subject: Authorisation of the Insurer in the United Kingdom [print this page] Authorisation of the Insurer in the United Kingdom
An insurance company carrying on the business of insurance in the United Kingdom must be authorised by the Department of Trade and Industry under Sections 2 and 3 of the Insurance Companies Act 1982 ("the Act") and the Insurance Companies Regulations (1981). "Carrying on insurance business" would extend beyond simply underwriting, to cover running off the account and paying claims.
We do not intend to discuss here the requirements of the Department of Trade and Industry, but failure to obtain authorisation has, historically, created considerable problems for parties to insurance contracts and reinsurance contracts. A series of cases in the 1980s, namely Bedford Insurance Co. Ltd. v. Instituto deResseguros do Brazil [1984] 1 Lloyd's Rep 210, Stewartv. OrientalFire Of Marine Insurance Co. Ltd. [1984] 2 Lloyd's Rep 109, and Phoenix General Insurance Co. of Greece S.A. v. Administratia Asigurarilor de Stat [1986] 2 Lloyd's Rep 552, all dealt with the problems of illegality. Finally, the Court of Appeal in Phoenix v. Adas decided that the lack of authorisation on the part of an insurer renders both the original insurance and the reinsurances illegal and unenforceable, not only by the unauthorised insurer, but also for the original assured, who may have been completely deceived by the insurer. In those circumstances, the assured would not recover any claims under the policy.
This is clearly an unhappy situation and the Financial Services Act 1986 included section 132 which provides that an insurance contract entered into by a person in the course of carrying on business in contravention of the Act is unenforceable against the assured, but that the assured is entitled to recover any money or property paid or transferred by him under the contract, together with compensation for any loss sustained by him as a result of having parted with it. Alternatively, the court may uphold the contract where it is satisfied that the person carrying on the illegal insurance business reasonably believed that entering into the contract did not constitute a contravention of the Act and that it is just and equitable for the contract to be enforced.
Therefore, some of the effects of Phoenix v. Adas have been overcome. It appeared that the Act was only effective prospectively and would only affect those contracts entered into after 12 January 1987, see D.R Insurance Company v. Seguros America Banamex [1993] 1 Lloyd's Rep 120. In the recent case of Bates v. Robert Barrow Limited {The Times, 9 February 1995), however, Gatehouse J. decided the Act had a retrospective effect, although the decision is still subject to appeal.
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