Fuji Finance Inc v Aetna Life Insurance Co Ltd and another

[1996] 4 All ER 608

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(Judgment by: Hobhouse LJ)

Between: Fuji Finance Inc
And: Aetna Life Insurance Co Ltd and another

Court:

Judges: Hobhouse LJ
Morritt LJ
Sir Ralph Gibson

Subject References:
Insurance
Contract of insurance
Nature of contract
Capital investment bond
Policy benefits on surrender or on death of life insured
Whether policy an 'insurance on the life of any person'
Whether contract a policy of life insurance

Legislative References:
- Life Assurance Act 1774

Case References:
Archbolds (Freightage) Ltd v S Spanglett Ltd (Randall, third party) - [1961] 1 All ER 417; [1961] 1 QB 374; [1961] 2 WLR 170, CA
Bedford Insurance Co Ltd v Instituto de Resseguros do Brasil - [1984] 3 All ER 766; [1985] QB 966; [1984] 3 WLR 726
Cope v Rowlands - (1836) 2 M & W 149; 150 ER 707
Cornelius v Phillips - [1918] AC 199; [1916-17] All ER Rep 685, HL
Flood v Irish Provident Assurance Co Ltd - [1912] 2 Ch 597, Ir CA
Gould v Curtis - [1913] 3 KB 84, CA
Jones v AMP Perpetual Trustee Co NZ Ltd - [1994] 1 NZLR 690, NZ HC
Joseph v Law Integrity Insurance Co Ltd - [1912] 2 Ch 581, CA
Mahmoud and Ispahani, Re an arbitration between - [1921] All ER Rep 217, CA; [1921] 2 KB 716
Marac Life Assurance Ltd v IR Comr - [1986] 1 NZLR 694, NZ CA; affg (1985) 9 TRNZ 201, NZ HC
National Standard Life Assurance Corp, Re - [1918] 1 Ch 427
NM Superannuation Pty Ltd v Young - (1993) 113 ALR 39, Aust Fed Ct
Phoenix General Insurance Co of Greece SA v Administratia Asigurarilor de Stat - [1987] 2 All ER 152; [1988] QB 216; [1987] 2 WLR 512, CA
Prudential Insurance Co v IRC - [1904] 2 KB 658

Hearing date: 15, 16 May 1996
Judgment date: 4 July 1996

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Judgment by:
Hobhouse LJ

Before Nicholls V-C ([1994] 4 All ER 1025, [1995] Ch 122) and before this court two points of law were argued. They arose on the two issues ordered to be tried as preliminary issues in the action. The first was whether the contract contained in the document issued to the plaintiff was a contract of life insurance. If it was, it was properly issued by the defendants to the plaintiff and was enforceable but was subject to the provisions of the Life Assurance Act 1774. The life assured was that of Gary Robert Tait. Accordingly, under s 3 of the 1774 Act: ' ... no greater sum shall be recovered or received from the insurer or insurers than the amount of value of the interest of the insured in such life ...' It is accepted that the sum already received by the plaintiff from the defendants fully covers the maximum amount that it could recover under s 3. Therefore if the relevant contract is a contract of life assurance, the plaintiff has no right to recover substantial damages from the defendants in this action.

The second point only arises if the first issue is answered in the negative and the contract is not a contract of insurance. It is accepted that, on this hypothesis, s 16(1) of the Insurance Companies Act 1982 applies. That section provides:

'An insurance company to which this Part of this Act applies shall not carry on any activities, in the United Kingdom or elsewhere, otherwise than in connection with or for the purposes of its insurance business.'

The second point, therefore, is whether this provision renders the contract unenforceable against the defendants. If it does, then it follows that the plaintiff's claim in the action must fail.

Nicholls V-C decided both points in favour of the plaintiff. In his judgment, therefore, the action was to proceed to a trial on the merits. The defendants have appealed from his decision and have argued, in the alternative, that each of the issues should be answered in the senses contended for by the defendants. If the defendants succeed on either of the points which they have argued, it follows, as I have already explained, that the plaintiff's claim in the action must fail. If the defendants succeed on the first point, they not only do not need the second point but the second point does not arise; in both senses it becomes academic.

Like Morritt LJ and Sir Ralph Gibson I consider that the defendants succeed on the first point. It follows that the appeal must be allowed and that the judgment of Nicholls V-C cannot stand. Under these circumstances, for reasons which I will develop later in this judgment, I do not consider that it is desirable that this court should determine the second issue. Any views expressed will be obiter.

The first issue

In the relevant respect, the 1774 Act applies to any 'insurance' made 'on the life or lives of any person or persons'. What is an insurance on the life of a person has been before the courts on a number of occasions, particularly in the first two decades of this century when new types of life insurance contract were being developed and marketed as a means of investment or saving. The leading authorities are reviewed in the judgments of Nicholls V-C and Morritt LJ. Nicholls V-C summarised the law in these words ([1994] 4 All ER 1025 at 1031, [1995] Ch 122 at 130):

'Accordingly, in my view, to be within s 1 a sum of money (or other benefit) must be payable on an event uncertain, either as to its timing or as to its happening at all, and that event must be dependent on the contingencies of human life.'

