CMFAS M9 Tax, Nomination, Wills & Trusts question: original policy owner (assignor)

CMFAS M9Tax, Nomination, Wills & Trusts

A policy is absolutely assigned to a bank. It later emerges that the original policy owner (assignor) had made a fraudulent non-disclosure when applying. When the claim is submitted, the insurer may:

A Resist the claim, because the assignee takes the policy subject to the same defects that affected the assignor
B Not resist the claim, because the assignee acquired fresh, defect-free rights on assignment
C Pay only the premiums back to the assignee and nothing more
D Pay the claim in full, as fraud by the assignor does not bind the assignee

Show the answer and explanation

Answer: A. Resist the claim, because the assignee takes the policy subject to the same defects that affected the assignor

An assignor can only pass the rights he actually holds. If the policy is defective (e.g. voidable for the assignor's fraudulent non-disclosure), the assignee takes it subject to those defects and the insurer can resist the claim on the ground of that fraud.

Common mistake

Assignment does not 'cleanse' a policy; the assignee inherits the assignor's defects, including exposure to a fraud-based defence.

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CMFAS M9 Tax, Nomination, Wills & Trusts question: original policy owner (assignor)

Answer: A. Resist the claim, because the assignee takes the policy subject to the same defects that affected the assignor

Common mistake

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CMFAS M9 Tax, Nomination, Wills & Trusts question: original policy owner (assignor)

Answer: A. Resist the claim, because the assignee takes the policy subject to the same defects that affected the assignor

Common mistake

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