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to Mr B, and contended that the policy remained payable to the original beneficiaries since the nominations had not been revoked.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