Medical Defence Union Ltd v Department of Trade
| Jurisdiction | England & Wales |
| Date | 1979 |
| Court | Chancery Division |
Insurance - Contract - Definition - Membership of medical defence union - Whether contract of insurance - Whether union carrying on insurance business -
The Insurance Companies Act 1974 made provision in Part II for the regulation by the Department of Trade of insurance companies which carried on in Great Britain certain classes of insurance business by means of a contract of insurance. The term “contract of insurance” was not defined in the Act.
The Medical Defence Union Ltd., formed in 1885 as a company limited by guarantee, claimed that it was not an insurance company carrying on any class of insurance business within the meaning of the Act and was therefore free from the system of control set up under it. It had a present membership of some 75,500 doctors and 4,500 dentists paying appropriate rates of subscription, their contract with the union being constituted by the union's acceptance of an application for membership on the terms of the union's memorandum and articles. Among its objects were the conduct of legal proceedings on behalf of members, indemnifying them against claims for damages and costs, and giving advice on various problems, including employment, defamation and professional and technical matters. The articles gave power to the council of the union at its discretion (1) to undertake the conduct or defence of any matter or proceedings concerning a member's professional character or interests, and (2) to grant to any member from union funds an indemnity regarding any action, proceeding, claim or demand concerning his professional character or interests. In every case, an indemnity could be granted, restricted or declined in the council's absolute discretion.
On the question whether the contract between each member and the union was a contract of insurance for the purposes of the Act of 1974:—
Held, (1) that in the absence of any definition in the Act, the term “contract of insurance” and, in particular, the word “insurance” fell to be construed in its context according to the general law (post, pp. 88H–89B).
(2) That one of the three elements of a contract of insurance was that the assured would become entitled to something on the occurrence of some event, that that “something” must normally be of the nature of money or its equivalent, and not some other benefit; that what a member of the union became entitled to in certain events was not a right to have proceedings conducted by the union on his behalf or to be given an indemnity but merely a right tc require the union to consider fairly his request for such assistance, with no certainty that it would be provided; that although that right was a “benefit,” it was not itself of the nature of money or money's worth, and so it did not satisfy the requirements for a contract of insurance (post, pp. 89F–G, 92F–93A, 95E–H); further, a member's contract with the union was distinct from a normal contract of insurance in that subscriptions were unaffected by claims, and, as a whole, the general nature of the union's work was far removed from that carried on by those concerns generally accepted as undertaking contracts of insurance (post, pp. 96B, 97D–E); accordingly, the union's application succeeded and it was entitled to a declaration that it was not an insurance company which carried on any class of insurance business for the purposes of the Act of 1974.
Per curiam. It may be that “contract of insurance” is a concept which it is better to describe than to attempt to define. Plainly a provision for the payment of money is one of the usual elements. The main difficulty lies in formulating what extension of this concept there should be. If the extension is framed in terms of the equivalent of money, then this will be both limited in extent and consonant with the central concept. If it is framed in terms of “some benefit,” then that seems far more than a mere extension: it is a reformulation of the concept in wider terms (post, p. 95B–D).
The following cases are referred to in the judgment:
C.V.G. Siderurgicia del Orinoco S.A. v. London Steamship Owners' Mutual Insurance Association Ltd. (unreported), November 20, 1978.
Department of Trade and Industry v. St. Christopher Motorists' Association Ltd. [
Gould v. Curtis [
Prudential Insurance Co. v. Inland Revenue Commissioners [
Rayner v. Preston (
West Wake Price & Co. v. Ching [
The following additional cases were cited in argument:
Robinson v. Graves [
Weinberger v. Inglis [
ORIGINATING SUMMONS
By summons dated July 6, 1977, the plaintiff, the Medical Defence Union Ltd., claimed against the defendant, the Department of Trade, a declaration that the union was not an insurance company carrying on any class of insurance business in Great Britain within the meaning of the Insurance Companies Act 1974.
The facts are stated in the judgment.
Robert Alexander Q.C. and Christopher Clarke for the union. Companies carrying on insurance business within the meaning of the
The issue turns on whether the union carries out “contracts of insurance” for the purposes of the Act. The expression “contract of insurance” is not defined in the Act, except to the extent mentioned in section 85 (1). It must therefore be construed in its context according to the general law.
The union is a company limited by guarantee. On the basis that the union's acceptance of a member's application for membership of the union on the terms of its memorandum and articles constitutes a contract, it is the meaning of the word “insurance” in “contract of insurance” that has to be determined before deciding whether the union is an insurance company which carries on insurance business under the Act within one or other of the eight categories set out in section 1 (1), as now varied and increased to 17 by the 1977 Insurance Companies regulations.
Most of the union members are doctors. Some are dentists. Its activities include advice on all aspects of professional work such as professional propriety and etiquette, and the union offers educational guidance on medical topics. It also has a discretionary power to indemnify members against costs in cases where charges of professional negligence arise. It is this aspect which has been said to turn members' contracts with the union into contracts of insurance.
The authorities must be looked at to see if and how far this work of the union involves the carrying on of insurance business within the Act and how far it effectively enters into contracts of insurance. [Reference was made to Rayner v. Preston (
Reverting to the expression “contract of insurance,” it is by no means unusual for a court to categorise contracts in order to determine what they are, e.g. whether a contract of service or for services, a contract for the sale of goods or a contract relating to an interest in land: Benjamin's Sale of Goods, 1st ed. (1974), p. 28, para. 35. The court looks at the substance of the contract: Robinson v. Graves [
The union claims to be entitled to the declaration sought because (1) the contract of membership of the union contains no insurance element in that the union's exercise of its discretion does not amount to a benefit in money or money's worth and it does not come within the definition of Channell J. in the Prudential case [
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