The Distribution of the Life Insurance Proceeds Between Ex-Spouses

The First Hall, Civil Court delivered a judgement on the 13^th July 2023 (Rikors Nru: 749/2020FDP) about the manner in which the maturity proceeds of a life policy with profits were to be distributed by the defendant insurer, Eagle Star (Malta) Limited, between the plaintiff and the other defendant (the latter two, collectively referred to as “the ex-spouses”).

The life policy was issued in the name and on the life of the plaintiff while said plaintiff was married to the other defendant and their matrimonial regime was regulated by the community of acquests.

Before the life policy had matured, the First Hall, Civil Court, by virtue of a judgment (“First Instance Separation Judgment”), inter alia dissolved the community of acquests existing between the ex-spouses with effect from the date of said judgement. The First Instance Separation Judgment did not specifically refer to the life policy in question, but it provided inter alia that accounts with Banks and financial institutions that were registered in the name of either or of both ex-spouses be liquidated, and the proceeds and interest thereof be divided equally between both the ex-spouses. The said judgment was appealed from and was decided by the Court of Appeal (“Court of Appeal Separation Judgment”) whereby the said Court, inter alia, confirmed the dissolution of the community of acquests in the manner that it was decided by the First Hall, Civil Court.

Throughout the term of the life policy, the plaintiff did not request the defendant insurer to surrender the policy. Instead, the plaintiff continued to pay the premium and allowed it to mature in accordance with its terms.  Upon maturity of the life policy, the defendant Eagle Star (Malta) Limited, on the basis of the First Instance Separation Judgement, proposed that the maturity proceeds be distributed as follows: half the value to the plaintiff together with the premium that was paid by the plaintiff on behalf of the other defendant after the date of the First Instance Separation Judgement and half the value to the other defendant after deducting the latter’s share of the premium after the date of the First Instance Separation Judgement, which premium the other defendant had failed to pay but was paid on the other defendant’s behalf by the plaintiff in order to ensure that there was no unjustified enrichment.

However, the plaintiff disagreed with Eagle Star (Malta) Limited’s proposal and insisted that the other defendant should only be entitled to receive half the value of the life policy (that is the surrender value of the policy) as at the date of the First Instance Separation Judgement and that the plaintiff should receive half the value of the policy until the date of the First Instance Separation Judgement and all the value of the policy between the date of the First Instance Separation Judgement until the date of its maturity. The plaintiff argued that the latter’s proposal reflected the First Instance Judgment of Separation.

The other defendant agreed with Eagle Star (Malta) Limited’s proposal in principle but argued in addition that the premium that was deducted from the maturity proceeds due to the other defendant should be calculated from the date of the Court of Appeal Separation Judgment and not from the First Instance Judgment of Separation.

Since the plaintiff disagreed with Eagle Star (Malta) Limited about the distribution of the maturity proceeds, Eagle Star (Malta) Limited suggested that an agreement to distribute differently would be reached with the other defendant and that the ex-spouses would jointly give clear instructions to Eagle Star (Malta) Limited about the distribution of the maturity proceeds. Said agreement was not reached and therefore, this case was instituted so that the Court gives clear directions to Eagle Star (Malta) Limited as to how to distribute the proceeds. Since Eagle Star (Malta) Limited did not have a contestation to pay the maturity proceeds, it deposited the entire amount in Court by virtue of a schedule of deposit for the ex-spouses to withdraw jointly.

During the course of these Court proceedings, the ex-spouses were in agreement that although the life policy was not specifically referred to in the First Instance Separation Judgement, the life policy was regulated by that part of the judgment which provided that all accounts with financial institutions that were registered in the name of either or both of the ex-spouses had to be liquidated and the proceeds and interest thereof be divided equally between both ex-spouses. The Court likewise agreed that said provision regulated the manner in which the maturity proceeds should be distributed.

The main issue giving rise to these proceedings was that the plaintiff was arguing that upon the dissolution of the community of acquests, the life policy no longer belonged to the other defendant and therefore, upon the maturity of the life policy, only half the value of the policy as at the date of dissolution of the community of acquests was due to the other defendant.

