Lloyd's Maritime and Commercial Law Quarterly
ILLEGAL INSURANCE
Dr Malcolm Clarke*
No person may carry on the business of insurer in the United Kingdom without the licence required by statute. What is the effect of this prohibition on a contract of insurance concluded by an insurer without a licence?
A. What does the Insurance Companies Act prohibit?
The Insurance Companies Act 1982, s. 2(1), provides that “… no person shall carry on any insurance business in the United Kingdom unless authorized …”. Carrying on business is not specifically defined, but for the purpose of the Act s. 1(1) divides business into long term business and general business. The classes of business in each of these two categories are set out respectively in Sch. 1 and Sch. 2. In these Schedules every description of a class of business falling in the one category or the other begins with the words “Effecting and carrying out contracts of insurance”, for example, on human life (Sch. 1 no. 1).
The Act of 1982 replaced an Act of 1974. The licence provisions in the two Acts are thought to be the same in all essential respects.1 The provisions of the 1974 Act came before Parker, J., in Bedford Insurance Co. Ltd. v. Instituto de Resseguros do Brasil
2 and before Leggatt, J., in Stewart v. Oriental Fire & Marine Insurance Co. Ltd.
3 with differing results. Parker, J., in Bedford held that the Act prohibited the making of a contract of insurance by an unlicensed insurer and that therefore the contract was avoided. But in the Stewart case Leggatt, J., enforced the contract, accepting4 an
* Fellow of St. John’s College, Cambridge.
1. Stewart v. Oriental Fire & Marine Insurance Co. Ltd. [1985] Q.B. 988, 998; [1984] 2 Lloyd’s Rep. 109, 111.
2. [1985] Q.B. 966; [1984] 1 Lloyd’s Rep. 210.
3. Supra, fn. 1.
4. At p. 1004;pp. 114, 115. Leggatt, J., reached a similar decision in relation to deposits unauthorized under the Banking Act 1979, in SCF Finance Ltd. v. Masri (No.2) [1986] 1 All E.R. 40; [1986] 1 Lloyd’s Rep. 293. His decision was affirmed by the Court of Appeal [1987] 1 All E.R. 175; [1986] 2 Lloyd’s Rep. 366, but the facts of the insurance cases were regarded as very different (see Slade, L.J., p. 380), for “The statute, or statutes, there under consideration rendered unlawful not a specific class of act or transaction, but the carrying out of a specific class of (insurance) business”. The decision in Stewart was influenced by the decision of the High Court of Australia in Yango Pastoral Co. Pty. Ltd. v. First National Chicago Australia Ltd. (1978) 139 C.L.R. 410. In that case the court held that a statute that prohibited the carrying on of banking business without a licence did not prevent an unlicensed banker from enforcing a mortgage and guarantee. However, as pointed out by Hobhouse, J., in Phoenix, infra, fn. 6, that decision was distinguishable from the case of insurance, for mortgages and guarantees are transactions forming part not only of banking business but also of other kinds of business. The transactions were thus collateral to banking, the prohibited activity, rather than an integral part of it. But, while this may be true of mortgages and guarantees in general, it is not true of the mortgages and guarantees made by bankers as bankers, so this distinction is not entirely convincing.
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