warranty to qualify as non-life insurance, the following conditions must in any case be met:

• There is an agreement
• in which one party undertakes to pay one or more benefits (including a benefit in kind)
• for which the other party has to pay premiums.
• At the time of concluding the agreement, there is uncertainty for both parties with regard to the benefit side and/or the premium side, and
• the purpose of the payment is to compensate for financial damage.

The definition of non-life insurance in Section 1:1 of the Wft includes the addition that there must be an obligation to pay as a consequence of an uncertain occurrence or an uncertain circumstance affecting the insured person's interests.

If the above conditions are met, the subscription may qualify as non-life insurance, but this does not have to be the case. The legislator has indicated that the concept of non-life insurance in the Dutch Civil Code is too broad in certain cases and that its limits must be determined in case law. This means we must assess whether a warranty should be considered non-life insurance within the limits of Section 7:925 in conjunction with Section 7:944 of the Dutch Civil Code. The principle that we use in this assessment is whether the warranty is regarded as non-life insurance by society. We also take into account the legal relationship between the parties concerned and the circumstances of the case.

Does a warranty in a purchase agreement qualify as non-life insurance?

In the light of society's views, we do not, in principle, regard such warranties as a non-life insurance if each of the following criteria are met:

• the warranty is a subordinate part of the purchase agreement (and is therefore absorbed, as it were); and
• the warranty exclusively relates to the nature of the product or a defect of the purchased product, and
• the warranty period does not evidently exceed the lifetime that can reasonably be expected of the purchased product.

For clarification: a typical warranty in a purchase agreement often refers to existing characteristics and shortcomings of a product and, more generally, to the quality that may be expected from the product sold. Insurance, on the other hand, is often intended to compensate for damage caused by future external factors, such as loss and theft. A warranty covering such (external) factors has nothing to do with the characteristics of the product itself and will therefore, in principle, qualify as insurance, even if it is part of a purchase agreement.

The expected lifetime referred to here is not necessarily equivalent to the period during which the buyer can rely on the requirement of conformity of Section 7:17 of the Dutch Civil Code. The expected lifetime may exceed that period and can in principle be defined as the period ending when the buyer is generally expected to decide to replace the product in question (economic lifetime). Depending on the circumstances of the case, the expected lifetime may be deemed to have been exceeded if the warranty evidently covers an unusually long period for the product in question. We wanted to underline this with the word “evidently”.

DNB licence requirement

Please note that taking out insurances on a commercial basis requires a licence from DNB. Our supervision of insurance companies aims to protect the interests of the insured. Under certain circumstances an exemption from the licence requirement applies.

AFM licence requirement

Even if you are not required to hold a licence from DNB, you may still be subject to a licence requirement pursuant to the part of the Wft relating to conduct of business supervision. This may be the case, for instance, if you act as an intermediary in insurance services or other financial products. Please contact the AFM for more information.

Assessment of your analysis

If you want to know whether your own analysis of whether you need a licence is correct, you can send a substantiated legal analysis to us, stating the name of the natural person or the company. Please contact us to discuss the options.