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Petitioner: MESSRS NATIONAL UNDERWRITERS OF PAKISTAN LTD., KARACHI VS Respondent: PAKISTAN
P L D 1960 (W
P L D 1960 (W. P.) Karachi 476
Before Wahiduddin Ahmad, J
MESSRS NATIONAL UNDERWRITERS OF PAKISTAN LTD., KARACHI---‑Plaintiffs
Versus
PAKISTAN‑---Defendant
Suit No. 107 of 1957, decided on 29th February, 1960.
Insurance Act (IV of 1938),
Ss. 2 (9) & 3‑Insurance business ---Means and includes re‑insurance‑Company doing re‑insurance business‑--Must obtain certificate of registration under S. 3.
Re‑insurance business from every point of view is a contract of insurance and is covered by the Insurance Act, 1938. A company doing re‑insurance business must, therefore, obtain a certificate of registration under section 3 of the Insurance Act, 1938 before doing any re‑insurance business in Pakistan.
"Reinsurance" by Kenneth Thompson (3rd Ed.) p. 194 and Halsbury's Law of England, Vol. 22, 3rd Ed. Art. 188 at p. 103 rel.
Forsikringsaktieselskabet National (of Copenhagen) v. Attorney‑General 1925 A C 639; Attorney‑General v. Forsikr ingsaktieselskabet National (of Copenhagen) 1924 1 K B D 366; London Assurance Corp. v. Thompson, 170 N Y 94 and English Insurance Company, Limited v. Official Receiver and Liquidator of National Benefit Assurance Company, Limited 1929 A C 114 ref.
J. H. Rahimtulla for Plaintiff.
Mirza Akhtar Hussain for Defendant.
Dates of hearing: 5th October, 1959 and 25th January, 1960.
JUDGMENT
The plaintiff company, which is carrying on re‑insurance business, has filed this suit for a declaration that their business is not an insurance business and the defendant Government is not justified in calling upon them to register themselves with the Controller of Insurance under the provisions of the Insurance Act, 1938.
Briefly, the facts leading to this suit are that the plaintiff company is incorporated in Pakistan, having its objects inter alia, the under‑writing and re‑insuring practically all types of insurance business. On the 19th of July, 1952, the defendant, Government granted permission under the Capital Issues (Continuance of Control) Act, 1947, for capital issue in the sum of Rs. 20,00,000 (by order No. R‑53‑CCI‑52, to enable them to carry on the re‑insurance business. On 29th June 1953, the Controller of insurance asked them by letter Exh. 5/2 to obtain a certificate of registration before doing any re‑insurance business in Pakistan under section 3 of the Insurance Act, 1938, which was resisted by the plaintiff company. Consequently one of their Directors was prosecuted on 29th of June, 1954 under sections 102 and 103 of the Insurance Act in the Court of the Vth A. C. M., Karachi, which the plaintiffs considered a hindrance to them in the exercise of its legal rights and expose them to an unwarranted and unlawful restraint. Accordingly the plaintiff company gave the defendant Government a notice under section 80 of the C. P. C., Exh. 5/3 on 8th September, 1954 and filed the present suit for the declaration of their right to continue the re‑insurance business without obtaining any certificate under the provisions of the Insurance Act, 1938.
The defendants have resisted this suit on tile ground that the insurance business means and includes re‑insurance and as the plaintiffs are doing re‑insurance business without a certificate under section 3 of the Insurance Act, they were rightly prosecuted. It is also alleged that the plaintiffs have filed this suit with a view to avoid criminal prosecution as their application for stay of proceedings in the criminal Court was dismissed on 24th February, 1955 by the then Chief Court of Sind. They also alleged that the plaintiffs have no cause of action and the suit should be dismissed.
On these pleadings the following issues were framed
1. (a) Whether it is not the object of the plaintiff company to do any insurance business ?
(b) Whether " insurance " means and includes "re‑insurance"?
2. (a) Whether the demand of Controller of Insurance contained in his letter No. 25‑1 (2)/52 dated 29‑6‑53 for a registration certificate under section 3, Insurance Act is illegal?
