Posts in category: Beneficiary Nominations

Beneficiary nomination CR298

Insured married in community of property – beneficiary nominated without consent of spouse – effect of section 15 of the Matrimonial Property Act.

Background

The life insured, who was married in community of property to the complainant, held a policy with each of companies A and B. Some years before her death, but after her marriage to the complainant, she had signed the forms prescribed by the companies for the appointment of a beneficiary to the proceeds of the policies, in both cases nominating her daughter as the beneficiary. The forms of both companies made provision for the signature by the insured’s spouse in the event of the insured being married in community of property, but in neither case had the complainant signed his consent on the form.

Following the death of the insured both companies made payment to the named beneficiary of the proceeds of the respective policies. In both cases the complainant objected, contending that the unilateral nomination of the named beneficiary had been irregular and had resulted in him losing his one half share of the proceeds to which he was entitled as a consequence of the marriage being in community of property. Both companies rejected his claims and, relying on the provisions of section 15 (9) of the Matrimonial Property Act no. 88 of 1984, alleged that the insured had not advised them that she was married in community of property.

The complainant then approached us for assistance.

Discussion

The relevant portions of section 15 (2) and 15 (9) of the Act read:
“15 Powers of spouses…
15 (2) Such a spouse shall not without the written consent of the other spouse…
(c) alienate… insurance policies…
15 (9) When a spouse enters into a transaction with a person contrary to the provisions of subsection (2)… and
– (a) the person does not know and cannot reasonably know that the transaction is being entered into contrary to those provisions…, it is deemed that the transaction concerned has been entered into with the consent required in terms of the said subsection (2)…;
– (b) that spouse knows or ought reasonably to know that he will probably not obtain the consent required in terms of the said subsection (2)… and the joint estate suffers a loss as a result of that transaction, an adjustment shall be effected in favour of the other spouse upon the division of the joint estate.”

In both instances the complainant contended that there was an onus on insurance companies to investigate whether a married insured, on signing a nomination of beneficiary form, was married in or out of community of property. The companies in turn contended that it was for the signatory, if married in community of property, to arrange for signature by his or her spouse, and that because the complainant’s signature was not obtained they were entitled to assume that the life insured had the necessary contractual capacity to sign the document on her own.

The office considered that in the absence of any indication in documents in the insurer’s possession that the insured had been married in community of property, there was no call on the companies to investigate the matter.

In regard to the complainant’s claim against company A we were of the opinion that by omitting to obtain the complainant’s signature to the nomination of beneficiary form, the insured had by implication led the company to understand that she was not married in community of property. At the same time she had thereby also represented that she had the right to make the nomination as the policy owner. We were further of the opinion that the party liable to furnish information about his or her marital status is in fact the insured. Since the insured had not indicated otherwise on the beneficiary nomination form, company A could not have known that the document was being signed in breach of the provisions of section 15(2)(c) of the Act. We concluded in the circumstances that it must be deemed that the document had been completed with consent. We suggested, although we could not assist him in this regard, that the complainant might pursue the remedy provided for in section 15(9)(b).

Our reasoning was the same in respect of company B, and we were supported in this view by the decision of Distillers Corporation Ltd v Modise 2001(4) SA 1071 (O). A further feature in the case of company B was that it was prior to the coming into operation of the Long-Term Insurance Act (52 of 1998) that the deceased had entered into the policy contract. This meant that the earlier Insurance Act (27 of 1943) was applicable, and in terms of section 41 thereof all policies concluded by a woman on her own life fell outside the joint estate. Because section 15(2)(c) of the Matrimonial Property Act was only applicable to assets which form part of the joint estate, and because the current Long-Term Insurance Act does not have a provision similar to that in the earlier Act, the insured had therefore not required the consent of her spouse for the purpose of nominating a beneficiary.

Result

We informed the complainant that in both instances the declining of the claims by the insurers had been justified.

BG
March 2011

CR236

Beneficiary nomination

Two beneficiaries nominated on funeral policy – after death insurer paid full sum assured to one of the beneficiaries, relying on clause giving insurer a discretion to pay whomever it considered entitled to it – held, however, that the discretion had to be exercised reasonably, and could not ignore contractual entitlement.

Background

On her funeral policy the deceased had nominated two beneficiaries, one her brother and the other her son who was a minor. Both beneficiaries were noted on the policy summary. After the deceased died the insurer paid the entire benefit to the brother. The deceased’s husband complained on behalf of the minor son, who at the date of deceased’s death was 17.

