Question:

What is the ruling concerning public liability insurance, which is a form of insurance on places that are frequented by the public and are under our responsibility, such as libraries, centers, etc., where some accidents may happen and we would not be able to cover the required compensation?  

Answer:

In the Name of Allah, Most Gracious, Most Merciful.

All praise and thanks are due to Allah, and peace and blessings be upon His Messenger.

Dear questioner, we commend your pursuit of knowledge and your keenness to seek what is lawful and avoid what is not. We earnestly implore Allah to bless your efforts in this honorable way.

According to the Shari`ah committees in the Islamic financial institutions, it is permissible to use conventional insurance as a last resort when there is crucial need to protect assets and insure activities.

Responding to the question, the European Council for Fatwa and Research states the following:

The traditional insurance contracts (applied in the West) are prohibited in Shari`ah in principle because these contracts are based on mutual compensation as the company possesses the premiums for its own good and is committed to pay the compensation. This process involves risk because the occurrence of danger is not certain, and there is the possibility of paying compensation or not paying it, besides the possibility of the company\'s benefiting by the premiums or losing them along with other amounts.

The Shar`i or legal substitute for this is cooperative insurance that is based on an insurance portfolio for the good of the bearers of the insurance policies, so that they benefit from earnings and bear the losses. The role of the company is confined to administration for a wage, investing the insurance assets for a wage, or for a share on the basis of mudarabah. If there remains surplus from the premiums and their bonuses after paying compensation, it is a pure right for the bearers of the policies. The risk that is in the cooperative insurance is ignored as excusable, for the basis of this type of insurance is cooperation and regular donations, and risk is usually overlooked in donations.

Since cooperative insurance is still new and not widely practiced and cannot cope with big insurances, the Shar`i committees in the Islamic financial institutions have given the fatwa that it is permissible to resort to conventional insurance when there is crucial need to protect assets and insure activities, on the basis that risk is excusable because of need.

Therefore, it is permissible to enter into insurance contracts that are available in the West when cooperative insurance is nonexistent or unable to cover certain dangers.

Allah knows best.

Responded by: 

European Council for Fatwa and Research