Enforceability of Life Insurance Policy

What effect is produced upon the policy of life insurance by the suicide of the insured, or by his legal execution, in those cases where the policy has been taken out in good faith, and where suicide and execution are not expressly named in the policy as exceptions to the insurer’s liability.

A life insurance policy is a legal contract between insured and the insurance company. Life insurance is a contract in which the insurer agree, for a consideration of periodical payments known as premium, to pay an assured sum on happening of some event. Or in other words it is a contract where the insured agrees to pay a certain amount by payment of premium in lien of which the insurer agrees to pay the assured money on the happening of a particular event, namely, the death of the assured or on expiry of a specified period.

In the event of insured’s death; the company agrees to pay insured’s heirs a predetermined sum. However, a contract to be valid must satisfy the element of legality of consideration and object. Courts of Law don’t enforce contract, the objects of which are against public policy. One of the cardinal rules of legal theory based on public policy is that one shall not be allowed to take advantage of his own wrong. And this rule is expressed in the maxim ex turpi causa non oritur actio, i.e. no cause of action arising out of a wrong.

Based on the general rule of life insurance the legal representatives of the assured can recover on a life policy of the assured on his death, whether death is due to natural or accidental causes including death caused by a criminal act of a third party. The contract details certain limitations and exceptions that effectively void the policy. In those instances, the company is required only to refund all premiums paid for coverage.

Two exceptions have been laid down, namely;

a)      Where the death of the assured is due to the violation of a rule of criminal law by assured himself; and

b)      Where death is the result of a suicide.

If the assured violates the law or commits an offence which is punishable with capital punishment and if he is sentenced to death, he is said to have brought death on himself and the rule of public policy that no one can make profit out of his wrongful or culpable conduct comes into play and debars the assured or his representatives to recover under the policy. Suicide is the most well-known limitation, but carries significant misconceptions.

The term “Life Insurance” has not been defined anywhere in the statute. While considering the essentials of Life Insurance the definition can be derived. The three major essentials of a Life Insurance contract are;

1.      It should be in relation to human life.

2.      It provides the payment of assured amount in a lump sum.

3.      The amount is payable either happening of the ascertained event, i.e. the death, or the expiry of the specified period.

Keeping these essentials in mind, definition of Life Insurance can be derived as, “it is a contract in which the insurer agree, for a consideration of periodical payments known as premium, to pay an assured sum on happening of some event.” A Life Insurance contract is a contract where the insured agrees to pay certain amount by payment of premium in lien of which the insurer agrees to pay the assured money on the happening of particular event, namely, the death of the assured or on expiry of specified period.

Based on the general rule of life insurance the legal representatives of the assured can recover on a life policy of the assured on his death, whether death is due to natural or accidental causes including death caused by a criminal act of a third party. The contract details certain limitations and exceptions that effectively void the policy. In those instances, the company is required only to refund all premiums paid for coverage.

Two exceptions have been laid down, namely;

a)      Where the death of the assured is due to the violation of a rule of criminal law by assured himself; and

b)      Where death is the result of a suicide.

If the insured violates the law or commits any offence which is punishable with a capital punishment and if he is sentenced to death, he is said to have brought death on himself and the rule of public policy that no one can make a profit out of his own wrongful or culpable conduct comes into play and thereby debars the assured from or his representatives to recover under the policy.

In Amicable Insurance Society v. Bolland, where a person is sentenced to death committing the murder of another person and loses his life in execution of the sentence, it was held that all persons on whom the right to recover develops by the operation of law and who claim through such a convict are debarred from claiming under the policy.

It may be noted that what shall not be done directly shall not be done indirectly. It shall be seen presenting that when assured commits suicide the claims under the policy are denied. In the above case it was pointed out that it would be contrary to the public policy to insure a man to benefit upon his death, by the hands of justice. Death resulting from illegal operations or death in fight or duel falls within this principle and the insurance company is absolved from liability in such cases.

