Assalaamu alaykum. My question was regarding buying cars from the insurance company. Once a car gets into a big crash, it gets cancelled and the insurance pays a certain amount of money to the first owner in return for the car. Then the insurance company puts these cancelled cars up for auction or a bid where they sell the cancelled cars. So is it permissible to buy such cars?

All perfect praise be to Allaah, The Lord of the worlds. I testify that there is none worthy of worship except Allaah and that Muhammad is His slave and Messenger.

There is no harm in buying defective cars owned by the insurance company if the buyer is pleased with the defect that the car has provided that the insurance was a lawful cooperative insurance. Please, refer to fatwa 81425.

If the insurance is commercial in nature, however, then it is not permissible to buy cars from it, as it has been stipulated by the Standing Committee for Issuing Fataawa that, “Commercial insurance is forbidden in all its forms, and it is not permissible to buy cars owned by the company as a result of the (commercial) insurance contract because these cars are not legitimately owned by it.”

This is because the commercial insurance company comes to own the defective car through the commercial insurance contract, which is considered a defective contract (Faasid), and what is owned by a defective contract is not legitimately owned; so, according to the most correct view of the majority of the scholars, one cannot dispose of it.

The Fiqh Encyclopedia reads:

“The scholars of Fiqh differed in opinion regarding holding something in one’s possession and whether or not it is a transfer of ownership in defective financial trade-off contracts; the majority of the scholars of the Shaafi’i, Maaliki and Hanbali Schools are of the view that the defective contract is like the invalid one, it is not effective in principal, and it does not indicate ownership at all, regardless of whether the party of the contract held in possession the compensation that is agreed upon or not. However, the Hanafi School are of the view that the ownership of what is agreed upon in the contract is transferable in defective trade-off contracts by getting possession of it with the consent of its owner, and they view that it is guaranteed by the holder [the one taking possession] with its value on the day of taking possession of it.”

Allaah knows best.