Chapter 6. The Status of the Beneficiary in Life Insurance

• Pages: 107-128

CHAPTER 6

THE STATUS OF THE BENEFICIARY

IN LIFE INSURANCE

6.1 INTRODUCTION

Twenty-fi rst-century legislation introduced distinct categories of benefi ciaries: revocable and irre-

vocable. This reform replaced an inadequate framework highlighted in the recent Caribbean

Court of Justice decision Katrina Smith v Selby 1 which highlighted Caribbean societal family dynam-

ics; inadequacies of the Succession Act, Married Women’s Property Acts; and the common law:

2

The Act was social legislation to address one of the realities of Caribbean society that had not

been refl ected in the common law or statute law inherited or adopted from England. Persons

living together as man and wife but who were not married to each other and their children had

not been recognized in the colonial legal and juridical regime, with unfair results.

3

Status of the benefi ciary in life insurance logically falls into three distinct periods. The fi rst

refl ects British colonial control, with the benefi ciary’s status governed by eighteenth- and

nineteenth-century UK legislation. In this dispensation the benefi ciary was forced to cir-

cumvent the vagaries of trust, succession and contract law. This prevailed until the twentieth

century, identifi ed here as the second phase (nationalistic or formative) which recognised

signifi cant elements of Caribbean family structure (the actual relationships) that normally

provide the objectives governing the need for life insurance. The third phrase results partly

from crises: marketplace disruption, insolvency of insurance giants bearing household names

and major failures of corporate governance. These events became the catalysts both for

Jamaica at the end of the twentieth century and the Organisation of Eastern Caribbean

States (OECS) and Trinidad and Tobago in the fi rst decade of the twenty-fi rst century.

6.2 SUMMARY

Historically, life insurance policies contain room – a blank slot – requiring the insured ‘fi ll in’

the space by inserting the name(s) of the benefi ciary: spouse, child, family member or personal

representative. During this era, however, the law remained unclear and uncertain with respect

to the nature and e ect of that insertion or declaration. Indeed, it has been convincingly argued

that for the Commonwealth Caribbean,

this is probably the most controversial topic in the mainstream of life insurance law and at the

same time one which produces, in terms of advice-work, the most activity for lawyers and the

most anguish for policyholders, their friends and family.

4

The rights of benefi ciaries to claim under a life insurance policy are determined by the com-

mon law and statute. The benefi ciary’s interest in the common law ultimately depends on the

1 Katrina Smith v Albert Anthony Peter Selby , CCJ BB Civil Appeal No. 14 of 2010; Re Osborne Hall v Bleasdille (1991)

2 OECS Law Rep at 215.

2 An unmarried woman with whom the deceased was cohabiting up until his death.

3 Supra n. 1.

4 C. H. Denbow, Life Insurance Law in the Commonwealth Caribbean (Butterworths: 1984).

108 Status of the benefi ciary in life insurance

existence of a trust. Thus, the insured must have clearly alienated the policy proceeds in favour

of the benefi ciary.

5 With respect to statute, residually the Life Assurance Act of 1774

6 requires

the insertion of the ‘name for whose use and benefi t the policy is e ected,’ while more impor-

tantly the Married Women’s Property Act of 1882

7 creates a statutory trust in favour of the

benefi ciary in defi ned circumstances. This nineteenth-century legislation represented the law

in most Caribbean jurisdictions. The result is that two distinct groups emerge. At one end of

the spectrum are jurisdictions where radical reform has been conducted, driven by the Carib-

bean Law Institute’s (CLI) recommendations – broad sweeping reform introducing the clearly

defi ned categories of benefi ciaries of revocable and irrevocable designations. The result is that

irrevocable benefi ciaries are empowered to the extent that the common law doctrine of privity

of contract virtually ceases to exist.

8 At the other end of the spectrum are those jurisdictions

which have not adopted the CLI’s reforms, like Belize, so the law can only be understood by ref-

erence to the common law, the Life Insurance Act of 1774 and the Married Women’s Property

Act of 1883. Between these two extremes is the jurisdiction of Trinidad and Tobago, where

hybrid reform has been introduced relaxing the narrow requirements of the Married Women’s

Property legislation, but not to the extent of the CLI recommendations.

6.3 RELEVANCE OF THE LIFE ASSURANCE ACT OF 1774

Section 2 of the Life Assurance Act of 1774

9 stipulates that persons for whose ‘use, benefi t,

or on whose account’ a policy is e ected must be inserted. A failure to observe this require-

ment renders the contract ‘unlawful.’

10 While the rationale for this provision is to counteract

an avoidance of Section 1, discussed in Chapter 4 , the relationship between Sections 1 and 2 is

uncertain. The common law reveals that the term for ‘whose use, benefi t or on whose account’

is given somewhat of a restrictive defi nition and it does not necessarily include all persons

who are ultimately intended to benefi t under insurance.

11 The fact that some person paid the

premium is not conclusive to show that the policy was e ected on behalf of that person even

if that person in fact obtained the benefi t of the policy. In Wainwright v Bland , 12 although Miss

Abercromby ‘paid’ the premiums on a policy e ected on her own life, the policy was held to

be illegal since, on the evidence, she could not a ord the premiums on her own without the

assistance of her brother-in-law, who the court suspected had brought about her demise. In

Shilling v Accidental Death Insurance Co ., 13 a father e ected a policy on his own life. Parol evidence

was admissible to support the contention that the assured’s son, who paid the premiums, fi lled

out the proposal form and who was a benefi ciary under the assured’s will, was indeed entitled

to receive the benefi t. Since the son lacked insurable interest in the life of the father, the policy

5 Collett v Morrison (1851) 9 Hare 162.

6 14 Geo. III, c. 48.

7 45 & 46 Vict. c. 75; the Bahamas Married Women’s Property Act Chapter 115; Barbados Married Persons

Act, Cap 219; Guyana Married Person’s (Property) Act Chapter 45:04; Jamaica Married Women’s Property

Act, Cap 239; Law Reform Married Women’s and Tortfeasor’s Act 1935; Section 19, Married Women’s Prop-

erty Act of St Kitts and Nevis, Cap 12.11.

8 Section 120, Barbados Insurance Act of 1996, Cap 310 abrogates the contract law principle and expressly

states that the ‘benefi ciary may enforce for his own benefi t even though there is no privity of contract.’ See also

Section 139, Guyana Insurance Act No. 20 of 1998; Section 105, Jamaica Insurance Act No. 10 of 2001.

9 Supra n. 6.

10 J. Birds, Moder n Insurance Law , 6th edn (Sweet & Maxwell: 2014), p. 81; Wainwright v Bland (1835) 1 Moo & R

481; Shilling v Accidental Death Insurance Co . (1857) 2 H & N 42.

11 Mc Farlane v Royal London Friendly Society (1886) 2 TLR 755.

12 (1835) 1 Moo & R 481.

13 (1858) 1 F & F 116.