What can an insurer do when it is uncertain who should receive the proceeds of a policy?

10 October 2017

Typically, there will be little doubt about who a benefit should be paid to under a policy of life insurance. If the beneficiaries cannot be identified, payment can be made into court to discharge the insurer’s liability.

S215 of the Life Insurance Act 1995 (Cth) permits the insurer to obtain an effective discharge of its liability by paying the benefit into the Federal Court of Australia (the Court) in circumstances where there is uncertainty about to whom it should pay the proceeds.

It has been established that s215 can be relied upon where there are two genuine competing claims for the proceeds of a life insurance policy. Two recent cases highlight situations where an insurer is not able to obtain a sufficient discharge due to uncertainty about the identity of the appropriate beneficiary.

In MLC Limited v Crickitt [2017] FCA 898, the beneficiary under the policy had been convicted of killing the policyholder but was appealing his conviction. If the conviction was overturned, the beneficiary would be entitled to the proceeds. However, if the conviction was upheld, the children of the deceased policyholder intended to make an application for the proceeds. At the first opportunity, the Court granted the application under s215 for the life insurer to pay the proceeds into Court, pending the outcome of the beneficiary’s appeal and any application by the children.

In Swiss Re Life & Health Australia Ltd v Public Trustee of Queensland [2017] FCA 963, the beneficiaries of the policy were the policyholder’s son and daughter. The son was accused of killing both his sister and mother. The Public Trustee was the executor of the estates of the son and daughter. Proceeds for the policyholder’s daughter had been paid to her estate, but in issue for the insurer was payment of the proceeds for the policyholder’s son. As in Crickitt, if the beneficiary was convicted of killing the policyholder, he would not be entitled to the proceeds of the life policy.

In both cases, the insurer accepted liability under the policy but was unable to identify with certainty the appropriate beneficiary until each criminal proceeding, including any appeals, was finally concluded. Waiting until the conclusion of separate proceedings can cause a burden and increase in expenses for insurers, which may erode the ultimate benefit amount. An additional concern for insurers is the interest which may accrue on the benefit amount until the benefit can be paid.

We also highlight the following from both cases:

  • The Court is willing to grant the discharge of an insurer’s liability early in proceedings where appropriate;
  • The Court will generally seek to avoid eroding the benefit that might be caused by the insurer otherwise seeking to obtain sufficient discharge; and
  • The reasonable costs of an application under s215 can be recovered by the insurer from the benefit proceeds.

It is important to be aware that s215 can only be used by a life insurer where, in the insurer’s opinion, it is not able to obtain a sufficient discharge of its liability. For instance, s215 is not likely to assist an insurer in disputes over benefit proceeds under a group policy of life insurance as an insurer will be able to obtain sufficient discharge by paying the proceeds to the Trustee.

These cases exemplify that s215 is a useful means by which insurers can discharge their liability in situations where it is uncertain who should receive the proceeds of the policy, particularly where there are a number of potential beneficiaries with competing claims.

This article was written by Nicholas Matkovich, Partner, Chris Frankish, Senior Associate and Vignesh Iyer, Solicitor.

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