Nominee doesn’t have ownership of insurance policy money: HC

: The Lucknow bench of the Allahabad high court has ruled that a beneficial nominee of an insurance policy does not have ownership of the policy’s proceeds.

The court said holding the beneficiary to be a ‘beneficial nominee’ -- to the exclusion of the legal heirs -- would lead to absurdity, which was never intended when Section 39(7) of the Insurance Act was amended in 2015.

Section 39 (7) provides that a nominee shall beneficially be entitled to the amount payable by the insurer. Prior to the amendment, the nominee of a policy was entitled to hold the amount for the benefit of the successor.

Justice Pankaj Bhatia pronounced the judgment recently on a petition filed by one Kusum of Unnao district of U.P, who was involved in a dispute with her son-in-law and daughter-in-law over the ownership of her daughter Ranjeeta’s insurance policies. Kusum had taken out 15 life insurance policies in Ranjeeta’s name when she was unmarried.

Ranjeeta married later and a daughter was born to her. However, Ranjeeta died in 2011 when her daughter was 11 months’ old.

Since Kusum was a nominee of the insurance policies, she claimed ownership of the proceeds. This was challenged by her son-in-law and granddaughter, who moved the civil court and got a favourable decision.

In revision, the Unnao district judge asked Kusum to deposit the amount of these insurance policies in the form of Fixed Deposit Receipt (FDR) in the name of her granddaughter till she attains age of 18 years.

Kusum then moved the high court to contend that she is entitled to the amounts under the policies as a beneficial nominee. However, she also agreed that apart from the amounts under the policies, her granddaughter would be entitled to her estate as per succession laws.

Considering its findings on the prevalence of succession law over the Insurance Act, the high court dismissed the petition.

Due to the contradictory judgments of high courts on the issue, the court also said it would be fit to take the matter to the Supreme Court.

Observing that the Insurance Act was never enacted by Parliament to govern the rights of succession in respect of the persons who are governed by their individual succession laws, the court said: “Clearly, the issue of succession would be governed by a specific statute being The Hindu Succession Act and to that extent, the general law as flows from Section 39(7) under the Insurance Act has to give way.”

MANOJ KUMAR SINGH