Posted on

Court case: Predecease of beneficiary nominated for policy

Read the below court case in the matter of Mkhabela v PPS Insurance Company Ltd & others, relating to predecease of a beneficiary nominated for a policy.

Mkhabela v PPS Insurance Company Ltd & others
[2012] JOL 28080 (GSJ)

Reported in: Judgments Online, a LexisNexis Electronic Law Report Series
Case No: 18340 / 08
Judgment Date(s): 13 / 10 / 2010
Hearing Date(s): None Indicated
Marked as: Not Reportable
Country: South Africa
Jurisdiction: High Court
Division: South Gauteng, Johannesburg
Judge: Tsoka J
Bench: M Tsoka, M Victor, Mayat JJ
Parties: Simon Micheal Mkhabela (and hereinafter referred to as the Executor of Estate of the late Mmapule Helen Mkhabela) (A); PPS Insurance Company Limited (1R), Sanlam Trust Limited (2R), Supreme Letlakana Sebata (3R)
Appearance: None Indicated
Categories: Appeal – Civil – Substantive – Private
Function: Confirms Legal Principle
Relevant Legislation: Uniform Rules of Court

Key Words

Trusts and Estates – Administration of estates – Deceased estate – Entitlement to proceeds of insurance policy where beneficiary predeceased owner of policy

Mini Summary

The third respondent was the executor of a deceased estate. The deceased was the owner of an insurance policy, and had nominated her mother as the policy beneficiary in the event of her death. The mother of the deceased died about three months before the deceased did. The appellant was the executor of the estate of the deceased’s mother, and claimed payment of the proceeds of the policy. He argued that as the deceased’s mother had accepted her nomination as beneficiary, her deceased estate had a claim to the policy proceeds.

The court a quo held that the nomination documents did not provide for administrators or executors to receive the proceeds of the policy. The intention of the deceased was apparent in that she wished only to benefit her mother. When her mother died, the nomination became extinct. The Court ordered that the proceeds of the policy be paid over to the third respondent in his capacity as executor of the estate of the deceased. That led to the present appeal.

Held that the issue on appeal was whether the nomination of the deceased’s mother as beneficiary, became extinct upon her death.

The deceased had entered into the insurance agreement, with the intention that the benefits thereof be for her mother. Her mother accepted the nomination as beneficiary. The agreement between the deceased and the first respondent as insurer was thus a contract for the benefit of a third party.

The Court held that once the deceased’s mother accepted the benefit, and the first respondent recorded the nomination and acceptance, an agreement between the nominee and the first respondent came into existence. After the death of her mother, the deceased had the right to cancel or revoke the nomination. A she had not done that, a valid agreement remained in existence between the first respondent and the beneficiary. Accordingly, on the death of the deceased, the proceeds of the policy accrued to the estate of the beneficiary.

The appeal was upheld, and the appellant was held entitled to receive the benefits of the policy for the beneficiary’s deceased estate.

Page 1 of [2012] JOL 28080 (GSJ)

TSOKA J:

[1]  This appeal is against the judgment of Coetzee J in which the learned Judge directed that the proceeds payable in terms of a Professional Provident

Page 2 of [2012] JOL 28080 (GSJ)

Society Insurance Policy Number 9647166 (“the insurance policy”) be paid to the third respondent. The appeal is with leave of the court below.

[2]  The facts in this matter are as follows. On 29 January 2002 Mmatibishe Louisa Magdeline Sebata (“Ms Sebata”) nominated her mother, Helen Mmapule Mkhabela (“Ms Mkhabela”) as a beneficiary to death benefits arising out of an insurance policy issued by the first respondent.

[3]  Ms Sebata reserved to herself the right to change or cancel the nomination in writing at any time. The nomination or cancellation would only become valid if recorded in the books of the third respondent. It is undisputed that the nomination was recorded by the third respondent in its books. The nomination is, accordingly, valid.

[4]  It is common cause that Ms Mkhabela accepted the nomination. On 26 May 2007 she died of natural causes. The appellant, the son of Ms Mkhabela, was appointed the executor of his mother’s estate. On 23 August 2007, without having changed her beneficiary, Ms Sebata also died. Pursuant to her death, her husband, Supreme Letlakana Sebata (“Mr Sebata”) was appointed the executor of Ms Sebata’s estate. Mr Sebata was, with leave of the court below, joined as the third party to the proceedings. He launched a counter-application seeking a declaratory order to the death benefits arising out of the insurance policy.