(b) Whether section 3 of Insurance Act is applicable to plaintiff company?
3. Whether the plaintiff company has got any cause of action against the defendants?
4. To what relief, if any, is the plaintiff entitled?
The plaintiffs' in support of their case have examined only one witness P. W. Yusuf (Exh. 6). This witness is working as an officer of the plaintiff company since 1952. He stated that the plaintiff company carry on only re‑insurance business and do not undertake any direct insurance business. In cross‑examination he admitted that the business is only carried on in Pakistan and it is not doing any business with foreign countries. According to this witness the plaintiffs do not re‑insure any life business. He also admitted that the plaintiff company receives premium for re‑insurance from the insurance companies and not directly and in case of risk the claim is also paid to the insurance company concerned. He also stated that the plaintiff company has not appointed any Agent to secure business. The business is given to them by other companies in order to divide the risk. He stated that there is a standing contract with Habib Insurance to re‑insure their business, but it does not issue any cover notes either in favour of the insured person or in favour of the company.
The parties admitted certain documents. Exh. 5/1 is the Memorandum and Articles of Association of the plaintiff company. Exh. 5/2 is the letter written by the defendant Govern ment calling upon the plaintiffs to obtain a certificate of registration under the Insurance Act, 1938. Exh. 5/3 is a notice under section 80, C. P. C. Exhs. 5/4 and 5/5 are the postal and acknowledgement receipts respectively. Exhs. 5/6 to 5/13 are the correspondence that has passed between the parties in respect of the question in dispute. Exh. 7 is the treaty entered into between the plaintiff company and Habib Insurance Co., Ltd., of Serai Road, Karachi. This document shows that Habib Insurance Co. has agreed to cede and the plaintiff company had agreed to accept by way of re‑insurance all the business undertaken by them. Its articles show that the plaintiff company as re‑insurer agreed obligatorily to accept by way of re‑insurance from the Habib Insurance Co. any part of the company's surplus of any policies of insurance against loss or damage which may be issued through their Head Office or branches throughout Pakistan on risk situated within these territories. The agreement as a whole shows that the plaintiff company under this agreement agreed to reimburse the Habib Insurance Co. in lieu of premium paid by them for any amount of risk falling to their share in respect of the original policies of insurance issued by them resulting in any liability. The agreement came into effect on 16th of August, 1952 and will remain in force till its cancellation by either party after giving notice.
The sole question for determination in this case is whether the plaintiff company is carrying on insurance business within the meaning of the provisions of the Insurance Act of 1938. The scheme of the Act shows that it does not define what is an insurance business. Under section 2 (8), insurance company means any insurer being a company, association or partnership which may be wound up under the Companies Act or to which the Partnership Act applies. Insurer is defined under section 2 (9) and means an individual or unincorporated body of individuals or body corporate incorporated under the law of any country or under the law for the time being in force in Pakistan carrying on insurance business (not being a person specified in sub‑clause (c) of this clause namely any person who has a standing contract with under‑writers who are members of the Society of Lloyds whereby they are authorised to issue 'cover notes etc. on behalf of the under‑writers) in the Provinces and the Capital of the Federation or with the object of obtaining insurance business employs a representative, or maintains a place of business, in the" Provinces and the Capital of the Federation; or stands to any such body corporate in the relation of a subsidiary company within the meaning of the Companies Act, 1913 as defined by subsection (2) of section 2 of that Act. This definition further shows that an insurance agent licensed under section 42 or a provident society as provided in Part III is not an insurer. It will be noticed that originally the definitions in the Act only contained the definition of life insurance business but later on it was amended and certain other definitions were also added by the amending Act. Subsection (6B) defines fire insurance business. Subsection (6C) defines general insurance business and sub section (13A) defines marine insurance business. Subsection (13B) defines miscellaneous insurance business. The common feature of all such insurance business is the business of effecting contracts of insurance upon certain persons or things, but what is contract of insurance is not defined in the Act. Section 103 provides that any insurer or any person acting on behalf of an insurer, who carries on any class of insurance business in contravention of any of the provisions of section 3.
