CR125 Rights of cessionary to apply for the surrender
Cession in securitatem debiti – rights of cessionary to apply for the surrender of the policy.
The complainant, a trader, was the cessionary of an endowment policy issued to the policyholder. The complainant notified the insurer of the cession to him of an endowment policy as security for the payment of the price for goods sold and delivered. The obligationary agreement provided “It is hereby agreed that the above [policyholder] will purchase goods from [the complainant] for not more than R1750, depending on the value of the Policy. If the Policy value goes down the value of goods supplied will be reduced accordingly. Purchases will be done weekly, if no payments are received for a period of 30 days we [the complainant] reserve the right to call in the cession policy for payment of the account.”
When the policyholder did not meet his obligations the complainant applied for the surrender of the policy to the insurer. The insurer, however, responded:
“As this is not an out- and- out cession it is not possible for the cessionary to surrender this policy without the consent of the assured. The reason being that this policy was only ceded as security, but the cessionary does not have full ownership rights. Therefore there must be consensus between the cedent and the cessionary that the policy can be surrendered and that the cash value can be paid in full or partly to the cessionary.”
We did not agree with this view pointing out that the legal position is:
“If the cedent fails to pay the secured debt on due date the cessionary is entitled, without prior judgment against or excussion of the cedent, to redeem the principal debt and to apply its proceeds to its satisfaction of the secured debt. Any surplus recovered is for the cedent’s account.”
The insurer responded that as the mere product supplier it “usually gets caught up in the middle whenever a dispute between the cedent and the cessionary relating to the security cession arises. Therefore, as [the insurer] is not a party to the security cession agreement in question, but merely performs an administrative function in this respect, the approach (with regard to security cessions) is followed to rather request a joint instruction from both the cedent and the cessionary in the absence of an appropriate power of attorney or an agreement of parate executie in favour of the cessionary. We also believe that this is an approach that is fair and reasonable and serves the interests of both parties under the circumstances. Should the cessionary be unable to obtain the consent of the cedent, then he can still follow the conventional route [i.e. obtain judgment, sell the policy in execution, and apply the proceeds in satisfaction or reduction of the secured debt] and secure payment of the debt in this manner.”
We replied: “From the documentation it would appear that this was an express term of the obligationary agreement that the policy could be surrendered on non-payment of the secured debt. Such non-payment is also alleged.
In the circumstances it would appear that the cessionary is entitled to payment. But I do understand the insurer’s predicament and consequently, as a precaution and as a practical solution to overcome it, I would suggest that you give notice to the policyholder, preferably by registered post at his last known address, of the fact that a claim has been made on the policy by the cessionary. In the notice you should state that you propose to effect payment unless good grounds are advanced by the policyholder by a given date why payment should not be made.
In the absence of any response from the policyholder, [insurer] will be safe in effecting the payment; and if good reasons are advanced why payment should not be effected, this office would take the matter up with the cessionary.”
The insurer responded that it requested its particular department to follow the course as suggested and to afford the cedent a period of 21 days for a reaction.
The procedures were thereupon followed and since the amount of the debt exceeded the surrender value of the policy, the surrender value was paid to the cessionary.