The risk insured against in a life insurance policy is death and death may be caused by accident, disease, and negligence or willful act of himself or of a third person. When the event insured against, namely death occurs, the insurer is liable to pay normally under the law of contract. As death is natural to human being so also a human being is susceptible to disease and even without disease as age advances the body is bound to lose strength and this may be likened to ‘inherent vice’ and ‘wear and tear’ of the subject matter in other branches of insurance.

As in other branches of insurance when the event insured against happens due to the willful and wrongful act of the assured or his agent, the implied term theory comes in and it absolves the insurer from liability. Thus an ordinary life insurance covers the risk of the assured being murdered by third parties, and on similar grounds the commission of suicide by the insured while insane should not imply an exception to the risk.

The reason is obvious. When the person is insane, in the sense that, he doesn’t know the nature of his act, or when he is acting under an irresistible impulse, it is an act, though done by him when he is not within himself and such an act is not culpable and cannot come within the exceptions based on the rule that no one can benefit himself out of his own wrong.

In England, it was formally thought when death was caused by the assured himself while he was sane; it amounted to felo de se, a criminal act and so absolved the insurer from liability on the ground that no one can be benefited out of his own wrong.

In Beresford v. Royal Insurance Co. Ltd, insured insure his life in 1925 and the sum assured was payable on his death to the executors of his estate. It was provided in the policy that if the assured shall die by his own hand, whether sane or insane, within one year from the commencement of the assurance, the policy shall be void as against any person claiming the amount thereby assured or any part thereof except that it shall remain in force to the extent to which a bonafide interest for pecuniary consideration, or as a security for money, possessed or acquired by a third party before the date of such death shall be established to the satisfaction of the directors.

Afterwards in a sound state of mind, he committed suicide in 1934 as he was hopelessly indebted. The trial court held that where the death from felo de se was not excluded from the risk except during the first year. The House of Lords upholding the decision of the Court of Appeal held that, it was contrary to the public policy that a person who had committed a crime or his personal representative should be benefit by that crime.

However the judicial decisions in India preferred not to follow the rule in Beresford’s case. The committing of suicide is not a crime in India and the rule that laid down in Beresford’s case has no application in India and the insurers are therefore liable. Further English Common Law principle was inapplicable in India as the criminal law in India was the creation of a statute no punishment for suicide is provided.

In India the committing of suicide is not a crime. Attempted suicide is punishable under Section 309, I.P.C., while abetment of suicide is punishable under Section 306. The committing of suicide itself is not and cannot be regarded as a crime in India. In this respect the English Common law is inapplicable to India as the criminal law of India is the creation of Statute.

A clause generally inserted in the policy that if any third party has acquired any bonafide interest for valuable consideration he will be entitled to recover the amount not exceeding the sum assured. The bonafide assignee as, as noted in the general principle of insurance, is only subjected to the equities the assignor was liable by the date of assignment. But it may be noted that this benefit is not and cannot be extended to persons who obtained an interest in the policy by operation of law or bankruptcy and likewise to voluntary assignment.

The question is that, what effect is produced upon the policy of life insurance by the suicide of the insured, or by his legal execution, in those cases where the policy has been taken out in good faith, and where suicide and execution are not expressly named in the policy as exceptions to the insurer’s liability?

Situation is different both in India and England. In England suicide and execution for murder, in this connection, may conveniently be put upon the same plane and the beneficiary is not entitled to recover the policy in cases where the insured commits suicide or if he is executed for a crime.

Life insurance is an important institution in our country, in some respect, related to huge charitable fund established, mainly for the unfortunate wives and children. But life insurance is not a pure charity. To the life insurance fund, very often, wives and children have made large contribution in money; toil and sacrifice. Their title to the fund became vested prior to the commission of the crime. What difference should it make, whether the insured was killed by his own act, or by the act of some stranger or by accident?

It must not be forgotten, in this connection, that policies of life insurance are often utilized in the market as a means of procuring loans of money. If the rights of an assignee for value are likely to be cut off by events over which he has no control, the commercial value of the instrument will be seriously impaired.