Lloyd's Maritime and Commercial Law Quarterly
INSURANCE UNDER SAUDI ARABIAN LAW
Andreas Haberbeck.*
1. General principles
It is often said that insurance is illegal in Saudi Arabia, but this statement is far too sweeping to be correct. The laws and legal system of Saudi Arabia are firmly based on the Shari’a (Islamic law), and no government-made laws may be passed, nor may agreements be enforced by the courts, which contravene any prohibitions contained in the Shari’a1. As regards insurance, the major complaint by Shari’a scholars has always been that it is in breach of the Shari’a injunctions against gambling and uncertainty in business transactions2. After a lengthy debate, the Ulama3 of Saudi Arabia decided in 1977 that commercial insurance is prohibited by the Shari’a and therefore unlawful in the Kingdom, and indeed the Companies Law of 1965 had already prohibited the incorporation of limited liability companies whose objects include insurance activities4. Nevertheless, the Commercial Court Law of 19315 (“the CCL”) contains a chapter on marine insurance, and the Social Insurance Law of 19696 is one of the most important statutes to employers and employees in the Kingdom. Furthermore, in 1985 H. M. King Fahd announced that a State-owned mutual insurance company is to be established in the Kingdom7, which will apparently insure all governmental property and State-owned enterprises, but which may well extend its operations to the private sector in the future.
* Omar Farouk Msallati Law Office, Jeddah, an office associated with Coward Chance, London.
1 Unlike the concept of “law” as understood in modern secular societies, the Shari’a is not merely a set of rights and duties to regulate man’s social and economic interaction, but also contains detailed rules to guide man in his spiritual affairs and his duties towards God. Man’s actions are graded on a scale, which ranges from obligatory duties (“fard”, e.g. prayer, fasting during Ramadan, etc.), recommended acts (“sunna”), acts towards which the Shari’a has an indifferent attitude (“mubah”), disapproved conduct (“makruh”), and acts which are forbidden (“haram”). The haram elements which are said to exist in commercial insurance are gambling (“maisir”), risk (“gharar”), uncertainty in business transactions (“juhala”), and usury (“riba”).
2 This is a somewhat simplified summary of the argument advanced against insurance for profit. For more detailed discussions on the topic see: Banking and Insurance, by Afzalur Rahman, London, 1979; “Islamic Insurance”, by Edmund O’Sullivan, in Arabian Insurance Guide 1984, Beacon Publishing, Northampton; “The Islamic Approach to Insurance”, by H. K. Lee, International Financial Law Review, March 1985.
3 The Ulama is the supreme body of Shari’a jurists in the Kingdom. Its opinions (“fatawa”) are in practice binding on the Saudi Arabian judiciary. The ruling that insurance for profit is contrary to the Shari’a but that mutual insurance is acceptable was reaffirmed by the Islamic Fiq Council, a supranational body of Islamic Scholars which is highly respected in Saudi Arabia, at its Second Session at Jeddah in January 1986.
4 Royal Decree No. M/6 of 1385 A.H., Art. 159.
5 Royal Decree No. 32 of 1350 A.H. The Commercial Court Law (“the CCL”) was initially intended to govern the practice of the Commercial Court, which, after several permutations, now exists as the Committee for the Settlement of Commercial Disputes. The Committee operates under the auspices of the Ministry of Commerce, but it is staffed by Shari’a judges seconded to it by the Ministry of Justice and by “legal advisors” from the Ministry of Commerce. In the absence of more modern statutes, the Committee will refer to the CCL for guidance in maritime disputes.
6 Royal Decree No. M/22 of 1389 A.H. The Social Insurance Law governs the important area of pension rights and sickness benefits. Apart from certain exempt categories of businesses, Saudi Arabian employers who employ more than a specified number of employees must contribute to the fund established by the General Organization for Social Insurance.
7 Saudi Economic Survey, 23 January 1985.
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