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

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 Act, 1938, only parents, spouse, children or combinations thereof qualify as beneficiary nominees with absolute ownership rights. Other nominees, including brothers, are merely collector nominees who hold funds in trust for legal heirs. The court directed the insurance company to pay the assured sum directly to the petitioner and her son as Class-I legal heirs under Hindu Succession Act, bypassing the brother nominee who lacked absolute ownership rights over the insurance proceeds.

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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 policy
The 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 succession
The 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, 1938
The 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 amount
The 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.

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