Supreme Court: "Notice of Termination Due to Non-Payment of Insurance Premiums Must Also Be Given to the Beneficiary for Validity"

Deceased Insurance Beneficiary's Parents Win Final Lawsuit Against Hyundai Marine & Fire Insurance

Supreme Court in Seocho-dong, Seoul.

[Asia Economy Reporter Choi Seok-jin, Legal Affairs Specialist] The Supreme Court has ruled that when the policyholder who has a contract with an insurance company and the beneficiary entitled to claim insurance money in the event of an insurance accident are different, the insurance company must go through the premium payment demand procedure not only with the policyholder but also with the beneficiary in order to cancel the contract due to non-payment of premiums.

The Supreme Court's Third Division (then presided by Justice Kim Jae-hyung) announced on the 16th that it upheld the appellate court's partial ruling in favor of the plaintiffs in the final appeal case where B and C, the parents of the deceased A, claimed 100 million won each in insurance money against Hyundai Marine & Fire Insurance Co., Ltd.

The court stated the reason for dismissing the appeal was that "there was no error in the lower court's judgment that affected the ruling by misunderstanding the legal principles related to Article 650, Paragraph 3 of the Commercial Act, as argued in the grounds for appeal."

Article 650 (Payment of Insurance Premiums and Effects of Delay) Paragraph 3 of the Commercial Act stipulates, "In the case of insurance for a specific third party, if the policyholder delays payment of the premium, the insurer shall not cancel or terminate the contract without first giving notice to the third party, setting a reasonable period for payment." This provision means that in insurance contracts where the policyholder and beneficiary differ, the insurer must go through the demand procedure with both parties to terminate the contract.

A's sister, D, entered into a 'Non-dividend Perfect Star Comprehensive Insurance' contract with Hyundai Marine & Fire Insurance in November 2013, with her younger brother A as the insured.

The contract included a basic accident insurance contract that pays benefits when the insured suffers an injury resulting in a disability rating of 3% or higher, along with 18 optional contracts, including an accident death coverage contract with a 10-year payment period maturing at age 70 and another accident death coverage contract with a 20-year payment period maturing at age 100.

The beneficiaries of the two death coverage contracts payable upon A's death were A's parents, while the beneficiaries of the other contracts were A himself.

D delayed premium payments from January 2014 onward, causing the insurance to be canceled and then reinstated multiple times after paying overdue premiums, resulting in repeated cancellations and reinstatements due to late payments.

When D delayed payment of the premiums for July and August 2014, Hyundai Marine & Fire Insurance sent a registered mail notice in September of the same year stating, "If the overdue premiums are not paid within 14 days from the date of receipt of this notice, the insurance contract will be canceled on the 15th day from the date of receipt without further notice."

However, D ultimately did not pay the overdue premiums by the deadline notified by the insurer.

Then, in the early morning of February 1, 2015, A died in an accident when his passenger car collided with another passenger car.

A's parents filed a lawsuit against Hyundai Marine & Fire Insurance, demanding payment of a total of 200 million won in death benefits from the two death insurance contracts for which they were beneficiaries, divided equally as 100 million won each, along with delayed interest.

In the first trial, the court ruled in favor of Hyundai Marine & Fire Insurance, finding that since the contract had already been canceled on October 3, 2014, due to D's delayed premium payments, there was no need to pay the death benefits.

In the trial, B and C argued that since the insurance contract in question was a "third-party insurance" contract where the policyholder and beneficiary differ, the insurer should have also performed the demand procedure on the beneficiary A, and since this was not done, the contract was not canceled.

However, the first trial court held that since the beneficiaries of the death insurance contracts concluded by D were legal heirs, there was no need to perform the demand procedure on A, the beneficiary of the basic insurance contract.

Furthermore, the court reasoned that when the beneficiary is designated as an unspecified person such as "heirs," the status of the heirs is abstract or fluid, and the beneficiary is only specified upon the death of A, so it was difficult to find that the insurer had an obligation to perform the demand procedure on B or C in addition to the policyholder D.

In conclusion, the first trial court stated, "The accident death coverage contracts among the insurance contracts in this case were lawfully canceled before A's death, so the plaintiffs' claims are without merit."

However, the second trial court's judgment differed.

The second trial court held that according to Article 650, Paragraph 3 of the Commercial Act, when the policyholder and beneficiary differ, the insurer must perform the demand procedure on the beneficiary as well to assert the effect of contract cancellation, and therefore the demand procedure on A, the beneficiary of the basic contract, was necessary.

First, the second trial court also found that the insurer's failure to notify B or C, the beneficiaries of the death insurance contracts, did not prevent the effect of contract cancellation.

The court explained, "This provision assumes cases where a third party is specified, so if the third party is not specified, notification cannot be made. Therefore, in cases like this insurance where the beneficiary is designated as 'legal heirs,' it is difficult to find an obligation to perform the premium payment demand procedure on those heirs."

On the other hand, the second trial court ruled that the demand procedure on A, the beneficiary of the basic contract, must have been carried out.

Although the beneficiaries of the death insurance contracts in question were A's parents, the basic insurance contract concluded between D and the insurer designated A as the beneficiary, and when the insurer canceled the contract due to D's delayed premium payments, it canceled the entire insurance contract concluded at once, not just the two death insurance contracts separately.

The court stated, "Although the insurance contract in this case is divided into a basic contract and optional contracts, it is overall one contract, and the entire contract must be canceled by a declaration of intent to cancel. For this, the demand procedure on the beneficiary A is reasonably necessary."

Ultimately, the second trial court ruled that Hyundai Marine & Fire Insurance must pay B and C 100 million won each in death benefits and the corresponding delayed interest as claimed.

The Supreme Court also agreed with the second trial court's judgment and dismissed Hyundai Marine & Fire Insurance's appeal.

This content was produced with the assistance of AI translation services.