Report No. 190

Proposals in the Consultation Paper

6.1.3 In the Consultation Paper it was pointed out that there are certain anomalies in the working of sub-section (5) and sub-section (7) of section 38. A question was posed whether a conditional assignee is entitled to obtain a loan under, or surrender, the policy without the concurrence of the insured. It was pointed out that if the said question was answered in the affirmative, the conditional assignment would stand converted into an absolute assignment and defeat the object of the former.

To illustrate, a policyholder (A) obtains a loan from a financier (B) upon assignment of the policy in favour of B. The assignment is on condition that upon repayment of the loan, B will reassign the policy to A. Even before A can repay the loan to B, B borrows a loan from C by assigning the policy in favour of C. This later assignment by B in favour of C renders the assignment by A in favour of B unconditional and defeats the condition attached to that assignment.

6.1.4 While any transfer is subject to the terms and conditions specified in the instrument of transfer, the specific provisions in sub-section (5) of section 38 may mean either or both of the following: First, under sub-section (7), the assignor may become entitled to the policy money if the assignment becomes inoperative (like when it does when the assignor repays the loan to the assignee); second, the insurer may not recognize the assignee as the only person entitled to benefit under the policy if the terms of assignment expressly or by implication do not confer on him any particular right or benefit and treat the insured for such entitlement.

For instance, if the insured reserves the right to receive the policy money on maturity, the assignee cannot exercise the right to surrender. Thirdly, sub-section (7) recognises as valid an assignment in favour of a person on condition that "the interest shall pass to some other person on the happening of a specified event during the life time of the person whose life is insured". To illustrate, A assigns his life insurance policy in favour of B in consideration of B lending A a certain sum of money.

One condition stipulated in the assignment is that in the event of the death of A, the amount payable under the policy would pass on to the wife and children of A. Such an assignment is recognised by sub-section (7) as valid. Likewise an assignment by A in favour of his own survivors or any number of persons is also valid. The question that arises is what is the situation vis-à-vis B in such an event. Suppose B pre-deceases A, can the survivors of B claim that they now become the assignees? The section is not clear on this.

6.1.5 The Consultation Paper pointed out that there was another difficulty if an assignment is duly executed but no notice has been delivered to the insurer under sub-section (2). The assignment is not invalid but the assignee will not have the right to sue the insurer. It was accordingly suggested that, the provisions of subsections (5) and (7) need reconsideration and revision so as to remove anomalies. However, a suggestion has been made that sub-section (7) should be dropped.

This may, however, attract the application of section 130 of the Transfer of Property Act unless a proviso is made to exclude its application. Presently, sub-section (2) of section 130 which stipulates that the transferee of an actionable claim may sue in his own name without obtaining the consent of the transferor has an exception to the effect that the said provision will not affect the provision of section 38 of the Insurance Act, 1938. The illustration under section 130 reads thus:

"A effects a policy on his own life with an Insurance Company and assigns it to a Bank for securing the payment of an existing or future debt. IF A dies, the Bank is entitled to receive the amount of the policy and to sue on it without the concurrence of A's executor, subject to the proviso in sub-section (1) of section 130 and to provisions of section 132."

Section 132 of the Transfer of Property Act, 1882 stipulates that "the transferee of an actionable claim shall take it subject to all the liabilities and equities and to which the transferor was subject in respect thereof at the date of the transfer." In other words, notwithstanding sections 130 and 132 of the Transfer of Property Act, 1882, the assignment of the insurance policy will not be effective against the insurance company till it has notice of the assignment in terms of section 38 of the Act. If section 38 (7) of the Act is to be deleted as suggested, then the applicability section 130 of the Transfer of Property Act will also have to be excluded.

6.1.6 The Act does not provide for partial assignment of policies required especially in case of assignments for collateral security for loans, where the sum assured is more than the amount of loan. It was, therefore, suggested that a new sub-section may be inserted to provide for partial assignment of policies with the rider that the original assignor is not allowed to further assign his residual rights to the third party with a view to prevent any clash of interest of several assignees at the time of making the claim.

6.1.7 The Consultation Paper noted that provisions of this section are applicable only to life insurance policies. It was accordingly suggested that the application of this provision be extended to all personal lines of non-life insurance business as well.

6.1.8 Finally a suggestion was made in regard to the fee to be charged for acknowledgment of the notice of the transfer of assignment. Since the fee of one rupee as presently indicated in section 38 (4) was wholly inadequate, it was suggested that the words 'one rupee' may be replaced by the words 'not exceeding an amount prescribed by the Authority in the Regulations'.

Back

Index

Next