In a crucial ruling, the Karnataka High Court has held that an insurance policy nominee does not have absolute rights over insurance benefits if the policyholder's legal heirs stake a claim. The court clarified that Section 39 of the Insurance Act, 1938, which governs nominations, does not override personal succession laws like the Hindu Succession Act, 1956.

The judgment came in the case of Neelavva @ Neelamma vs Chandravva @ Chandrakala @ Hema and Others, where a dispute arose over the rightful claimants to an insurance payout.

Justice Anant Ramanath Hegde ruled that a nominee can receive the insurance benefits only if the legal heirs do not claim them. If a legal heir asserts their right, the nominee's claim must yield to personal succession laws.

The case involved a man who had named his mother as the sole nominee for two insurance policies before his marriage. After his marriage and the birth of his child, he did not update the nomination. Following his death in 2019, a legal battle ensued between his mother and his wife over the insurance payout.

A trial court had ruled that the benefits should be divided equally among the mother, wife, and child. The mother challenged the decision, but the High Court upheld it, reaffirming that nominations do not override succession laws.

Upholding the lower court's decision, the Karnataka High Court ruled that the deceased man's mother, wife, and child would each receive one-third of the insurance benefits.

The HC relied on the Supreme Court's ruling in Shakti Yezdani vs Jayanand Jayant Salgaonkaa, which dealt with inheritance of company shares and held that nominations do not override succession laws.

Justice Hegde noted that Parliament never intended to create a parallel system of inheritance through insurance law and warned that ignoring succession laws could lead to legal confusion and misuse.

The court also pointed out that the Law Commission of India had earlier recommended distinguishing between beneficial nominees (who are entitled to the payout) and collector nominees (who only collect and distribute the funds to legal heirs). However, Parliament did not incorporate these suggestions into the law, leading the court to rule that nominees cannot automatically be treated as beneficial nominees.

Beyond this case, the HC criticised complex legal drafting, urging lawmakers to write laws in simple, clear language that ordinary citizens can understand.

"Laws should never be a riddle or puzzle that only trained legal minds can solve. There should be a conscious effort to frame them in short, clear sentences," the court said.

Justice Hegde also criticised Parliament for failing to provide clear 'Objects and Reasons' for the 2015 amendment to Section 39 of the Insurance Act, leading to confusion in interpretation.

Additionally, the court suggested reviving the practice of including legal illustrations in laws, similar to older statutes like the Indian Contract Act and Transfer of Property Act, to make legal provisions easier to understand.