Section 7 or section 98 or does any one or more of the acts constituting the business of insurance in relation to any insurance business carried on in contravention of any of the said sections shall be punishable with fine which may extend to two thousand rupees. Its proviso shows that nothing in the operative part of the section shall apply to the business of re‑insurance between the head office of an insurer in the Provinces and the Capital of the Federation, and the head office of an insurer not having an office in the Provinces and the Capital of the Federa tion. These are the provisions which are relevant for the decisions of this case.
Mr. Rahimtullah, the, learned counsel for the plaintiffs, strongly urged before me that the plaintiff company is not doing any insurance business within the definitions of the various insurance business defined in the Insurance Act of 1938. According to him the insurance company under it means any insurer, who carries on insurance business but what is insurance business is not defined in the Act. He contended that at the time when the defendant Government called upon the plaintiff to obtain registra tion under section 3 of the Insurance Act only "Life insurance business" was defined and as the plaintiff company was not doing any re‑insurance of life the demand of the defendant Government was not justified. He further contended that the addition of "Fire Insurance business", "General Insurance business", "Marine. Insurance business" and " Miscellaneous Insurance Business " in the definitions under this Act will not affect the plaintiff's case as according to these definitions the various insurance businesses mean the businesses of effecting contracts of insurance and unlike the English Act do not mean the issue of, or undertaking the liability under policies of insurance upon person etc. or against losses and urged that the undertaking of liability will not be the criterion of finding out whether re‑insurance business is an insurance business and the case will have to be decided on the question whether re‑insurance business is the business of effecting contracts of insurance. The learned counsel pressed that as the plaintiffs issue no policy, do not engage insurance agents, do not receive any direct premium and are not responsible to the person insured under the various classes of insurance policies issued by the companies who directly conduct the business but only contribute arid share any losses arising out of it in lieu of premium, the business of re‑insurance carried on by them cannot be treated as contract of insurance.
Mr. Rahimtulla, this learned counsel for the plaintiffs, distinguished the English decisions on this point on the ground that they are decisions on the particular words and provisions of the English Statute namely Assurance Companies Act, 1909, and cannot be applied to the cases which are covered by the Pakistan Statutes. He drew my attention to two English decisions reported in Forsikringsaktieselskabet National (of Copenhagen) v. Attorney -General) (1925 A C 639) and Attorney‑General v. Forsikringsaktieselskabet National (of Copenhagen) ((1924) 1 K B D 366). The last mentioned case was consider ed in the House of Lords judgment in 1925 Appeal Cases, 639. In both the cases the question for consideration was whether re‑insurance business is a contract of insurance or not. Both the First Appellate Court and the House of Lords held that
"the business of re‑insuring fire risks is fire insurance business within the meaning of the Assurance Companies Act, 1909. Accordingly a foreign company which carries on the business of re‑insurance of fire risks in the United Kingdom, but does not otherwise carry on insurance business in this country, is bound to deposit with the Paymaster‑General the sum prescribed by section 2, Subsection (1) of the Assurance Companies Act, 1909".
In that case a Danish Company carrying on business of reinsurance in the United Kingdom, and no other business, was called upon to comply with the provisions of the Assurance Companies Act, 1909 and was asked to make a deposit of Pound 20,000 as required under the Act. This demand was resisted on the ground that the reinsurance business is not a contract of insurance and the Danish Company was not respon sible to comply with any obligations arising out of the provisions of the said statute. Viscount Cave, L. C., who delivered the leading judgment in the case in that connection observed:‑
"It appears to me that there is much to be said for the view that a reinsurance treaty of the nature which I have described, when supplemented by a bordereau, is in effect a policy of insurance against loss by or incidental to fire. Apart from the special rules relating to marine insurance, there is no magic in the word `policy'. In substance the expression seems to cover a contract of insurance. Now it is old law that by a contract of reinsurance the reinsuring party insures the original loss, the insurable interest of the original insuring party being constituted by its policy given to the original assured. In that view the company does under a treaty of this character issue to the ceding office what is in effect a policy of insurance against loss by or incidental to fire. It is, I think, upon that ground that Atkin, L. J., and to some extent the other learned Lords Justices, base their decision; but apart from that view, and even on the assumption that the reinsurance treaty is in no sense a policy, still I think it remains true that the reinsuring company does at least undertake liability under fire policies. True, it does not become directly liable to the original householder who insures against fire, but it does undertake with the ceding office to take over a part of its liability under those policies."
