Law Report: Policy not for life insurance: Fuji Finance Inc v Aetna Life Insurance Ltd and another - Chancery Division (Sir Donald Nicholls, Vice-Chancellor), 7 July 1994

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A policy issued by a life insurance company, where the policy benefits were the same on surrender or on the death of the life assured and where the principal object and overall nature of the contract was not to insure, was not a policy of life insurance.

Sir Donald Nicholls V-C, on the hearing of preliminary issues, decided that a policy called a capital investment bond was not a policy of insurance within section 1 of the Life Assurance Act 1774 but was not unenforceable under section 16 of the Insurance Companies Act 1982.

In 1986 Fuji, a Panamanian company, took out the policy, paying a single premium of pounds 50,000. Sums, calculated by reference to the units allocated to the policy, were payable on the death of the life assured or the earlier surrender of the policy. The life assured was that of Gary Robert Tait, a sophisticated investor and the prime mover behind Fuji. The policy enabled the policy holder to switch units allocated to his policy between several funds. By June 1992 the policy was valued at over pounds 1m. The insurance company then changed its switching procedures.

Fuji claimed this was repudiatory breach of contract and surrendered the policy. The surrender proceeds of pounds 1,110,758 were paid. Fuji claimed damages for breach of contract. The insurance company denied committing any breach. One of its defences was that the policy was null and void under section 1 of the Life Assurance Act 1774.

Nicholas Underhill QC, and Robert Powell-Jones (Peter Sewell & Co) for Fuji; Nigel Davis QC, and Lindsey Stewart (Hartwig, Croydon) for the insurance company.

SIR DONALD NICHOLLS V-C said that sophisticated forms of life policies had been devised as attractive investments, by which money could be withdrawn instantly.

The 1774 Act rendered null and void life insurances in which the insured did not have an insurable interest, as it had been found that making insurances on lives or other events in which the assured had no interest 'hath introduced a mischievous kind of gaming'.

The area of dispute was whether, having regard to its terms and conditions, the policy was an 'insurance on the life' of Mr Tait for the purposes of section 1.

There was no authority in which the key phrase in section 1 'insurance . . . on the life . . . of any person' had been considered. Other cases had addressed similar expression under other statutes. The approach adopted was that the exression 'life insurance' included insurance whereby a sum of money was payable on the happening of a contingency depending on the duration of human life. The phrase included the case where payment was contingent on survival as well as on death.

There was no reason for interpreting the similar expression in the 1774 Act differently. Accordingly, to be within section 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.

In the present case, there was no difference between the amount payable on request and the amount payable on death. To be within section 1 the contract must not only be 'on life', it must also be a contract of 'insurance'.

Here, Fuji could at any time have called for payment of a cash sum equal to the value of the units allocated to its policy. The contract was also determined on Mr Tait's death. The sum payable was calculated according to the identical formula. That was not a contract of insurance. The death of Mr Tait had no affect on the amounts payable or receivable by the parties.

It was necessary to look at the overall position. It was only where the principal object was to insure, could a contract as a whole be called a contract of insurance.

Fuji's policy was not within section 1 of the 1774 Act as an insurance on the life of Mr Tait. Therefore, it was not rendered void by that section because of the absence of a sufficient insurable interest in Mr Tait's life.

The insurance company then submitted that if the policy was not a contract of insurance, it should not have been issued under section 16(1) of the Insurance Companies Act 1983, which restricted the business of an insurance company to insurance. Parliament did not intend that a contract made by an insurance company in breach of section 16 should be unlawful and inenforceable. The intended remedy for a default lay in the powers of intervention conferred on the Secretary of State.

Although the policy was not a policy of insurance within section 1 of the Life Assurance Act 1774 it was not unenforceable by virtue of section 16 of the Insurance Companies Act 1982.