The insurer cited a clause in the policy which stated: “The company reserves the right to pay the proceeds of any benefit under the family burial plan to any person the company considers to be entitled to the proceeds”. The brother had supplied proof that the money was needed to pay for the funeral. As the policy was taken out to cover funeral expenses, and because the son was still a minor, the insurer decided to pay the brother to enable him to pay for the funeral.

Discussion

What lay at the heart of the issue was who, on the death of the life assured, was entitled to receive payment of the sum assured. In the preamble to the contract it was stated that the insurer “agrees to pay the benefits of the plan to the applicant or, if another person is entitled to receive them, to such other person”. Clause 4 of section B of the policy, entitled “Beneficiary”, provided that:

“The life assured may by notifying the company in writing, appoint, change, or cancel the appointment of a beneficiary at any time. Such notification will be effective only when received by the company.

Beneficiaries receive the proceeds of the policy in respect of a claim arising from the death of the life assured under the policy”.

There was a clear nomination of two beneficiaries in the spaces provided in the application form, and both beneficiaries were noted on the policy summary provided to the principal life assured/premium payer.

On the policy summary no percentage was reflected under “Split”, and in the circumstances it had to be assumed that the sum assured was to be divided equally, so that each beneficiary was entitled to receive half.

While it was true that the clause on which the insurer relied afforded it a discretion, such discretion had to be exercised reasonably. Account had to be taken of the nomination of both beneficiaries. The clause granting the insurer a discretion could not justify a deviation from the contractual entitlement of each of the nominated beneficiaries to payment. The clause could only be invoked in other situations, for example, where no beneficiary has been nominated.

We stated our view that half of the sum assured had been payable to the son, on his behalf to his father who was his guardian. The insurer had the right to reclaim from the deceased’s brother the amount overpaid to him.

Result

The insurer agreed to pay the claim.

CR237

Beneficiary Nomination

Insured’s nomination of beneficiary refused by insurer—remedies of disappointed beneficiary

Background

Mr M took out a life policy on his own life, revocably nominating his daughter as beneficiary. The maturity date of the policy was 1 September 2005. An endorsement was subsequently issued in terms of which the insured’s friend, Ms K, was added as the second life insured though not as co-party to the contract. The endorsement also provided that the death benefit “…will now become available on the death of the last surviving insured life…”

Some time after the issue of the endorsement Mr M instructed the insurer to appoint Ms K as his beneficiary in place of his daughter. The insurer’s response was that:
“Ms K is already the co-life assured which means that when the original life insured passes away, the policy will continue in the name of Ms K, and therefore we cannot note the beneficiary.”

The insured did not apparently challenge the insurer’s refusal to record Ms K’s nomination nor did he take any other remedial measures to benefit his friend e.g. by ceding the policy to her.

Mr M died on 12 May 2005, and on his death the policy was treated as part of his estate. When it eventually matured some months later, the insurer paid the proceeds of the policy to the estate of the late Mr M, and the executor dealt with the proceeds in terms of his will.

Ms K lodged a complaint. She submitted that the insurer should have implemented Mr M’s proposed nomination of her as a beneficiary. She contended that had her nomination been implemented she would have received the policy’s proceeds upon maturity. The office considered her claim as a delictual claim for compensation of pure economic loss.

Discussion

The insurer pointed out that the policy drew a distinction between death benefits, payable on the death of the life insured, and endowment benefits payable on maturity of the policy. The policy provision creating the rights of the beneficiary read as follows:
“Beneficiary
If the insured life should die, we will pay the death benefits of this policy to the beneficiary you have nominated. We will cancel the beneficiary nomination if: • you cede the policy to any third party; or you use your policy as security for a loan. We will also cancel or change the beneficiary nomination if you give us notice in writing. If a beneficiary is not nominated on the policy, we will pay the death benefits to the estate.”

Based thereon the insurer contended that the policy merely conferred on the beneficiary a right to receive the death benefit and not the endowment benefit. Ms K would therefore not have been entitled to claim even if the insurer had implemented Mr M’s nomination of her. On the death of Mr M nothing became payable because Ms K, the second life insured, was still alive and a nomination in her favour would therefore have been to no avail. The endowment benefit would have become payable when the policy matured soon after the death of Mr M but by virtue of the policy provisions Ms K would not have had any right to that benefit. In the result, so the insurer contended, its conduct in refusing to give effect to Mr M’s instruction to nominate Ms K as a beneficiary had caused the complainant no real loss.

