1970 (3) TMI 161 - HC - Indian Laws

Court rules nominee under life insurance policy cannot assign claim before policy matures

Life Insurance Corporation Of India Versus United Bank Of India Ltd. And Anr

The court held that a nominee under a life insurance policy cannot validly assign the claim before the policy matures if the policy is not a life ... - Issues Involved:1. Right of a nominee to assign or pledge a life insurance policy.2. Validity of the assignment of the policy by the nominee.3. Right to surrender the insurance policy by the nominee or the assignee.4. Nature of the nominee's interest under Section 39 of the Insurance Act.5. Distinction between assignment under Section 38 and nomination under Section 39 of the Insurance Act.Detailed Analysis:1. Right of a Nominee to Assign or Pledge a Life Insurance PolicyThe primary issue in this appeal was whether a nominee under a life insurance policy can validly assign the claim in respect of the policy after the policyholder's death but before the policy matures. The court examined the terms and conditions of the insurance policy and concluded that the policy did not effect a contract of insurance upon human life. The policy was payable on a fixed date and not upon the death of the assured, thus it was not a life insurance policy within the meaning of Section 2(11) of the Insurance Act, 1938.2. Validity of the Assignment of the Policy by the NomineeThe court held that the nomination under Section 39 of the Insurance Act did not confer any proprietary right, title, or interest to the nominee. The nominee was merely entitled to collect the money secured by the policy in the event of the policyholder's death. As the policy in question was not a life insurance policy, the purported nomination was not valid under Section 39, and hence, the nominee did not have the legal capacity to assign the policy. The assignment made by the nominee to the bank was therefore invalid.3. Right to Surrender the Insurance Policy by the Nominee or the AssigneeThe court observed that there was no evidence or pleading of the policy being surrendered. The right to inquire about the surrender value of a policy does not equate to the actual surrender of the policy. As the nominee did not have any title to the policy money, he could neither surrender the policy nor transfer any right, title, or interest in the policy. Consequently, the assignee (the bank) also did not have the right to surrender the policy.4. Nature of the Nominee's Interest under Section 39 of the Insurance ActThe court analyzed the provisions of Section 39 of the Insurance Act and concluded that the nominee does not acquire any title to the money secured by the policy. The nominee's right is limited to collecting the money payable under the policy upon the policyholder's death. The nominee does not have any proprietary interest in the policy, and the money does not become part of the nominee's estate. The court cited various judicial precedents to support this view, emphasizing that the nominee's role is akin to that of an agent to receive the money for the benefit of the policyholder's estate.5. Distinction between Assignment under Section 38 and Nomination under Section 39 of the Insurance ActThe court highlighted the fundamental differences between assignment and nomination. An assignment under Section 38 transfers the right to the insurance money to the assignee, who then becomes the owner of the policy benefits. In contrast, a nomination under Section 39 merely designates a person to receive the policy money upon the policyholder's death, without conferring any proprietary rights. The court rejected the argument that a nominee could assign the policy, as this would equate the nominee's position to that of an assignee, contrary to the provisions of the statute.Conclusion:The court concluded that the nominee did not have the right to assign or surrender the policy, and the assignment made by the nominee to the bank was invalid. The decree of the trial court was set aside, and the suit against the Life Insurance Corporation of India was dismissed. The respondent bank was ordered to pay the appellant's costs of the appeal and the trial.