CR2

• Cession – security cession – surrender by cessionary.

Policies often serve as instruments of security for loans.  Microlenders insist on the cession of a policy, be it an existing one or a policy newly created for that very purpose, be it as security for the policyholder’s own debt or for the debt of another i.e. when the policyholder has been induced to stand surety for the debt of a family member.

Once that happens the policyholder is locked into a situation from which an escape is not always easy to engineer

Thos most we can do in such a situation is to explain the legal position to the complaining policyholder.  In one such case we said to the policyholder who had stood surety for the debt of his aunt, and ceded his policy to secure that debt:

“(i)       On such a security cession you retain your interest in the policy;

• Once the debt in respect of which the cession has been given is extinguished the policy reverts to you;

• Until that debt has however been repaid you cannot enforce your rights under the policy;

• Since the cession was given as security for payment of the debt it follows that the cessionary is entitled to apply the proceeds of the policy to the payment of your debt;

• Since your debt (as surety) is dependent on the non-payment by your aunt of her debt to the cessionary it follows that is he is in default the cessionary was entitled to a surrender of the policy which the insurer was obliged to implement.”

Where the policyholder challenges the validity of the cession or insists that the secured debt has in fact been repaid our ability to help is limited:  we can badger the insurer, as debtor, but we cannot engage the cessionary, as creditor.  We lack the jurisdiction to do so.  On that issue policyholders are on their own.

PMN