Conclusion

The office agreed with the insurer’s contentions and dismissed the complainant’s claim. The office was nevertheless of the opinion that at the time of Mr M’s request the insurer could easily have given effect to his avowed wish to benefit Ms K. This it could have done by suggesting an amendment of the policy provisions so as to cause Ms K to be entitled to the endowment benefit, which would not have prejudiced Mr M’s position in any way. By not advising Mr M to this effect the insurer failed to render proper service to its client. The office persuaded the insurer to pay to Ms K R10 000 as compensation for the inconvenience caused by its lack of service.

CR213

Beneficiary nomination – living annuity – on death of annuitant insurer must adhere to nomination

1. The complainant in this matter was the wife of the deceased annuitant. The annuity was purchased with pension fund money and was a so-called GN18 annuity, in other words, it was untied to the retirement fund. The fund no longer had any obligation towards the annuitant.

2. The annuitant had indicated that the benefits should be payable to three beneficiaries on his death, his wife, the complainant, receiving 40% of the proceeds and his two major children each receiving 30% of the proceeds.

3. The insurer had in fact split the benefit equally amongst the three nominated beneficiaries. It justified its decision on the basis of wording contained in a clause in the annuity policy which read as follows: “For the purposes of this contract, the Beneficiary will be the dependants and/or nominated beneficiary of the Annuitant, as determined at the date of the Annuitant’s death.”

4. The annuity had been paid out in this form for some time before the complaint reached our office. The insurer argued that this clause made Section 37C of the Pension Fund’s Act relevant to the distribution on death and that therefore it made a decision that it would be fair to split the annuity equally amongst the three beneficiaries.

5. We could not agree with the insurer’s argument. We were of the view that the insurer was:

a. obliged to give effect to the deceased’s final beneficiary nomination;

b. that Section 37C of the Pension Funds Act was not applicable;

c. that the proportionate payment on an even split rather than the beneficiary nomination split could not be justified on either a contractual or an equity basis.

6. We accordingly made a determination that the insurer had erred in making payments as it had done and that the complainant was entitled to the amount that was due to her for the period that the annuity had been paid, on a 40% basis. In addition she was entitled to interest on the shortfall calculated at the rate set in the Life Offices Association (LOA) guidelines on interest i.e. the rate offered by Standard Bank on deposits for a period of 12 months.

7. The insurer accepted our ruling and made a lump sum payment of the arrear annuity payments and agreed to make future payments in accordance with our ruling.

JP
May 2007

CR214
Beneficiary nominations – splitting of beneficiary nomination – policyholder nominates his two daughters and himself in predetermined proportions – validity of

Background

In terms of the insurance contract in this matter, the insurer undertook to give effect to written nominations of beneficiaries or changes in such nominations received by the insurer.

At the time the contract was entered into, the policyholder appointed his two daughters to each receive 50% of the proceeds of the policy on his death.

Some time later, however, whilst in the process of estate planning and in consideration of his specific circumstances at that time, the policyholder instructed his attorney, and provided the attorney with a written mandate, “to change the beneficiaries on my afore-mentioned policies”.

Acting on the mandate, the attorney notified the insurer in writing that the existing beneficiaries had to be changed in that each of his daughters were to receive a specified amount and that “the balance of the proceeds of this policy shall on the death of (the policyholder) be paid into his Estate”. The insurer responded that it could not comply with that request unless they were provided with the percentages of the shares for each nominated beneficiary. The insurer did not substantiate its contention that it was not possible to give effect to a beneficiary nomination in the form requested but the question became academic when the policyholder completed a further “Beneficiary Appointment” form in which the names of the two daughters and of the policyholder were inserted in the column headed “Full names and surnames of beneficiaries”. The share of the benefit each daughter was to receive was 7.4% and 85.2% was inserted next to the name of the policyholder himself.. During the investigation of this matter, the insurer provided us with a copy of a letter in which it stated:-

“Our records show that this policy is the property of Mr (the policyholder) therefore you cannot be nominated for any more roles on your policy.” According to the copy received, the letter was addressed to the policyholder at the address of the attorney. The attorney denies having received such letter.

In spite of having received written notification of the changes in respect of the beneficiary nominations, the insurer maintained that it was entitled to disregard the later notification and on the death of the policyholder it paid 50% of the proceeds to each of the daughters.