After careful consideration of the arguments advanced by the learned counsel for the plaintiffs I am not prepared to accept his contention that the business of reinsurance is not a contract of insurance within the meaning of the definitions of "insurer" or "insurance company" in the Insurance Act, 1938. It is true that there is no definition of contract of insurance in the Pakistan enactment but the learned counsel failed to notice that a policy of insurance is defined in the Stamp Act. Under section 2 (19) "policy of insurances" is defined as under:‑
"(19) policy of insurance includes‑
(a) any instrument by which one person, in consideration of a premium, engages to indemnify another against loss, damage or liability arising from an unknown or contingent event."
On the terms of the definition it cannot be doubted that the treaty Exh. 7 entered' into by the plaintiff company with Messrs Habib Insurance Company is an instrument by which they engaged themselves, in consideration of premium, to indemnify the Habib Insurance Co. In respect of risks covered by them against loss or damage or liability arising from an unknown or contingent event and it makes very little difference whether it is done directly or the responsibility is shared by re‑insurance. In my opinion the mere fact that the treaty is not described as policy of insurance will also not make any difference if the document in questions falls within the four corners of the above mentioned definition. It is thus obvious that the business carried on by the plaintiffs under the Stamp Act is an insurance business. The Insurance Act of 1938 came much later and it shall have to be presumed that the legislature must have been aware of this definition in the Stamp Act and the subsequent Act shall have to be read in the light of the definition given in the Stamp Act. It will also be noticed that the Stamp Act did not only serve the purpose of fiscal statute but also serves the purpose of substantive law in certain respects. For instance under section 7 of the Stamp Act it is laid down that if the policy of marine insurance is not in writing and liability on such insurance cannot be enforced. Under the circumstances if the plaintiffs' business is considered in the light of the definition of policy of insurance read with the provisions of the Insurance Act, it cannot be denied that by doing reinsurance business, they are carrying on in effect insurance business.
Apart from this, on general considerations also reinsurance is nothing else but a contract of insurance. It seems to me the plain meaning of reinsurance is to insure that which has already been insured. It is by itself a class of insurance and is fully covered by the word "insurance". This view is fortified by a decision of the American Court reported in London Assurance Corp. v. Thompson (170 N Y 94), cited at page 194, in the book on "Reinsurance" by Kenneth Thompson (Third Edition). In that case the Court observed:‑
"To reinsure means to insure that which was before insured, or that which the plaintiff had insured.
While a contract of reinsurance implies the same subject matter of insurance as the original policy, and runs against perils of the same kind, it need not be for the identical hazard insured against in the first policy, but may be for a less, though not for a greater risk."
The learned author's statement on this subject at page 194 is as under:‑
"A contract of re‑insurance is a contract whereby one party, called a reinsurer, in consideration of a premium paid to him, agrees to indemnify the other party, called the reassured or reinsured, against the risk insured by the latter by a policy in favour of a third person or the original insured. The re‑assured is often referred to as the original or first or primitive or primary insurer or primary carrier on the direct writing carrier or company."
In Article 188 of the Halsbury's Law of England, Volume 22, 3rd Edition, at page 103 on this subject it is stated:‑
"Reinsurance.‑The insurer, inasmuch as he is liable on a policy of insurance, may insure against the risk which he has taken upon himself. This second contract of insurance is called a contract of reinsurance. Contracts of reinsurance were made legal in 1864 (1), and now under the Marine Insurance Act, 1906 (m), the insurer under a contract of marine insurance has an insurable interest in his risk, and may reinsure in respect of it. A policy of reinsurance though effected after the original policy normally attaches from the same time as the original policy.
The subject‑matter of the reinsurance on ship freight, goods, or whatever it may be, is the same as that of the original insurance, though the interest of the re‑assured is different from that of the original assured, and arises from the fact that the re‑assured is the underwriter under the original policy.
