In Yip Wai Fan (Minor) v Yip Tsz Bun the Hong Kong District Court addressed the issue of whether money to be paid out to a beneficiary under a life insurance policy is considered to be held on trust by the administrators of the deceased's estate.(1) The policy was considered in light of the District Court's interpretation of the Married Persons Status Ordinance – specifically Section 13, which provides for the creation of a trust to benefit certain people when a life insurance policy is acquired.(2) The District Court determined that money to be paid out to the spouse or child under the deceased's life insurance policy is deemed a statutory trust under the ordinance. Consequently, that money does not form part of the deceased's estate and is not subject to the debts of the deceased.
The deceased was insured under a corporate life insurance policy. Assicurazioni Generali SpA was the underwriter of the policy and Cheung Kong (Holdings) Limited and other subsidiaries the policyholder. In the event of the deceased's death, his daughter (the plaintiff) was entitled to 20% of the pay-out under the policy. The deceased passed away and letters of administration were granted to the defendants.
The defendants received HK$1,831,680 of insurance money from Generali. In making payments on behalf of administering the deceased's estate, the defendants sought to deduct an amount from the insurance money – and therefore from the plaintiff's entitlement – as a contribution towards those payments. The money sought to be deducted was the subject of the plaintiff's claim and the basis for the plaintiff's application for summary judgment against the defendants.
The District Court was concerned only with whether the insurance money was held by the defendants on trust and their liability to pay 20% of the insurance money to the plaintiff. If the insurance money were held on trust, it would not form part of the deceased's estate, and thus would not be subject to the debts of the deceased's estate and administration expenses.
The District Court determined that the insurance money was held on statutory trust by the defendants by virtue of Section 13 of the ordinance:
"(1) This section applies to a policy of assurance or endowment expressed to be for the benefit of, or by its express terms purporting to confer a benefit upon the wife, husband or child of the insured.
(2) The policy shall create a trust in favour of the object therein named.
(3) The moneys payable under the policy shall not, so long as any part of the trust remain unperformed, form part of the estate of the insured or be subject to his or her debts.
(5) The insured may by the policy, or by any memorandum under his or her hand, appoint a trustee or trustees of money payable under the policy…
(6) In default of any such appointment of trustee, such policy, immediately on its being effected, shall vest in the insured and his or her legal personal representative, in trust for the purposes aforesaid."
The relevant terms of the policy under Part C stated:
"Section 1: Immediately upon proof of death of an Insured Member the Amount of Insurance determined in accordance with the Policy Schedule shall be payable by the Company in the manner herein provided.
Section 3: (a) All benefits under this Policy shall be made payable to the order of the Insured Member or his designated beneficiary or beneficiaries for disbursement in accordance with the terms of the Policy provided always that the Company may, at the written request of the Policyholder for reasons acceptable to the Company, pay the benefits to the order of the Policyholder.
Section 4: The Insured Member may designate in writing a beneficiary or beneficiaries to whom the benefits under this Policy shall be payable in the event of death, such designation shall be filed to the office of the Company."
First, the defendants argued that Section 13 of the ordinance should be construed consistently with the Married Women's Property Act 1882 (the UK act from which the ordinance was derived), despite the conspicuous omission of the wording "effected by any man on his own life" in Section 11 of the 1882 act from Section 13 of the ordinance. The District Court rejected the defendants' use of legislation history in statutory interpretation (as set out in the landmark case of Pepper v Hart  UKHL 3) to imply the omitted wording into the ordinance.
The District Court determined that the proper construction of Section 13 of the ordinance imposed no restriction that the policy be effected only by the deceased. Despite the deceased not being the policyholder (that being Cheung Kong Holdings Limited and subsidiaries), it was clear to the District Court that the deceased was the insured (in all but name) and that under the policy the plaintiff would benefit as the child of the deceased.
Second, the defendants argued that because the policy contained a number of contingencies as to when insurance money would be paid out other than in the event of death (ie, if the claimant became totally and permanently disabled or suffered from illness or an accident overseas), the policy was not a policy of assurance pursuant to Section 13 of the ordinance. The District Court rejected this argument, holding that a policy is considered a policy of assurance on the deceased's life as long as it provides for payment of a sum of money upon the death of the insured. In Re Gladitz, the District Court affirmed the decision that money to be paid out on contingencies other than death did not contradict what is otherwise a policy of assurance pursuant to Section 13 of the ordinance.(3)
From Yip Wai Fan, it should be clear to personal representatives and beneficiaries of estates that money to be paid to a spouse or child under a deceased's life insurance policy is deemed a statutory trust under the ordinance. Consequently, that money does not form part of the deceased's estate and is not subject to the debts of the deceased.
Of significance to companies that purchase life insurance policies for their employees, Yip Wai Fan clarifies the situation where a company acquires a life insurance policy that benefits the immediate families of its employees. On paper, the company may be the policyholder, but the employee is considered to be the insured and the employee's immediate family are considered to be the beneficiaries. Furthermore, contingencies in a policy where money is to be paid out other than in the event of death do not negate the policy as a policy of assurance on the insured's life.
Companies may therefore consider it prudent to review their employees' corporate life insurance policies to ensure that there are no terms which could prevent or hinder the operation of the policy. Conversely, employees should ensure that any ancillary documents (eg, designation of beneficiaries or appointment of trustees) are duly executed in order for their estates to be efficiently administered in accordance with their wishes.
For further information on this topic please contact Kevin Bowers or Adrian Sargent at Howse Williams Bowers by telephone (+852 2803 3648) or email (email@example.com or firstname.lastname@example.org). The Howse Williams Bowers website can be accessed at www.hwbhk.com.
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