Summary

This Federal Court decision of March 2020 confirms the principles of ‘forfeiture’ in relation to death benefit claims and provides guidance to life insurers as to when a criminal joint policy owner under a life policy, may ‘forfeit’ a benefit that they might otherwise have been entitled to.

The decision also confirms the prudence of paying a policy benefit into court under s 215 of the Life Insurance Act 1995 when there is any doubt as to the proper person to receive such sum.

Brief Facts

Louis Mahony (Mahony) and his former partner, the late Lainie Coldwell (Coldwell) jointly took out a policy of life insurance (the Policy) with the life insurer in July 2009. The Policy provided for payment of a benefit in the event of the death of one or the other, in the sum of $150,000.

Coldwell died one month after policy inception from head injuries after apparently falling from a tree. Weeks earlier, Mahony had taken out other life policies of significant value on the life of Coldwell.

Following Coldwell’s death, Mahony advised the life insurer of his intention to claim the death benefit payable under the Policy. The life insurer delayed its decision to release the benefit in light of the ongoing coronial and police investigations into Coldwell’s death.

Some years passed before Mahony issued proceedings against the life insurer in August 2015, alleging breach of contract and seeking payment of the death benefit plus interest. In December 2015, Mahony was arrested and charged with Coldwell’s murder.

In September 2016, the life insurer paid the benefit into Court. In September 2017, Mahony, was convicted of Coldwell’s murder and sentenced to life in prison.

Decision

The Federal Court determined that Mahony’s criminal culpability for the violent death of Coldwell must attract the operation of the forfeiture rule.

Under this rule, Mahony was not entitled to any of the proceeds flowing from Coldwell’s death, which obviously included the benefit payment under the Policy. As a result, the entirety of the benefit was payable to Coldwell’s estate, Coldwell in this case, being a joint owner of the Policy.

The Federal Court had regard to the decision in Swiss Re Life & Health Australia Ltd v Public Trustee of Queensland (No 3) [2018] which provided that:

“the forfeiture rule is a rule of public policy which “provides for the forfeiture of property if the vesting of the property is materially contributed to by the death of someone for whose deaths the person taking is criminally responsible”. If a person murders another, he or she would be precluded from receiving a financial benefit from that death, including in the form of life insurance proceeds. In the context of murder, the rule has been described as “absolute and inflexible”, resting on “an abhorrence of the notion that one may profit from killing another”.

Key Takeaways

Criminal wrongdoing of a person leading directly to the death of a life insured will always prevent that person recovering under a life policy, in which, they have some ownership/beneficial interest. Whether or not a benefit is payable at all by the insurer in such circumstances, is an interesting question which will depend on the public policy considerations and most crucially in each case, on the ownership structure of the underlying policy. Care needs to be taken to evaluate all these factors when such unfortunate circumstances present themselves in the context of a death claim.

Life insurers should always approach the payment of death claims in suspicious circumstances with an abundance of caution. This is particularly so, if there is an ongoing criminal investigation into one or more of the policy owners or beneficiaries. In such circumstances it would always appear that the most prudent course is to pay the benefit into court under s 215 of the Life Insurance Act 1995. Importantly, such a course gives the insurer a discharge of its obligation and allows the court to work out the complexities of who is the rightful recipient of the benefit.