Page 3 of [2012] JOL 28080 (GSJ)

[5]  Both executors claim entitlement to the proceeds of the insurance policy. The appellant contends that the first respondent is obliged to pay the proceeds of the insurance policy in accordance with the nomination of beneficiary while Mr Sebata contends that as Ms Mkhabela died before Ms Sebata, the proceeds of the insurance policy should be paid into the estate of Ms Sebata.

[6]  The crisp issue in this appeal is whether the nomination of Ms Mkhabela, as a beneficiary, became extinct at her death.

[7]  The facts in this matter reveal that Ms Sebata entered into an agreement of insurance the benefits whereof were for Ms Mkhabela. Ms Mkhabela accepted the nomination. This is common cause. The agreement between Ms Sebata and the first respondent is what is commonly, in our law, known as the contract for the benefit of a third party.

[8]  In Crookes NO & another v Watson & others 1956 (1) SA 277 (A) at 291B–E, the court described a contract for the benefit of a third party as follows:

“. . . in the legal sense, which alone is here relevant, what is not very appropriately styled a contract for the benefit of a third person is not simply a contract designed to benefit a third person; it is a contract between two persons that is designed to enable a third person to come in as a party to a contract with one of the other two (cf. Jankelow v Binder, Gering and Co., 1927 T.P.D. 364).

Page 4 of [2012] JOL 28080 (GSJ)

The nature and extent of the rights of the third party are, as was pointed out by WATERMEYER, C.J., in Commissioner for Inland Revenue v Estate Crewe and Another, 1943 AD 656 at p. 674, a matter of controversy, the limits of which appear rather from discussions in juristic literature than from decided cases. (In addition to the thesis and the review thereof mentioned in the judgment of WATERMEYER, C.J., articles and notes in 46 S.A.L.J. 164 and 387, 47 S.A.L.J. 208 and 53 S.A.L.J. 279 may be referred to). As is pointed out by MILNE, J., in the present case, the typical contact for the benefit of a third person is one where A and B make a contract in order that C may be enabled, by notifying A, to become a party to a contract between himself and A. What contractual rights exist between A and B pending acceptance by C and how far after such acceptance it is still possible for contractual relations between A and B to persist are matters on which differences of opinion are possible; but broadly speaking the idea of such transactions is that B drops out when C accepts and thenceforward it is A and C who are bound to each other.”

Although this was a minority judgment (concurred by Fagan JA) there is nothing inconsistent therewith in the majority judgments and it has generally been regarded as an authoritative statement of the law (see for example George Ruggier & Co v Brook 1966 (1) SA 17 (N) at 23 and the cases there cited; Commercial & Industrial Holdings (Pty) Ltd v Braamfontein Industrial Sites (Pty) Ltd 1969 (1) SA 479 (T) at 493E–H;

Page 5 of [2012] JOL 28080 (GSJ)

Protea Holdings Ltd & another v Herzberg & another 1982 (4) SA 773 (C) at 779G–H). Further, as was pointed out in the George Ruggier case, supra, at 23H:

“It is entirely a question whether there is an intention that the third party can, by adoption of the promise, become a party to the contract in which it is embodied.”

[9]  In the present matter, the agreement between Ms Sebata and the first respondent was to enable Ms Mkhabela to be a party to the agreement. Once Ms Mkhabela accepted the benefit and the first respondent also accepted the nomination and recorded the nomination in its books in accordance with the nomination clause, an agreement between Ms Mkhabela and the first respondent came into existence. The agreement creates a spes for Ms Mkhabela. Ms Mkhabela has no rights to the policy during the lifetime of Ms Sebata. The spes only becomes a right to Ms Mkhabela on the death of Ms Sebata. The benefit, on the death of Ms Sebata, is open for acceptance by Ms Mkhabela. As she had already died at the time the benefit accrued and her nomination had not been revoked, it remained open for acceptance by the appellant. That Ms Sebata had, during her lifetime, the right to either cancel or revoke the nomination of a beneficiary, is beyond question. Ms Mkhabela accepted the nomination on this basis. The nomination of Ms Mkhabela as a beneficiary, not having been revoked by Ms Sebata before her death, remains a valid agreement between Ms Mkhabela and the first respondent. On the death of Ms Sebata the proceeds of the insurance policy accrued to the estate of Ms Mkhabela. Contrary to the view taken by the court below, the

Page 6 of [2012] JOL 28080 (GSJ)

agreement between Ms Mkhabela and the first respondent did not fall away. Neither did it become extinct nor died.