As it is generally unnecessary to state is the policy‑ the nature of the assured's interest, the fact that the contract is one of reinsurance need not necessarily appear on the face of the policy. In English policies it is, however, almost the universal practice to insert a clause often called the `reinsurance clause', to the following effect:‑` Being a reinsurance, subject to the same clauses and conditions as the original policy, and to pay as may be paid thereon'. The `original policy ' in this clause means the policy issued in pursuance of the slip which was in force at the time the reinsurance was effected, and if this policy is varied or superseded by a fresh policy in different terms without the consent of the reinsurer a loss will not be recoverable from the reinsurer."
It will thus be noted that a reinsurance is treated as a contract of insurance both in England and United States. The incidents of re‑insurance are the same as in the contract of insurance. It has also got the element of chance involved in it. The idea behind re‑insurance is that the re‑insurer with a view to avoid losses in cases of risks of large amount desires to re‑insure a part or all of the risks with some other party. This is a legitimate way in which the re‑insurer secures himself from a possible liability or loss. Another instructive case on this point is English Insurance Company. Limited v. Official Receiver and Liquidator of National Benefit Assurance Company, Limited (1929 A C 114), a House of Lords decision. In that case their Lordships were considering a some‑what similar agreement as between the plaintiff company and Habib Insurance Co. By an agreement between the two insurance companies it was provided that National Benefit Assurance Company will accept a quota of one‑eighth of all risks affected by the English Insurance Co., in lieu of the proportionate part of the net premium and other benefits received by the English Insurance Co., and was to bear its proportionate share of losses. The National Benefit Assurance Co. having been ordered to be wound up by the Court, the English Insurance Co. claimed to prove in respect of certain claims arising under the agreement. The Liquidator disallowed the claim on the ground that the agreement in question was an insurance policy and being not stamped was not enforceable. Their Lordships inspite of the fact that nowhere throughout the agreement it was said that the National Benefit Assurance Co. is to re‑insure the English Company, treated such a contract as that of re‑insurance and held it to be a contract of re‑insurance. Their Lordships confirmed the view of the Liquidator and held:‑
"that the agreement was a contract for `sea insurance', and not being expressed in a duly stamped policy was invalid as not complying with the requirements of the Stamp Act, 1891, and the Marine Insurance Act, 1906."
The contention of the learned counsel for the plaintiffs that these English decisions are based on the particular terms of their own statutes has not at all impressed me. A reference to the Assurance of Companies Act, 1909 will show that in that enact ment also Marine Insurance business under section 1 (g) is defined as under:‑
"Marine, aviation and transit insurance business, that is to say, the business of effecting and carrying out, otherwise than incidentally to some other class of assurance business, contracts of insurance‑
(i) upon vessels or aircraft, or upon the machinery; tackle, furniture, or equipment of vessels or aircraft; or
(ii) upon goods, merchandise or property of any description whatever on board vessels or aircraft; or
(iii) upon the freight of, or any other interest in or relating to, vessels or aircraft; or
(iv) against damage arising out of or in connection with the use of vessels or aircraft, including third party risks, or
(v) against risks incidental to the construction, repair or docking of vessels, including third party risks; or
(vi) against transit risks (whether the transit is by sea, inland water, land or air or partly one and partly another) including risks incidental to the transit insured from the commencement of the transit to the ultimate destination covered by the insurance, but not including risks the insurance of which is motor vehicle insurance business; or
(vii) against any other risks the insurance of which is customarily undertaken in conjunction with or as incidental to any such business as is referred to in the foregoing pro visions of this paragraph: "
That is to say the business of effecting or carrying out the contract of insurance, which is in identical terms as the definitions in the Pakistan statute. In my opinion the reasoning of the English decision is fully applicable to the facts of this case.
The view that the reinsurance business is covered by the Insurance Act, 1938 is also clear from the fact that the legislature by the proviso to section 103 (1) and (2) only excluded re‑insurance business carried on between the Head Office of an insurer in Pakistan and the Head Office of an…
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