In this case, misappropriated funds were used to pay the final premium of a life insurance policy. The question was whether, applying the principles of tracing, the beneficial owners of the misappropriated funds were entitled to all of the proceeds of the insurance policy, or only a proportionate share. The trial judge concluded that the proceeds were attributable to the final premium paid, and found that the beneficial owners were entitled to the entire proceeds. The Court of Appeal disagreed, concluding that the proceeds were attributable to all of the premiums paid, and that the beneficial owners were only entitled to a proportionate share of the proceeds.
Gotterson and McMurdo JJA and Douglas J
12 March 2019
The respondents were a group of natural and legal persons associated with the Belling family. . The appellants were Dorothy Hanson (“Dorothy”) and Norman Hanson (“Norman”). . The estate of their deceased daughter, Norma Hanson (“Norma”), was a party at first instance but not on appeal. . Norma commenced employment with the first respondent in July 2002. . In 2006, when she was 23 years old, Norma took out a Term Life policy of insurance with an insurer, Asteron Life Ltd (“Asteron”). . The premium was to be paid by monthly instalments. . The cover ceased when Norma died suddenly in September 2014. .
By the time of Norma’s death, some 95 monthly instalments had been paid on the policy and the sum insured was about $1,427,000. . Norma’s parents were nominated as beneficiaries in equal shares in the policy. . On 9 February 2015, Asteron paid the sum insured to them. . After Norma’s death, it was discovered that she had stolen $2,524,073.60 from the respondents. . Further, Norma had paid four of the 95 monthly premiums with the stolen funds. . Significantly, one of the four premiums was the last premium paid. .
The respondents commenced proceedings against Norma’s estate, and her parents, in the Supreme Court, claiming an array of declaratory relief including a declaration that the proceeds of the Asteron policy were received by Dorothy and Norman as trustees for one of the respondents. . Other declarations sought related to other property alleged to have been acquired with money sourced from the stolen funds. . Before the trial judge, it was uncontroversial that the stolen monies from which the last premium was paid were monies held on trust by Norma for two of the respondents, and that the process of tracing as described in the decision of the House of Lords in Foskett v McKeown  1 AC 102 was to be applied in determining beneficial ownership of the proceeds paid under the policy on Norma’s death. .
The parties differed as to the application of the law stated in Foskett. . Specifically, the question was whether the proceeds of the insurance policy were attributable to the final premium paid, or to all of the premiums paid. It was not a question of causation. . The trial judge quoted the following passage from the Lord Millett’s speech in Foskett:
“The question is not whether the same death benefit would have been payable if the last premium or last few premiums had not been paid. It is whether the death benefit is attributable to all the premiums or only to some of them.” .
The respondents contended that the asset acquired by payment of the last premium was insurance cover for the month of September 2014. . Given that that premium was paid entirely from trust monies, it was said, the respondents were entitled to 100% of the asset, and 100% of the proceeds which derived from it. . Norma’s parents, on the other hand, contended that the insurance policy was acquired by the payment of all 95 premiums, so that at most the respondents were entitled to a proportionate share of the proceeds of the insurance policy. .
The trial judge analysed the terms of the insurance policy, and concluded that the asset which was acquired by the payment of the last premium was cover for the month of September 2014. . Accordingly, the right to any benefits which might flow from the insurance cover for September 2014 was an asset the retention of which was attributable to the fact that Norma stole money from two of the respondents and used it to pay the premium. . His Honour made orders including a declaration that the proceeds of the insurance policy were received by Dorothy and Norman as trustees for two of the respondents. .
Court of Appeal
Norma’s parents appealed to the Court of Appeal, alleging that the trial judge “erred in law in applying an improper construction of the [insurance policy]”, and “erred in applying the wrong legal principle to those facts”. . Gotterson JA (with whom McMurdo JA and Douglas J relevantly agreed) analysed the terms of the insurance policy and concluded that they “characterise the cover provided by the policy as singular in nature”. . His Honour concluded that it was “cover that, subject to payment of the first premium, began on the commencement date and, subject to payment of premiums, continued until the earliest of the dates specified ... occurred”. . It was not “a series of sequential covers in which each cover was for a month, or a year”. .
His Honour then concluded that the singular nature of the cover and the fact that the amount insured was dependent upon continuity in the payment of the premiums were factors which “strongly favour attribution of the right to have Asteron pay the insured sum to all of the monthly premiums that were paid”. . His Honour held that it was the payment of these premiums which together caused cover to start and to be retained from that point until the date of Norma’s death. . Accordingly, the appeals were allowed. .
M J Hafeez-Baig