Consumer protection: Legal heir, not nominee, is beneficiary of policy

The high court held that the Insurance Act, a general law, must yield to the Succession Act, a special law that governs the rights of legal heirs

Kusum purchased 15 life insurance policies in the name of her unmarried daughter, Ranjeeta, and appointed herself as the nominee. Later, Ranjeeta married Anand Kumar and gave birth to a baby girl. Ranjeeta passed away when the child was just 11 months old.

 

Following her daughter’s death, Kusum claimed the insurance proceeds. However, before the claims could be settled, her son-in-law, Kumar, filed a civil suit under the Indian Succession Act, asserting that he and his minor daughter were entitled to the insurance benefits. Kusum was not even made a party to the suit. The matter was referred to the Lok Adalat, where it was decided that the policy claims would be paid to Anand Kumar.

 

Upon learning of this decision, Kusum filed a writ petition challenging the order. The petition was dismissed on the ground that she had not first pursued the remedy of filing a civil revision before the Unnao court. Subsequently, Kusum filed a revision before the Unnao civil court, which directed her to deposit the claim amounts in fixed deposits in the name of her granddaughter until she attained majority at the age of 18 years.

 

Unwilling to accept this, Kusum approached the Allahabad High Court, contending that she alone was entitled to the insurance proceeds by virtue of being the sole nominee. The court observed that there was no dispute over the fact that Ranjeeta had died intestate and that her daughter was one of the heirs entitled to her estate under the Indian Succession Act. The core issue was whether a nominee had a beneficial interest in the insurance claims or whether the legal heir, in this case, the granddaughter, was entitled to the proceeds.

 

The court observed that, prior to the 2015 amendment to Section 39 of the Insurance Act, a nominee was considered merely a custodian of the insurance amount, responsible for distributing it to the legal heirs. This principle was laid down by the Supreme Court in Sarbati Devi vs Usha Devi. The 2015 amendment to Section 39 changed this position, granting the nominee a beneficial interest in the insurance claim.

 

Emphasising that the rights of parties must be determined according to the legal provisions prevailing on the date the cause of action arises, the court acknowledged a conflict between the Insurance Act and the Succession Act. It distinguished between a “beneficiary nominee” and a “collector nominee”, clarifying that only specific categories —namely, parents, spouse, children, or spouse and children — qualify as beneficial nominees. Siblings do not fall within this category.

 

The court further held that an insurer is not competent to adjudicate disputes between legal heirs, nor is it responsible for ensuring that the rightful heirs under personal succession law ultimately receive the proceeds. The purpose of naming a nominee is to enable the insurer to discharge its obligations by making payment to the nominee.

 

In its judgment dated April 30, 2025, delivered by Justice Pankaj Bhatia, .the high court concluded that the Insurance Act is a general law that governs insurance contracts, whereas the Succession Act is a special law that governs inheritance rights. 

 

Accordingly, it dismissed Kusum’s petition, holding that the general law regarding a nominee’s claim must yield to the  special provisions governing the rights of  legal heirs under the personal law of succession.

 

The writer is a consumer activist