CR3 Cession – security cession – fraudulent surrender of policy.


  • Cession – security cession – fraudulent surrender of policy.

A policyholder, Mr A, ceded his policy to Mr B as collateral security for the payment of a debt owing to the latter.  He stated that his broker, Mr C, “during November 2002 was reviewing my portfolio and I agreed that he uplift this policy from” Mr B, the cessionary.  Mr C persuaded Mr B to sign a blank document which he fraudulently completed as an outright cession to himself.  Acting on this cession he persuaded the insurer to surrender the policy.  The proceeds of the policy were paid into the bank account of Mr C’s minor son.

When the above facts were revealed the complainant complained to the office.  This led to further investigations when the insurer discovered and confirmed the fraud.  The insurer offered the policyholder the choice of either reinstating the policy against payment of arrear premiums or accepting the cash value of the policy with interest.

The policyholder elected the latter.

It is arguable that even in the absence of proof of  fraud the insurer might have been liable to the policyholder in any event as the first cession was clearly stated to be a security cession.  There is much to be said for the view that there is a duty on an insurer, if perhaps not in strict law then in fairness, to inform the cedent of the fact that a claim had been made on the policy by the cessionary or another third party to enable the latter to protect his rights by challenging the proposed payment.