However, both Eagle Star (Malta) Limited as well as the other defendant argued that notwithstanding the dissolution of the community of acquests, the life policy remained co-owned between the ex-spouses in equal shares between them outside the regime of the community of acquests since the life policy was not assigned to any one of them. It was irrelevant that the plaintiff had continued paying the premium for the entire term of the life policy. The payment of the premium only entitled the plaintiff to receive a reimbursement because a distinction needed to be made between the owners of the policy and the persons who paid the premium for said life policy. A distinction also needed to be made between the dissolution of the community of acquests of the ex-spouses and the assets that formed part of the community of acquests of the ex-spouses before the dissolution thereof. Those assets which formed part of the community of acquests of the ex-spouses which were not liquidated, remained in common between them, as in this case, outside the regime of the community of acquests since said regime was dissolved. The dissolution of the community of acquests of the ex-spouses regulated the manner in which said ex-spouses were to enter into transactions with third parties after said dissolution (future transactions) and this without prejudice to the assets that were owned by the ex-spouses before the dissolution of the community of acquests which were not liquidated, as in this case, the life policy and the maturity value thereof.

In addition, since the life policy was a long-term contract that was entered into during the marriage of the ex-spouses, it may not be said that after the dissolution of the community of acquests, the life policy was considered as a new investment since the concept of renewal is inapplicable to life policies. The life policy was considered as being one and the same investment that was entered into when the regime of the community of acquests was still in force between the ex-spouses. The only difference is that after the dissolution of the community of acquests, the plaintiff continued to adhere to the obligations of the long-term contract by paying the premium. The Court agreed with Eagle Star (Malta) Limited’s arguments.

In this case, the plaintiff renounced to the applicability of Article 1712K (3) of the Civil Code which provides that proceeds may be withdrawn by the person in whose name the life policy is issued and this without the need for the other spouse’s consent. Although the life policy in question was issued in plaintiff’s sole name, the plaintiff had acknowledged that one half of the proceeds until the date of the dissolution of the community of acquests was due to the other defendant. However, Article 1712K (3) of the Civil Code provides that the entire proceeds be paid to the person in whose name the life policy is issued without the consent of the other spouse and not part thereof. Article 1712K (3) must apply for the entire term of the policy and not only for after the dissolution of the community of acquests, as was suggested by the plaintiff. A life policy cannot be deemed to form part of the community of acquests and then paraphernal after the dissolution of the community of acquests, unless the Court states otherwise or unless the ex-spouses had entered into an assignment agreement whereby one of the ex-spouses assigns his/her share of the life policy to the other. In this case, the Court decided that the manner in which the maturity proceeds be distributed was regulated by the First Instance Separation Judgment which in itself renders Article 1712K (3) inapplicable to this case.

The Court also dealt with the disagreement about the date of the dissolution of the community of acquests, that is whether it was the date of the First Instance Separation Judgment or the date of the Court of Appeal Separation Judgment. The Court confirmed that the community of acquests was in fact dissolved on the former date since the Court of Appeal had confirmed the decision of the first instance in connection with the dissolution of the community of acquests. Therefore, the plaintiff was reimbursed for all the premium that the latter had paid for the other defendant’s share from the date of the First Instance Separation Judgement until the date of maturity of the life policy and not after the date of the Court of Appeal Separation Judgement as was argued by the other defendant.

The Court agreed with Eagle Star (Malta) Limited’s proposal to pay half the maturity value of the life policy to the plaintiff together with the premium that was paid by the plaintiff on behalf of the other defendant after the date of the First Instance Separation Judgement and half the maturity value of the life policy to the other defendant after deducting the latter’s share of the premium after the date of the First Instance Separation Judgement, which premium the other defendant had failed to pay but was paid on the other defendant’s behalf by the plaintiff. The Court further ordered that the judicial expenses be shared between the ex-spouses and that the expenses incurred by Eagle Star (Malta) Limited be paid equally between the ex-spouses.

Eagle Star (Malta) Limited was represented by Dr. Joseph Borg Bartolo and Dr. Veronica Grixti of Mamo TCV Advocates.