The case of
Facts of the Case
This case was filed in the First Hall of the Civil Court (the 'First Hall') in
On
Notably, each of the Policies in question stipulated a grace period for the payment of the premium. Additionally, they also provided the policy holder with a revival period. Therefore, if the premium was not paid on the due date or during the grace period, the policy would lapse but could nevertheless, at the discretion of the insurer, be revived if the policy holder makes a 'revival declaration' indicating that he is still in good health.
Prior to the declaration of bankruptcy, the Debtor had stopped paying the premiums on these Policies, to the effect that, at the time of the Debtor's passing, or when the other creditors discovered that such policies existed, many of them had lapsed and no benefit was paid to the beneficiaries upon the policy holder's death. Notably, during the grace period, the Bank, as pledgee, could pay the premiums to keep the Policies in effect. While both the Debtor and the Bank had been informed that the payment of the premium on each of the Policies had fallen due, no action had been taken. In fact, in one instance the Bank had informed the insurer that it no longer had any interest in the life insurance policies, and it released the pledge.
The Plaintiffs held that by not informing them or the Curator of the existence of these Policies the Bank had caused them serious prejudice. They argued that, given that the Debtor passed away shortly after the bankruptcy proceedings had commenced, had the Policies been kept in effect, the obligation to imburse the beneficiaries of the Policies would have been triggered and such proceeds would have formed part of the Debtor's property available for the general body of creditors. They proposed that the Bank had acted in such a manner because it was secure in the knowledge that its credit, which ranked higher than that of the other creditors, would be paid from other assets in the Debtor's patrimony and thus it had no interest in preserving the assets of the Debtor in the interest of the other creditors.
The Court was thus asked to liquidate the amount which could have been potentially realised in terms of the same Policies and to order the Bank to place an equivalent amount into the possession of the Curator for the benefit of the general body of creditors.
Apart from raising several other pleas, the Bank held that while it could, at its own discretion, renew the Policies at its own expense, it was not obliged to do so and thus it had not caused the other creditors any damages by not doing so. Additionally, the Bank argued that it had no obligation at law to provide the Curator with any information when the latter was making up the inventory of the bankrupt's property. Such obligation exists solely with regards to the bankrupt himself.
The First Hall accepted all but one of the pleas brought forward by the Bank and rejected the Plaintiffs' claims. A few of the Plaintiffs in the original case felt aggrieved by the decision of the First Hall and filed an application of appeal on
Considerations of the Court
Both the First Hall and the
-
Whether during the bankruptcy proceedings, the Bank had a legal obligation to inform the Curator of the existence of the Policies pledged in its favour; and
- If such obligation did in fact exist, whether such omission did in fact prejudice the other creditors.
With regards to the first point, the First Hall had decided that the Bank had no obligation at law to pay the premium on the Policies, particularly since the same had been taken out solely in the Bank's own interests.
In doing so, the First Hall had quoted Article 1712M(4) of the Civil Code (Chapter 16 of the Laws of
"Subject to any prior rights, the pledgee of an insurance policy shall enjoy all the rights of the policyholder to receive notices under the policy, to receive any proceeds of the policy, when due, on maturity or earlier surrender and the right to exercise all options of the pledgor under the policy, except the designation of a beneficiary, but shall not be liable for the performance of any obligations of the policyholder towards the insurer unless otherwise expressly agreed in writing"
Additionally, the First Hall opined that since the life insurance policy had been entered into solely for the benefit of the Bank, the Bank did not have an obligation to inform the Curator or the other creditors of the existence of such Policies either.
The Court of Appeal reasoned differently and held that if there had indeed been a possibility that proceeds from the Policies would enter the patrimony of the bankrupt, the Bank did, in fact, have a good faith duty to inform the Curator and the other creditors of the existence of such Policies during the bankruptcy proceedings. In this way, any creditor having an interest therein could take the necessary steps to ensure that the Policies remain effective. The Court of Appeal opined that the mere fact that the Bank was secured in the knowledge that its credit would rank higher than that of the other creditors did not exempt it from this good faith duty.
In this regard the
Having established that such obligation existed, the
To make such a determination, the
Conclusion
Based on the abovementioned considerations, the
Disclaimer: Ganado Advocates is responsible for contributing this law report but was not in any way involved as legal advisor for the parties in the judgement being covered in this law report.
This article was fist published in The Malta Independent on 10/01/2024.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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