P L D 1960 (W (PLP)

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 insurer not having office in Pakistan. I agree with the contention of Mirza Akhtar Hussain, learned counsel for the defendant Government, that this proviso shows that the Legislature fully knew that reinsurance business is covered by the Insurance Act and gave the benefit of the proviso to foreign companies and not to Pakistani companies. After careful consideration of the matter it appears to me that reinsurance business from every point of view is a contract of insurance and the defendant Government was fully justified in q calling upon the plaintiff company to obtain a certificate under section 3 of the Insurance Act of 1938. In my opinion the fact that at the relevant time only "Life Insurance business" was defined in the Insurance Act has no material effect on the fact of this case. The plaintiff's case has no merits and they are not entitled to the declaration sought. On this view of the matter my findings on the issues framed are as under:‑ Issue No. 1 (a) & (b).--‑In favour of the defendants. Issue No. 2 (a) & (b).‑--In favour of the defendants. Issue No. 3.‑--The plaintiff company has, no cause of action against the defendants. Issue No. 4.--‑The plaintiffs are not entitled to any relief in this case. For the reasons given above the suit is dismissed with costs. K. B. A. Suit dismissed.