Benefitting from an Insurance Policy in which you are not a Party

Insurance contracts are sometimes referred to as reciprocal contracts because they usually involve both the insured (paying a premium and getting peace of mind) and the insurer (bearing the risk whilst getting premiums) – both parties bear some obligations and (potential) benefits. There are, however, instances where the lines may be blurred. This is due to the fact that, although insurance contracts ordinarily involve the insured and the insurer, there are many other relevant role-players performing significant roles in such contracts. These include agents, brokers, intermediaries, underwriters, call centres, etc. Even more, notwithstanding the fact that the insured/policyholder is ordinarily the one who enjoys the benefits of the insurance policy, there are instances where such benefits accrue to parties that are not parties to the insurance contract. Interestingly, there are even instances where one can benefit from an insurance policy even where one is not a party to the insurance policy and/or not responsible for the premiums. Some of these instances are delineated below.

It is critical that an insurance policy is unambiguous with respect to the parties, their roles, duties, obligations, and benefits associated with the policy. Thus, the intentions of the parties, at the time of entering a contract, must be clearly and sufficiently encapsulated in the contract. This is because there are legal repercussions that may flow from failure to do so. Although the obligations and benefits stemming from an insurance contract usually relate to the insurer and the insured, there are exceptions, and here are some of the examples:

• Beneficiary – the insured may nominate a third-party to be the policy’s beneficiary in which case the insurance policy will specify that particular person as a beneficiary.
• Cessionary – the insured may elect to cede the policy benefits to his/her third-party of choice in terms of a cession agreement.
• Extension clauses – an insurance policy may specify further people, in addition to the insured, who are entitled to the benefits of the policy. This is common in motor vehicle insurance policies whereby the insured includes further person(s) to enjoy cover in terms of an extension clause.

Some insurance policies can have many parties involved and it is important that their roles are clearly defined because, when it comes to the claiming stage, there may be legal technicalities that may become problematic if there is some sort of ambiguity.

Mtho Maphumulo

Senior Associate | Litigation Attorney

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