Sections 1 to 11 of the Insurance Companies Act 1974 prohibit the carrying on of most insurance business in Great Britain, including marine insurance, unless the insurer is within one of the specified categories of domestic insurers or is authorized by the Secretary of State for Trade. An insurer who carries on business in this country in contravention of the Act is guilty of an offence. With effect from 1st January 1982, these provisions of the 1974 Act are replaced by provisions having substantially the same effect in the Insurance Companies Act 1981.

In two recent cases, Bedford Insurance Co. v. I.R.B. 1 and B. A. Stewart v. Oriental Fire & Marine Insurance Co.2, the Commercial Court had to consider the effect of the 1974 Act on contracts of insurance entered into by companies which were neither within the categories of permitted insurers nor authorized by the Secretary of State to carry on marine insurance business in Great Britain. Parker, J. (as he then was) reached the conclusion in the Bedford case that contravention of the Act rendered contracts of insurance illegal and unenforceable, even at the suit of an innocent assured. Leggatt, J., in the Oriental Fire & Marine case, reached an opposite conclusion and held that contracts made in the course of carrying on insurance business of an unauthorized class were enforceable, at any rate at the suit of the assured. The decision in the Bedford case gave rise to very great concern, not only in London but in insurance and reinsurance markets world-wide. “Carrying on insurance business” in Great Britain was defined so widely in the Bedford case that many insurances were thought likely to be affected by the decision. Policy holders and insurers having original and reinsurance contracts with unauthorized companies faced the prospect of being unable to enforce claims under their existing policies. Added to which, the prospect for the future was that before entering into contracts of original insurance or of reinsurance on the London market, enquiry would have to be made to verify that the prospective insurer or reinsurer was duly authorized.

The Bedford Insurance Co. (not to be confused with the authorized insurer, Bedford General Insurance Co. Ltd.), carried on business in Hong Kong. They alleged that they were bound by original contracts of insurance under which they were obliged to pay claims and that they were entitled to recover from I.R.B. in respect of such claims under an open cover reinsurance. The original contracts, the reinsurance cover and the declarations under it were made or entered into in London by brokers, Gerald Herbert Ltd., on Bedford’s behalf, but without their authority. Gerald Herbert Ltd. also collected premiums and settled and paid some of the claims under the original contracts.