Prior to the actual payment to the daughters, the attorney who was previously involved in the notification of change of beneficiary, notified the insurer in his capacity as executor of the estate of the late policyholder, of the percentages due to the various beneficiaries in accordance with the notification of change.

In correspondence to the attorney and to this office, the insurer insisted that the notification of change was not effective as the policyholder could not legally nominate himself as a beneficiary together with his daughters. The executor of the estate requested payment to the estate of the amount in accordance with the percentage in the notification of change of appointment of beneficiaries.

Evaluation

The insurer’s contention that the policyholder could not validly appoint himself as a beneficiary could not be upheld in the light of the fact that it was patently clear from the correspondence that the policyholder’s intention was that the percentage for which the policyholder was nominated was to be paid to his estate on his death.

The insurer further sought to justify its payment to the daughters on the basis that the later change was not accepted by the insurer. Acceptance is not, however, a requirement for a binding nomination or change. The insurer agreed in advance in the policy that receipt of a notification of change by the insurer would be implemented.

Resolution

After some further argument the insurer eventually agree to effect payment to the estate of the late policyholder of the percentage for which he/his estate, was nominated in terms of the notification.

EdB
May 2007

CR174

Beneficiary nominations –nomination revocable – policyholder died before maturity of policy – executor ceded policy to one of the beneficiaries who obtained payment- rights of other beneficiary

Background

Mrs A took out a single premium endowment policy on her life. The policy was payable on a certain date or her prior death. In the application form she nominated her only son, Mr B, and her only daughter, Ms C, as joint beneficiaries. The nomination was revocable without any formalities for revocation being laid down. In terms of a subsequent endorsement the policyholder added a second life insured, namely Mr B. The endorsement specifically provided that the policy would only become payable on the death of the last surviving insured life. The maturity date was not changed.

Mrs A did not revoke the beneficiary nominations.

She executed a will in terms of which her son was to receive 40% of her estate and her daughter 60%. On the death of Mrs A, the executor of her estate ceded the policy to Mr B who claimed and obtained payment of the policy proceeds on the maturity date.

The complainant is Ms C. She objected to payment in full to Mr B, and contended that the policy remained payable to the original beneficiaries since the nominations had not been revoked. The insurer on the other hand maintained that the policy had been validly ceded and that they paid the rightful owner.

Discussion

Mrs A was the original owner or, to put it more accurately, the titleholder of the policy and this did not change when Mr B was added as the second life insured. The second life insured as such did not derive any rights from the policy. All it meant was that the payment date for death was adjusted.

The policyholder had at least the following rights:

(a) to require the insurer to pay the proceeds of the policy to the nominated beneficiary or beneficiaries (if any) when the time arrived to do so;

(b) to revoke or change an existing nomination; and

(c) to settle, surrender, cede or encumber the policy.

When Mrs A, the policyholder, died, the policy was not yet payable because it only became due in terms of the endorsement on a certain future date (the maturity date) or the death of the surviving insured life (i.e. Mr B). Being a revocable nomination, neither beneficiary could at this stage confirm his or her right (or rather expectation) to the benefit by accepting the nomination. On the death of the policyholder, the bundle of Mrs A’s rights under the policy therefore vested in her estate. Hence her executor was entitled (in accordance with the latter’s duties to liquidate and distribute the estate) to alienate these rights e.g. by way of cession, to anyone, including the son of the titleholder.

Since the executor had the right to cede the policy, the question arose whether the cession was subject to the joint nomination in favour of the complainant. However, even if one assumes that the cession remained subject to the nominations, it would seem that the cessionary (i.e. the new policyholder or owner) also acquired the right to revoke or change the nomination. By claiming the entire proceeds of the policy on maturity for himself, the cessionary , Mr B, by conduct and in effect revoked the nomination of his sister. Consequently the insurer paid to the rightful owner or policyholder. Against this background the insured could not be held responsible to the complainant.

Whether the executor properly discharged her duties by, as it were, donating the policy to the son in conflict with the provisions of the late titleholder’s will, was a different issue. We did not have jurisdiction in such a case and we advised the complainant to obtain legal advice with a view to a possible claim against executor.

Result

Our ruling was that the insurer paid the proceeds of the policy to the party entitled thereto in terms of the cession of the policy with the result that the complainant had no cause of action against the insurer. The ruling was accepted.

MFBR
November 2006