29 September 2017

Dutch Central Bank: BOVAG warranty on second-hand cars is insurance policy

On 27 September 2017, Dutch car dealer association BOVAG announced that the six-month warranty it offers for second-hand cars, entitling customers to free vehicle repairs and other benefits, is qualified by the Dutch Central Bank (DNB) as an insurance policy. This means that BOVAG and the associated car dealers require a licence (or an exemption).

DNB has published a fact sheet on its website explaining that a warranty qualifies as an insurance policy if four criteria are met:

  • the customer enters into an agreement
  • and pays a premium to insure or guarantee
  • against an event that is uncertain when entering into the agreement, and
  • that, if it occurs, entitles the customer to a benefit.

Statutory warranties, such as conformity requirements based on article 7:17 Dutch Civil Code, do not constitute insurance policies in DNB’s view, because these are mandatory and the customer therefore does not pay a premium. BOVAG’s warranty scheme, on the other hand, is an optional warranty for which customers pay an indirect premium, and which accordingly qualifies as an insurance policy, according to DNB.

The qualification of the BOVAG warranty scheme is an important development for many professional parties, as it shows that the DNB adopts a very broad definition of ‘insurance’ and applies a low threshold for warranties to qualify as such. The intention of the offeror or the naming of the scheme are irrelevant for the qualification of a warranty as an insurance policy. The absence of a direct premium payment is also irrelevant, as premiums may be incorporated in the full price of a product.

We recommend reconsidering, if applicable, whether your current warranty schemes qualify as insurance policies because they meet the criteria set out above. Parties can opt to change the character of a warranty to ensure that it does not meet all the criteria for an insurance. They could, for example, grant a guaranteed service check, so that the insured or warranted event is not uncertain, or they could only include administrative services under the warranty, as this does not constitute a benefit in the eyes of the DNB.

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