2023 (12) TMI 364 - HC - Indian Laws

Insurance nominee brother cannot claim absolute ownership rights under Section 39(7) of Insurance Act 1938

K.R. Sakthi Murugeswari Versus Divisional Manager Divisional Office, Life Insurance Corporation of India, Tirunelveli and Others

The Madras HC held that a nominee's rights under an insurance policy depend on their relationship to the deceased. Under Section 39(7) of the Insurance ... Payment of insurance claim amount in favour of the nominee - Right of nominee as collector of sum or as absolute owner - Right of legal heirs - direction to disbursement of assured claim amount to the petitioner and her son, who are the legal heirs of the deceased S.Arul - whether the impugned communication of the second respondent requires the interference of this Court and this Court has to issue a consequential direction to the first and second respondents to pay the assured claim amount to the petitioner and her son? HELD THAT:- A beneficiary nominee means a nominee who is entitled to receive the entire sum assured under the insurance policy absolutely. On the other hand, a collector nominee means a nominee other than a beneficiary nominee It is true that on a plain reading of Section 39(7) of the Act, this distinction has been done away with. However, the legislature was careful enough to identity who all will fall within the category of nominees who in law will be considered as a beneficiary nominee. While categorizing those persons, the legislature was careful enough to bring in the parents, spouse, children, spouse and children or any of them. If the legislature had thought it fit to make everyone as a beneficiary nominee, there was no need for the legislature to specifically prescribe those persons who will fall within the ambit of Section 39 (7) of the Insurance Act, 1938. The fact that such a conscious description of persons, who fall under Section 39(7) of the Act has been prescribed by the legislature, shows that the legislature only wanted those persons who are closely related to the deceased policy holder alone to be treated as beneficiary nominees. In the instant case, the third respondent is admittedly the brother of the deceased policy holder and the third respondent cannot be brought within the scope of Section 39(7) of the Act. If the third respondent cannot be brought within the scope of Section 39(7) of the Act, it would only mean that he will be treated as a collector nominee. The concept of nomination is only to ensure that the Insurance Company does not get into the area of dispute and the Company washes of its hands by handing over the sum assured to the nominee. If the nominee falls within the scope of Section 39(7) of the Act, those persons described therein automatically takes it as a beneficiary nominee. If the person does not fall within the scope of Section 39(7) of the Act, he can only be treated as a collector nominee and he has to hold the money in trust subject to the claims made by the legal representatives who are entitled to a share in the sum assured. This position continues even after the amendment made to the Insurance Act in the year 2015. If every nominee is brought within the scope of Section 39(7) of the Act, this Court will be doing violence to the plain language used in the said provision and it will be certainly beyond the scope of the said provision. This Court holds that the third respondent as a nominee can only collect the sum assured from the Insurance Company and hold it in trust and it will be subject to the claims made by the legal heirs of the deceased under the personal law governing them. This Court cannot find fault with the impugned communication issued by the second respondent dated 24.06.2021, in this regard. Whether the petitioner and her son will have to once again go through the process of initiating recovery proceedings against the third respondent, if in case, the third respondent does not hand over the sum assured to them? - HELD THAT:- In the instant case, as between the petitioner and the third respondent, it is the petitioner and her son who are entitled to receive the sum assured as Class-I legal heirs. The Hindu Succession Act that governs the parties makes it very clear that the Class I legal heirs will be entitled to take the share absolutely to the exclusion of the other heirs. The third respondent, who is the brother of the deceased falls under the category Class-II legal heir and therefore, he is excluded from succeeding to the sum assured. Hence, in the absence of any dispute on the status of the parties, this Court in order to render substantial justice, directs the second respondent to hand over the entire sum assured to the petitioner. This Writ Petition is disposed of. Issues Involved:1. Validity of the nominee's entitlement under the insurance policy.2. Rights of legal heirs under the personal law governing succession.3. Applicability of the amended Section 39 of the Insurance Act, 1938.4. Directions for disbursement of the insurance claim amount.Summary:Issue 1: Validity of the nominee's entitlement under the insurance policyThe petitioner challenged the communication dated 24.06.2021 from the second respondent, which stated that the insurance claim amount would be paid only to the nominee, the third respondent. The court examined whether this communication required interference and whether a direction should be issued to pay the claim amount to the petitioner and her son.Issue 2: Rights of legal heirs under the personal law governing successionThe petitioner, as the wife of the deceased, and her son, as Class-I legal heirs, claimed entitlement to the insurance amount under the Hindu Succession Act. The court noted that Class-I legal heirs are entitled to the sum assured to the exclusion of other heirs, including the third respondent, who is a Class-II legal heir.Issue 3: Applicability of the amended Section 39 of the Insurance Act, 1938The court discussed the amendment to Section 39 of the Insurance Act, 1938, brought by the 2015 Amendment Act, which distinguished between a beneficiary nominee and a collector nominee. The court cited the Delhi High Court's judgment in Shweta Singh Huria vs. Santhosh Huria, which held that a nominee under the amended Section 39 is considered a beneficiary nominee. However, the court emphasized that the legislature specifically identified who qualifies as a beneficiary nominee under Section 39(7), which includes parents, spouse, children, or any of them.Issue 4: Directions for disbursement of the insurance claim amountThe court concluded that the third respondent, being the brother of the deceased, does not fall within the scope of Section 39(7) and thus can only be treated as a collector nominee. The third respondent must hold the sum assured in trust for the legal heirs. The court directed the second respondent to hand over the entire sum assured to the petitioner and her son, as they are the rightful Class-I legal heirs. The third respondent was instructed to resubmit the original policy to the second respondent within two weeks, and the second respondent was directed to disburse the sum assured to the petitioner and her son within two weeks thereafter, subject to the petitioner fulfilling all formalities.Conclusion:The court disposed of the writ petition, directing the insurance company to pay the sum assured to the petitioner and her son, recognizing their rights as Class-I legal heirs under the Hindu Succession Act. The third respondent, as a collector nominee, must facilitate this process by resubmitting the original policy.