In a landmark decision, the Karnataka High Court has established that insurance policy nominations do not confer absolute ownership of benefits, particularly when legal heirs of the policyholder assert their claims. This ruling underscores the precedence of personal succession laws over the nomination clause in insurance policies as outlined in Section 39 of the Insurance Act, 1938.
The judgment emerged from the case Neelavva @ Neelamma vs Chandravva @ Chandrakala @ Hema and Others, involving a dispute over who should receive the payout from the insurance policies of a deceased man who, prior to his marriage and fatherhood, had designated his mother as the nominee. Despite his marital status change, the nomination was never updated, leading to a contentious battle between his widow and mother after his demise in 2019.
A trial court had previously ruled that the insurance payout should be evenly distributed among the deceased’s mother, wife, and child. However, the mother’s appeal to the Karnataka High Court resulted in a reiteration that insurance nominations do not nullify or override succession laws, thereby affirming the trial court’s decision.
Justice Anant Ramanath Hegde, presiding over the case, cited the Supreme Court’s precedent in Shakti Yezdani vs Jayanand Jayant Salgaonkaa, which addressed similar issues with company share inheritances, reinforcing that nominations are not determinative in matters of inheritance.
The court criticized the lack of clarity in the legislative framework governing insurance nominations, pointing out that the Parliament’s failure to differentiate between “beneficial nominees” (who inherit the proceeds) and “collector nominees” (who only distribute the proceeds to the legal heirs) has led to widespread confusion and potential misuse of the law.
Justice Hegde emphasized the need for clear and straightforward legislative language to prevent ordinary citizens from grappling with legal complexities. He lamented the opaque ‘Objects and Reasons’ accompanying the 2015 amendment to Section 39 of the Insurance Act and suggested that legal illustrations, as used in older statutes like the Indian Contract Act and the Transfer of Property Act, be revived to aid in the clearer understanding of legal provisions.