[10]  In coming to the conclusion that the nomination became extinct, the court below relied on the decision of Mutual Life Insurance Co of New York v Hotz 1911 AD 556. I respectfully disagree with the finding of the learned Judge below on the basis that the facts in Mutual Life differ with the facts in the present matter.

[11]  The facts in Mutual Life were the following. In 1905 Lazarus Pelunsky took out a life insurance policy on his own life in the defendant company. On proof of his death, the proceeds of the insurance policy would have been paid to his father Jacob Pelunsky, his executors, administrators or assigns. The policy included a cash surrender value after three full years’ premiums had been paid less any outstanding loans raised against the policy.

[12]  Jacob Pelunsky died in 1909 without having accepted the benefit of the policy and in ignorance of its existence. After the death of Jacob Pelunsky, his son, Lazarus Pelunsky endeavoured to obtain for himself the surrender value of the policy. The defendant company refused to pay the surrender value to Lazarus Pelunsky as the defendant company contended that he was not entitled thereto. The defendant company contended that the representatives of the estate late Jacob Pelunsky were entitled to the surrender value of the policy. It was pointed out to Lazarus Pelunsky that he could only be entitled to the surrender value of the policy if the legal

Page 7 of [2012] JOL 28080 (GSJ)

representatives of the estate cede the policy to him. The court held that the representatives of the estate late Jacob Pelunsky were entitled to accept the benefit, despite the fact that the late Jacob Pelunsky was unaware that the policy was in his favour. The nomination of the late Jacob Pelunsky, as a beneficiary to the insurance policy, remained open for acceptance. This was so despite the fact that Jacob Pelunsky predeceased his son.

[13]  Although the nomination as a beneficiary in Mutual Life included heirs, executors and administrators of the beneficiary, this fact, in my view, does not detract from the fact that there is an agreement between the insured, who has since “fallen away”, the beneficiary, Ms Mkhabela and the first respondent. The additions of the words “heirs, executors and administrators” in Mutual Life do not detract from the fact that the proceeds of the life policy fell into the estate late Lazarus Pelunsky. By operation of the law this is the position. It is out of extreme caution that the words executors, administrators and assigns are added.

[14]  In Mutual Life the court at 567 said the following:

“But if the third party desires to enforce a stipulation made in his favour, he must accept it; for until he has notified his decision to the promissory, there is no vinculum juris between them. The stipulation, however, may be accepted at any time while it remains open. So that the present dispute really turns upon the question whether it is still open to the representatives of Jacob Pelunsky to accept the benefits of

Page 8 of [2012] JOL 28080 (GSJ)

the policy. If that question be answered in the affirmative, then the position taken up by the company is impregnable; if in the negative, then the amount of the surrender value should upon demand have been paid to the plaintiff.”

The court refused to recognise and give effect to the cession of the policy by Lazarus Pelunsky to the cessionary as it found that the stipulation in favour of John Pelunsky was still open for acceptance by the representative of the estate.

[15]  In the present matter the stipulation was accepted by Ms Mkhabela. This is common cause. After the death of Ms Mkhabela, the appellant, as the executor, accepted the benefits of the policy. Furthermore the conduct or rather lack of it, by Ms Sebata in not revoking the beneficiary for a period of 77 days after the death of Ms Mkhabela, supports the view taken by the appellant that the intention of Ms Sebata, in nominating her mother as the beneficiary, was to benefit her or her estate.

[16]  Counsel for the third respondent argues that a policy with a revocability clause, such as the one in this matter, remains the property of the insured. As his authority, counsel referred this Court to two decided cases, namely, Wolmarans & n ander v Du Plessis & andere 1991 (3) SA 703 (T) and Moonsamy & another v Nedcor Bank Limited & others 2004 (3) SA 513 (D) [also reported at [2005] JOL 15744 (D) – Ed].

Page 9 of [2012] JOL 28080 (GSJ)

[17]  In Wolmarans the facts were somewhat different to the facts in the present matter. In that matter the court was called upon to determine whether a revocation clause could only be effected in the manner prescribed in the clause or by any other means. The court held that such a clause may be revoked by the insured in a will.

[18]  In the present matter, the revocation clause is not in issue. It is common cause that the beneficiary was neither revoked, amended nor cancelled during the lifetime of Ms Sebata. This remained so even after the death of her mother who predeceased her by some 77 days. The spes that Ms Mkhabela had, remained open for acceptance by the executor of Ms Mkhabela on the death of Ms Sebata.

