CR254 Insured’s nomination of beneficiary refused by insurer

CR254

Insured’s nomination of beneficiary refused by insurer—remedies of disappointed beneficiary

Background

Mr M took out a life policy on his own life, nominating his daughter as the beneficiary. An endorsement was thereafter issued in terms of which the insured’s friend, Ms K, was added as the second life insured but not as co-party to the contract. This endorsement also provided that the death benefit “…will now become available on the death of the last surviving insured life…”

Some time after the issue of the endorsement, Mr M instructed the insurer to appoint Ms K as the beneficiary in place of his daughter. The insurer responded to the insured that:
“Ms K is already the co-life assured which means that when the original life insured passes away, the policy will continue in the name of Ms K, and therefore we cannot note her as the beneficiary.”

Mr M did not apparently challenge the insurer on this, nor did he take any other steps to benefit Ms K, by for example ceding the policy to her.

Mr M died thereafter and was survived by Ms K. On the death of Mr M the policy was treated as part of his estate. When it eventually matured some months later, the insurer paid its proceeds to the estate of the late Mr M, from where the executor dealt with them in terms of the deceased’s will.

Ms K lodged a complaint with our office, submitting that the insurer should have implemented Mr M’s nomination of her as the beneficiary. She contended that had it done so she would have received the proceeds upon the policy’s maturity. We considered her claim as a delictual claim for compensation, as such for pure economic loss.

Discussion

The insurer pointed out that the policy drew a distinction between death benefits, payable on the death of the life insured, and endowment benefits, payable on maturity of the policy. The policy provision that defined the rights of the beneficiary read as follows:

“Beneficiary
If the insured life should die, we will pay the death benefits of this policy to the beneficiary you have nominated. We will cancel the beneficiary nomination if you cede the policy to any third party or if you use your policy as security for a loan. We will also cancel or change the beneficiary nomination if you give us notice in writing. If a beneficiary is not nominated on the policy, we will pay the death benefits to the estate.”

Relying on this the insurer contended that the policy merely conferred on the beneficiary a right to receive the death benefit and not the endowment benefit. In the result, even if the nomination of Ms K had been implemented by the insurer she would not have been entitled to claim. On the death of Mr M, the first life insured, nothing became payable because Ms K, the second life insured, was still alive, so that a nomination in her favour would therefore have been to no avail. The endowment benefit became payable when the policy matured soon after the death of the first life insured but by virtue of the policy provisions Ms K would not have had any right to that benefit. In the result, so the insurer’s argument ran, its conduct caused the complainant no real loss.

Conclusion

We had to uphold the insurer’s contention that its refusal to carry out the insured’s instruction to nominate her as beneficiary resulted in no loss to her. Consequently the complainant’s claim had to be dismissed. We were nevertheless of the opinion that at the time of Mr M’s request the insurer could easily have given effect to his desire to benefit Ms K, by suggesting to him that a beneficiary nomination be made in respect of the endowment benefit (i.e. beneficiary of ownership). This would not have prejudiced the insurer’s position in any way. By not advising the insured to this effect, the insurer failed to render proper service to its client. We persuaded the insurer to pay Ms K R10 000 as compensation for the inconvenience caused by its poor service.

MFBR
May 2008

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