CR236 Beneficiary nomination
Two beneficiaries nominated on funeral policy – after death insurer paid full sum assured to one of the beneficiaries, relying on clause giving insurer a discretion to pay whomever it considered entitled to it – held, however, that the discretion had to be exercised reasonably, and could not ignore contractual entitlement.
On her funeral policy the deceased had nominated two beneficiaries, one her brother and the other her son who was a minor. Both beneficiaries were noted on the policy summary. After the deceased died the insurer paid the entire benefit to the brother. The deceased’s husband complained on behalf of the minor son, who at the date of deceased’s death was 17.
The insurer cited a clause in the policy which stated: “The company reserves the right to pay the proceeds of any benefit under the family burial plan to any person the company considers to be entitled to the proceeds”. The brother had supplied proof that the money was needed to pay for the funeral. As the policy was taken out to cover funeral expenses, and because the son was still a minor, the insurer decided to pay the brother to enable him to pay for the funeral.
What lay at the heart of the issue was who, on the death of the life assured, was entitled to receive payment of the sum assured. In the preamble to the contract it was stated that the insurer “agrees to pay the benefits of the plan to the applicant or, if another person is entitled to receive them, to such other person”. Clause 4 of section B of the policy, entitled “Beneficiary”, provided that:
“The life assured may by notifying the company in writing, appoint, change, or cancel the appointment of a beneficiary at any time. Such notification will be effective only when received by the company.
Beneficiaries receive the proceeds of the policy in respect of a claim arising from the death of the life assured under the policy”.
There was a clear nomination of two beneficiaries in the spaces provided in the application form, and both beneficiaries were noted on the policy summary provided to the principal life assured/premium payer.
On the policy summary no percentage was reflected under “Split”, and in the circumstances it had to be assumed that the sum assured was to be divided equally, so that each beneficiary was entitled to receive half.
While it was true that the clause on which the insurer relied afforded it a discretion, such discretion had to be exercised reasonably. Account had to be taken of the nomination of both beneficiaries. The clause granting the insurer a discretion could not justify a deviation from the contractual entitlement of each of the nominated beneficiaries to payment. The clause could only be invoked in other situations, for example, where no beneficiary has been nominated.
We stated our view that half of the sum assured had been payable to the son, on his behalf to his father who was his guardian. The insurer had the right to reclaim from the deceased’s brother the amount overpaid to him.
The insurer agreed to pay the claim.