GIM9030 - Mutual insurance: mutual insurance as a trade

The question sometimes arises as to whether or not mutual insurance is a trade.

Many mutual activities do not amount to trading. However, the position in relation to mutual insurance was clouded for a long time by conflicting House of Lords decisions in The New York Life Assurance Company v. Styles (2TC460) and the later case of CIR v The Cornish Mutual Insurance Co. Ltd. (12TC841). In the former case it was held that the mutual activities of the company did not constitute the carrying on of a trade, whilst in the latter case it was held that the company conducted “the ordinary and well known business of fire insurance”. However, the New York case was not over-ruled and it is still occasionally argued that there are circumstances in which mutual insurance does not amount to a trade. Such a contention finds no support in any of the later cases, and should be firmly resisted. It is quite evident, for example, that by the time the House of Lords heard the Ayrshire Employers Mutual case in 1946 it was satisfied that the Cornish Mutual case was the better authority (per Lord Moncrieff, 27 TC at page 341/2).