Provisions related to nomination, Repudiation, Fraud, Protection of policyholder interest

Provisions related to nomination

Nomination is the process by which the policyholder appoints a person or persons to receive policy benefits in case of a death claim. So in case of an eventuality, the life insurance company pays the policy proceeds to the appointed person.

Beneficial Nominees

As per the new law, if any immediate family member (like spouse, children or parents) is made the nominee, then they will automatically become the beneficial owners of the claim benefits and be referred to as ‘Beneficial Nominee’.

This means that the death benefit will be paid to Beneficial Nominees and not to any other legal heirs, irrespective of anything.

It is worth noting that only the immediate family members can be appointed as the Beneficial Nominees. Therefore, it’s always advisable to nominate an immediate family member as the nominee to ensure that there are no disputes in future between the nominees and legal heirs.

Minor Nominees

It’s a normal practice for people to appoint their children as beneficiaries of their life insurance policies. And rightly so; after all, its their future one wants to secure even if one is not around.

But children who are below the age of 18 years of age are not considered eligible to handle claim amounts. Hence, the policyholder needs to assign an appointee (or custodian).

In case of claim arising when the nominee (child in this case) is younger than 18 years, the claim amount is paid to the appointee for custody till the minor turns major.

Non-Family Nominees

This oddity is exactly what leads insurers to not accept strangers (or non-family members) as nominees.

So even though one can nominate distant relatives or even friends, fact is that it will be very difficult to prove ‘insurable interest’. This along with the fact that there is a moral hazard in appointing such a nominee, the insurance company might refuse the nomination or might ask for further explanations.

Changing Nominees

One should make sure that nomination of something as important as life insurance is up-to-date and in sync with whom policyholder actually wants to appoint as the beneficiary.

A policyholder can change the nominee as many times as he/she wishes but the latest nominee supersedes all previous ones.

The holder of a policy of life insurance may, when effecting the policy or at any time before the policy matures for payment, nominate the person or persons to whom the money secured by the policy shall be paid in the event of his death: Provided that, where any nominee is a minor, it shall be lawful for the policy-holder to appoint in the prescribed manner any person to receive the money secured by the policy in the event of his death during the minority of the nominee.

(2) Any such nomination in order to be effectual shall, unless it is incorporated in the text of the policy itself, be made by an endorsement on the policy communicated to the insurer and registered by him in the records relating to the policy and any such nomination may at any time before the policy matures for payment be cancelled or changed by an endorsement or a further endorsement or a will, as the case may be, but unless notice in writing of any such cancellation or change has been delivered to the insurer, the insurer shall not be liable for any payment under the policy made bona fide by him to a nominee mentioned in the text of the policy or registered in records of the insurer.

The insurer shall furnish to the policy-holder a written acknowledgement of having registered a nomination or a cancellation or change thereof, and may charge a fee not exceeding one rupee for registering such cancellation or change.

Repudiation

In  case  repudiation  is  on  ground  of  mis-statement  and  not  on  fraud,  the  Premium collected on Policy till the date of repudiation shall be paid to the insured or legal representative or Nominee or Assignees of insured, within a period of 90 days from the date of repudiation.

In this case, the death of the insured is within 2 years and the repudiation  of the claim is also within 2 years. In this class of cases, courts, while accepting the doctrine of uberrima fides have insisted upon the fairness of the insurer also and required proof that someone, on behalf of the insurer, had drawn the attention of the insured to tricky and ambiguous questions in the form of proposal and that the insured had clearly understood the question before giving his answer”.

A clever claimant may wait forthe2yearsto elapse before informing the insurer; and The insurer may not know to whom the repudiation is to be made, because, the insured is dead the insurer must wait and see to whom the letters of administration to the estate of the deceased are granted.

Fraud

The Indian Insurance Act does not contain definition for ‘insurance fraud’. Neither have any specific laws connected to insurance fraud been spelled out in the Indian Penal Code,1860(IPC). The Indian Contract Act,1872 (ICA) also doesn’t have any specific laws pertaining to insurance fraud. Even though sections related to forgery or fraudulent acts can be applied in the IPC, it does not succeed to deter the commission of the fraud. Insurance fraud occurs when people deceive an insurance company in order to collect money to which they are not entitled.

Types of Insurance Fraud

The Insurance Regulatory and Development Authority of India which is the apex body and overseeing the business of Insurance in India sets out these 3 broad categories of fraud:

• Policyholder Fraud and/or Claims Fraud: Fraud against the company in the purchase and/or execution of an insurance product, including fraud at the time of making a claim.
• Intermediary Fraud: Fraud perpetuated by an insurance agent/Corporate Agent/intermediary/Third Party Administrators (TPAs) against the company and/or policyholders.
• Internal Fraud: Fraud/ misappropriation against the company by its Director, Manager and/or any other officer or staff member (by whatever name called).

The provisions which can be applicable in such cases are:

Section 205. False personation for purpose of act or proceeding in suit or prosecution. Whoever falsely personates another, and in such assumed character makes any admission or statement, or confesses judgment, or causes any process to be issued or becomes bail or security, or does any other act in any suit or criminal prosecu­tion, shall be punished with imprisonment of either description for a term which may extend to three years, or with fine, or with both.

Section 420. Cheating and dishonestly inducing delivery of property. Whoever cheats and thereby dishonestly induces the person de­ceived to deliver any property to any person, or to make, alter or destroy the whole or any part of a valuable security, or anything which is signed or sealed, and which is capable of being converted into a valuable security, shall be punished with imprisonment of either description for a term which may extend to seven years, and shall also be liable to fine.

Section 464 Making a false document. 341 [A person is said to make a false document or false electronic record First Who dishonestly or fraudulently:

(a) makes, signs, seals or executes a document or part of a document;

(b) makes or transmits any electronic record or part of any electronic record;

(c) affixes any 342 [electronic signature] on any electronic record;

Section 405. Criminal breach of trust. Whoever, being in any manner entrusted with property, or with any dominion over property, dishonestly misappropriates or converts to his own use that property, or dishonestly uses or disposes of that property in violation of any direction of law prescribing the mode in which such trust is to be discharged, or of any legal contract, express or implied, which he has made touching the discharge of such trust, or wilfully suffers any other person so to do, commits “criminal breach of trust’’.

Protection of policyholder interest

Misrepresentation within the meaning of Section 18of the ICA

The contract of insurance is also void in as per Section 10 read with Section 14(4) and Section 18 of the ICA generally in cases of fraud.

As per Section 20of the Indian Contract Act, 1872, the agreement is void where both parties are under mistake as to matter of fact. Some factors are essential for insurance cover.

Steps such as having a comprehensive fraud and abuse management policy which covers types of fraud and abuse alongside with policies, procedures, and controls, company action being documented and implementing a review mechanism should be taken by insurance companies also so that they are also in a position to take legal action.

Sharing of knowledge and data should be more prevalent with the victims of fraudulent insurance claims, this data should include fraud patterns and case studies, fraud customer list and intermediaries, fraudulent providers and investigators etc.

Most importantly awareness should be brought about the due legal process to be followed before reporting a case. Reporting to external bodies such as Medical Council of India, IRDA, and corporate Human Resources can also be tried.