Karnataka High Court clarifies who should get insurance benefits after death, calls for simpler laws

The Karnataka High Court recently called for making laws simpler, while deciding on whether an insurance policy holder's legal heirs can be excluded from claiming insurance benefits if others have been named nominees for the insurance policy [Neelavva @ Neelamma v. Chandravva @ Chandrakala @ Hema and ors]..The Court held that Section 39 (nomination by insurance policy holder) of the Insurance Act, 1938, does not override personal succession laws such as the Hindu Succession Act, 1956.Justice Anant Ramanath Hegde also criticised Parliament’s failure to clearly set out the “Objects and Reasons” for a 2015 amendment to Section 39, which had led to confusion on how to interpret this provision.“The Objects and Reasons for enacting or amending a law must contain a clear unambiguous statements as to why the law is introduced, what is the mischief sought to be remedied by way of amendment,” the Court said.The judge added that law-making bodies should try to make laws as simple as possible instead of drafting laws in a language so complicated that only lawyers may understand them.“There should be a conscious endeavor to frame/structure the law in simplest and easy to follow short sentences. The wholly undesirable practice of framing law, with long and complicated sentences is to be discarded at any cost. After all, the law is meant for a common man to understand and follow. The law should never be a riddle or puzzle to be solved by a trained legal mind.".There should be a conscious endeavor to frame law in simplest and easy to follow short sentences. Law should never be a riddle or puzzle.Karnataka High Court.The Court held that an insurance nominee cannot claim the full benefit of an insurance policy by excluding the policyholder’s legal heirs, unless the legal heirs do not seek such insurance benefits.It summed up the legal position as follows:“Nominee/s or their legal representatives recognised in Sections 39(7) and 39 (8) will get beneficial title over the benefits flowing from the insurance policy, if the testamentary and non-testamentary heirs do not claim the benefits flowing from the insurance policy…In the absence of any claim by legal heirs, the title vests in beneficiary nominee. However, if there is a claim by the legal heir/s, then the nominee's claim has to yield to the personal law governing succession..The Court made the observation in a case where a man had named only his mother as the nominee for two insurance policies. He was a bachelor when the policies were issued. He later married and also had a child before his death in 2019. Notably, he did not make any changes to the insurance policies, under which his mother remained the sole nominee.A legal battle ensued between the man’s mother and his wife over whom the entire insurance benefit should go to.A trial court held that the man’s mother, wife and child were each entitled to a third of the insurance benefits. This verdict was challenged by the man’s mother before the High Court.The High Court was called upon to examine whether the declaration of the man’s mother as the sole nominee for the insurance policies would exclude other legal heirs from succeeding to the insurance benefits..It placed substantial reliance on the Supreme Court’s ruling in Shakti Yezdani and another v. Jayanand Jayant Salgaonkaa, which dealt with a similar issue concerning the inheritance of company shares. In that context, the top court had held that a nomination cannot override the law relating to succession.The High Court opined that a similar view should be taken in insurance law as well. Justice Hegde added that the Insurance Act was never intended to encroach on the domain of succession.“It is difficult to hold that the Parliament has enacted a parallel law relating to succession in so far as benefits flowing from the policy of insurance,” the Court said..The judge also noted that if succession laws are not allowed to prevail in such matters, it may lead to mischief.“Though, it is possible to change the nomination, given the low awareness of law among the public, the mischief would be, law relating to succession becomes inoperative to certain extent in certain situation if it is held that provision overrides law relating to succession. Such mischief is to be avoided,” he said..It was also noted that the Law Commission of India had earlier recognised such risks in the nomination of insurance beneficiaries and suggested that a distinction be recognised in law between beneficial nominees (those who would be entitled to insurance benefits) and collector nominees (those who would only collect the benefit so that it may be distributed among legal heirs of the policy holder).The Law Commission had suggested that if the policy holder does not specify whether a nominee is a beneficial nominee or a collector nominee, it could be presumed that the nominee is a beneficial nominee.However, Parliament did not incorporate these recommendations in the law. Therefore, the Court opined that it cannot presume that Parliament meant to treat all nominees as beneficial nominees.“This Court has to conclude that amended Section 39 is not intended to override the provisions of law relating to succession."It proceeded to uphold the trial court’s decision to grant a third of the insurance benefits each to the mother, the wife and the child of the deceased policyholder..Legislature should be prompt to clarify conflicts in law.Before parting with the matter, the Court noted that it had taken a view that differed from the views taken by the High Courts of Andhra Pradesh and Rajasthan.Justice Hegde added that in future, when such conflicts arise, the legislature should ideally step in to resolve such differences by introducing an appropriate legal amendment. The government need not wait for the Supreme Court to resolve such conflicts, Justice Hegde said..The Court further said that if a law is amended, it must clearly state whether the amendment is prospective or retrospective and should not leave such matters to speculation or subjective interpretations.Moreover, the judge also urged Parliament to consider incorporating more legal illustrations in laws, to make it easier to understand them. “Acts like the Indian Contract Act, Transfer of Property Act, Indian Evidence Act etc have plenty of illustrations which explain the law with clarity and precision. Wherever needed, the law should be explained with illustrations which provide clarity to the provision of law. The practice appears to have been completely forgotten, and it is high time that such good practice is revived to bring in much needed clarity in law,” the Court said. .Wherever needed, the law should be explained with illustrations. The practice appears to have been completely forgotten.Karnataka High Court.Advocates JS Shetty and NM Patil represented the appellant. Advocate Chandrashekar M Hosmani represented the policyholder's wife and child. Advocate Mrutyunjaya Tata Bangi appeared for Life Insurance Corporation of India..[Read Judgment]