Beneficiary Nomination Under Insurance Act Can't Override Succession Law: Karnataka HC Suggests 'Better Practices' To Follow While Enacting, Amending Law

The Karnataka High Court has held that the amended Section 39 of the Insurance Act is not intended to override the provisions of law relating to succession.In doing so the court said that a mother cannot, by virtue of being a beneficiary nominee under Section 39, claim absolute ownership over the benefits flowing from her son's insurance policy in view of the claim laid by the heirs of the deceased. The court held that if the legal heirs of the deceased policy holder make a claim on the holder's policy, then the "nominee's claim has to yield to the personal law governing succession". Section 39(7) states that subject to other subsections, where the policy holder nominates his parents, spouse, children, or his spouse and children or any of them, the nominee/s shall be beneficially entitled to the amount payable by the insurer unless proved that the policy holder could not have conferred any such beneficial title. Section 39(8) thereafter states that if the nominee dies after the insured, but before the amount secured by the policy is paid, the amount shall be payable to the heirs or legal representatives of the nominee/s or the holder of a succession certificate, as the case may be. While ruling that the Insurance Act doesn't deal with issues of succession, Justice Anant Ramnath Hegde said that this should not mean that amendments to Section 39 are rendered otiose. It thereafter said, that the “beneficial interest” appearing in Section 39(7) and “beneficial title” appearing in Section 39(8) should be interpreted to say, that such nominee/s or their legal representatives recognised in Sections 39(7) and 39 (8) will get beneficial title over the benefits flowing from the insurance policy, if the testamentary and non-testamentary heirs do not claim the benefits flowing from the insurance policy."To put it differently, under the unamended provision, the nominee had an obligation to distribute the benefits flowing from the policy to the legal heirs. Under Section 39(7), there is no such obligation as long as there is no claim by the legal heirs. In the absence of any claim by legal heirs, the title vests in beneficiary nominee. However, if there is a claim by the legal heir/s, then the nominee's claim has to yield to the personal law governing succession," the court said. Dismissing the mother's appeal and upholding the trial court order, the high court said, “Appellant who is the mother of late Ravi Somanakatti, the insured, is one of the Class-I heirs, along with widow and minor son of the insured. Since this Court has taken a view that the Section 39 of the Act of 1938 does not override the provisions of Hindu Succession Act, 1956, the appellant who is the nominee described in Section 39 (7) of the Act of 1938 cannot claim absolute ownership over the benefits flowing from the insurance policy as other Class-I heirs of the deceased have also laid a claim over the benefits flowing from the policy”. Notably, in another case concerning the Succession Act, the high court had held if a nomination is made during the lifetime of a deceased, it does not amount to divesting of title after the death of the deceased, notwithstanding the legal heirs. It stated that after death, whatever the estate/amount is there, it is devolved to the legal heirs of the deceased as per the governing law of inheritance.BackgroundIn the present case, the court was considering whether “certain nominee/s” named in Section 39(7) and (8) of the Insurance Act who is/are conferred “beneficial interest” over the benefits under an insurance policy, would exclude the heir/s from succeeding to the benefits flowing from the insurance policy? The court was hearing an appeal filed by Neelavva, the mother of the deceased policyholder holder who had named her as the sole nominee for two insurance policies before his marriage. After his marriage and the birth of his child, he did not update the nomination. Following his death in 2019, a dispute arose between the mother and daughter-in-law over payout of the policy amount. The wife and child moved a suit, which came to be decreed by the trial court holding that each of the plaintiffs and 1st defendant (mother) is entitled to 1/3rd share despite nomination. Against this, the mother moved the high court. The mother's counsel contended that the amended Section 39 confers an absolute right in favour of a certain class of nominees, who are termed as 'beneficiary nominees'. He argued that as the mother is falling under the category of beneficiary nominee, it would thus exclude all other heirs under the personal law–which governs the parties–from claiming any right over the benefits payable to the nominee (mother) under the insurance policy.The counsel for the deceased son's wife submitted that the mother who is the nominee under the policies is only a custodian entitled to receive the benefits under the policy, on behalf of all the heirs, and the nominee (mother) owes a duty to disburse the amount to the...

Beneficiary Nomination Under Insurance Act Can't Override Succession Law: Karnataka HC Suggests 'Better Practices' To Follow While Enacting, Amending Law

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