These contingencies include the contingency of survival as well as of death (see Gould v Curtis [1913] 3 KB 84). By the terms of the contract, a sum is payable by the defendants to the plaintiff upon the death of Mr Tait. Further, if they be relevant, the sums payable upon partial or full surrender are dependent on the contingency of the survival of Mr Tait until the date when that right is exercised. What are the rights of the plaintiff at any moment in time under this contract are dependent upon the contingency of whether Mr Tait has died. The quantification of the defendants' liability under the contract at any given time is dependent upon other factors but this does not affect the character of the contract as a policy of life insurance. The terms of policies may take a wide variety of forms. There may be other rights given by the contract besides the right to be paid a sum dependent upon a contingency of human life. These other rights do not mean that there is not a contract of insurance. It is not necessary that the insurer should be exposed to a risk of loss (see Joseph v Law Integrity Insurance Co Ltd [1912] 2 Ch 581, following Flood v Irish Provident Assurance Co Ltd [1912] 2 Ch 597n). The sum recoverable on death may be greater than the sum recoverable on survival but this need not be the case and is not in many classes of life insurance. Indeed, the sum payable can be the same, the contingency affecting the time at which it becomes payable.

Here the argument of the plaintiff is that the quantification of the sum at any given moment is the same whether Mr Tait is alive at that moment or has just died. But whether, at any given moment in time, any sum is payable depends upon whether Mr Tait had survived to that moment or has just died. This conclusion is confirmed by the additional cases cited to us from Australia and New Zealand, in particular NM Superannuation Pty Ltd v Young (1993) 113 ALR 39 and Jones v AMP Perpetual Trustee Co NZ Ltd [1994] 1 NZLR 690.

Nicholls V-C's reason for accepting the plaintiff's argument was summed up in this passage ([1994] 4 All ER 1025 at 1032, [1995] Ch 122 at 131):

'To be within s 1 the contract must not only be "on life", the contract must also be a contract of "insurance". Accordingly it is necessary to identify the uncertain event which triggers a payment by the insurer. I do not see how an event can be regarded as triggering a payment if there is already in existence, irrespective of the happening of that event, an obligation of the insurer to make that very same payment on request. When the event occurs, the insured acquires nothing he did not already have. Nor, I add, does the insured lose anything.'

 

Here Nicholls V-C is applying a different criterion to that he adopted earlier and which I have quoted. But he is, with respect, in any event confusing the valuation of the right with its accrual. The death of Mr Tait crystallises and restricts the rights of the plaintiff under the contract. The survival of Mr Tait enables the plaintiff to exercise other rights at a later date, rights which because they are exercisable at a different date or dates will have a different value to the value of the right which would have accrued had Mr Tate died on the earlier date. All these rights (and, if it be relevant, their value) remain contingent upon the death or survival of Mr Tait which is an uncertain event.

Accordingly, the appeal succeeds on the first point. This contract was a policy of life insurance. The plaintiff cannot make any further recovery in the action by reason of s 3 of the 1774 Act.

The second issue

It has been a matter of judicial comment now for over 50 years that Parliament causes unnecessary uncertainty by enacting provisions which prohibit or render unlawful activities or actions without saying at the same time what is to be the effect (if any) on the validity or enforceability of the transactions referred to. In recent years parliamentary draftsmen seem to have heeded this advice but in the case of s 16 of the 1982 Act they have not done so. That section leaves open to argument whether its contravention renders transactions which are not related to insurance business ineffective and unenforceable. As is evident from the judgments of Morritt LJ and Sir Ralph Gibson, the arguments are nicely balanced. The arguments which led to the conclusion of Nicholls V-C on this issue do not seem to me to be at all persuasive (see [1994] 4 All ER 1025 at 1036, [1995] Ch 122 at 136). But it is clear both from the argument before us and from the judgment of Morritt LJ that more persuasive arguments can be advanced. However, the fact remains that this section forms part of a scheme which is intended to protect the assets and solvency of insurance companies and to prevent those assets from being diverted to liabilities which arise from business which is not insurance business. If the arguments presented to us by Mr Glick QC, who appeared before us on behalf of the Secretary of State and for whose assistance we are grateful, were to be accepted, such an object might very well be frustrated. There are forceful arguments consistent with previously decided cases to lead to the conclusion expressed by Sir Ralph Gibson.

The only wholly satisfactory answer to this uncertainty would be for those responsible for the legislation to make clear their intention by, for example, making applicable to s 16 the discretion which already exists in s 132 of the 1986 Act or by some other express provision. As was pointed out by Mr Glick, the overlap and interplay of the provisions regarding life insurance and other forms of investment contract covered by this and other Acts and by European legislation is of great practical and schematic importance. In my judgment it is inappropriate for this court to express a view about a contentious question which is hypothetical and does not arise on this appeal. Hopefully the uncertainty will be remedied by legislation. If, however, that should not occur, an authoritative judicial decision must await a case in which the need for such a decision arises.

Accordingly, beyond saying that I do not accept the reasons given by Nicholls V-C for his conclusion, I express no view upon the second issue. The appeal will be allowed, the judgment of the court below will be set aside, and there will be substituted a single declaration in the terms of the first issue that the policy referred to in para 4 of the amended statement of claim was a policy of life assurance within the meaning of s 1 of the 1774 Act.

Appeal allowed. Leave to appeal to House of Lords refused.