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CR2 Cession – security cession to bank does not extinguish the rights of a beneficiary.

CR2

  • Cession – security cession to bank does not extinguish the rights of a beneficiary.

The Policyholder and life assured nominated his daughter as beneficiary and thereafter ceded the policy to a bank as security for an overdraft.  When he died the proceeds, as both the policy and the obligationary agreement  provided, was paid to the bank and used  to discharge the overdraft.  There was no provision in the policy documentation dealing with this situation.  Who is entitled to the surplus?  We wrote:

The rights that the bank acquired by virtue of the cession do not terminate the rights of the beneficiary i.e. the daughter.  The bank has a duty to restore the excess over the amount of the debt and in our opinion they must pay this amount directly to the beneficiary and not into the estate of the cedent. 

Unfortunately we have no jurisdiction over third parties and we cannot order the bank to pay the amount of the excess (if any) to the daughter.”

We suggested that that the matter be referred to the Ombudsman for Banking Services.

MFBR

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