[19]  In Moonsamy, again the question arose as to whether a nominated beneficiary was revoked by the execution of a cession in securitatem debiti. In that matter the court held that the policy belongs to the insured who is entitled to deal with it as he pleases, including ceding the policy as security for a debt. The court at 519G–J expresses itself as follows:

“If during his lifetime the deceased had ceded all his rights in the policy to a third party, that would have effectively terminated the beneficiary’s spes. The execution of a cession in securitatem debiti brings about a different result. The repayment during his lifetime of any indebtedness secured would, as we have seen, result in the deceased being revested with the ownership in the policy – leaving in fact the

Page 10 of [2012] JOL 28080 (GSJ)

beneficiary’s spes. Similarly after death the situation is no different. A creditor would be entitled to call up its security and be paid the full amount of the indebtedness. If a balance remains the deceased estate would retain ownership of the reversionary interest subject to the rights of any beneficiary nominated in terms of the policy. In my view it would be open to such beneficiary to accept the rights to such reversionary interest.”

[20]  In the present matter, the intention and the peculiar circumstances of this matter reveal the following: Ms Sebata nominated her mother Ms Mkhabela as the beneficiary. Although she had the right to revoke the nomination during her lifetime, she did not do so. The nomination remained even after the death of her mother who predeceased her. In spite of the fact that she was married to the third respondent, she did not revoke the nomination of her mother in favour of her husband, the third respondent. It seems to me that Ms Sebata’s intention was, at all times, for her mother to remain the beneficiary. The spes that Ms Mkhabela had in receiving the benefit of the insurance policy on the death of Ms Sebata, in my view, was still open for acceptance by the appellant as the executor of the estate of Ms Mkhabela.

[21]  In his replying affidavit, the appellant in his capacity as the executor of the estate late Helen Mkhabela, accepted the beneficiary and claimed the proceeds of the policy. Counsel for the third respondent argues that the appellant is precluded from accepting the benefit on behalf of the estate in his

Page 11 of [2012] JOL 28080 (GSJ)

replying affidavit. This, so argues counsel, amounts to raising a new matter in the replying affidavit. I disagree with counsel’s argument. The application is premised on the contention that the estate late Mkhabela is entitled to the benefit, hence the applicant sought a declaratory order relating to the benefits of the policy. The acceptance of the benefit by the appellant in the replying affidavit does not raise a new matter. The acceptance is an integral part of the order sought in the notice of motion.

[22]  What seems to be the third respondent’s main challenge is that, as Ms Sebata had not included the words “executors, administrators or assigns” in the nomination of beneficiary, as I understood the argument, on the death of Ms Mkhabela, the spes she had, died with her.

[23]  The agreement between Ms Sebata, Ms Mkhabela’s and the first respondent did not terminate on the death of Ms Mkhabela. It remained intact even after her death. After her death, Ms Sebata did not revoke the agreement, this is common cause, The benefit that accrued after the death of Ms Sebata falls into the estate of Ms Mkhabela. By operation of law, an executor becomes a representative of an estate. There is therefore no need to nominate a beneficiary and state that failing such beneficiary, the benefit shall accrue to his executor, administrator or assigns. The nomination in such terms, in my view, is out of extra caution and is unnecessary. That being the case, an executor, the legal representative of an estate, is entitled to accept the proceeds from the policy subject of course to the proceeds being accepted within a reasonable time. In the present matter, the appellant’s

Page 12 of [2012] JOL 28080 (GSJ)

acceptance of the benefit was within a reasonable time. In any event there is no suggestion on the papers that the appellant failed to accept the benefits of the policy within a reasonable time.

[24]  In the result the appeal should succeed.

[25]  The following order is made:

25.1

The appeal succeeds with costs;

25.2

The order of the court below is set aside and substituted with the following:

25.2.1

It is declared that the appellant, in his capacity as executor of the estate late Helen Mmapule Mkhabela, is entitled to receive the benefits payable in terms of the Professional Provident Society Policy No. 9647166;

25.2.2

The first respondent is ordered to pay the proceeds of the Professional Provident Society Policy No. 9647166 to the appellant as the executor of the estate late Helen Mmapule Mkhabela;

Page 13 of [2012] JOL 28080 (GSJ)

25.2.3

The counter-application is dismissed with costs.

(Victor and Mayat JJ concurred in the judgment of Tsoka J.)


Leave a Reply

Your email address will not be published. Required fields are marked *