Cork v Rawlins

A contractual right under an insurance policy is property in a bankrupt's estate where it existed at the commencement of bankruptcy, even though payment is contingent on permanent disability. The common-law exception for claims personal to the bankrupt is confined to claims whose damages are assessed by immediate reference to personal pain, suffering or analogous personal loss.

A fixed insurance payment is not within that exception merely because disability triggers payment. Where the payment neither represents nor is measured by personal loss, disability is a contractual contingency which accelerates payment of an asset available to creditors. Any wider protection for disability-insurance benefits must be created by Parliament, not by judicial extension of the bankruptcy regime in the Insolvency Act 1986.

The bankrupt held two Abbey Life assurance policies. Each provided for payment of a fixed sum on death or maturity, with earlier payment if permanent disablement were established. Following a serious accident and a subsequent bankruptcy order, the insurer accepted his claims for permanent disablement benefits totalling £70,000.

His trustee in bankruptcy sought the proceeds. His Honour Judge Weeks QC declared that they vested in the trustee and were not held for the bankrupt; the decision was reported at [2000] BPIR 654. On appeal, the bankrupt accepted that the contractual rights had vested, but contended that the trustee held them for him because disability was personal and likely involved pain and suffering.

The central issue was whether the proceeds fell within the exception for causes of action personal to a bankrupt.

1. Appeal dismissed unanimously. Peter Gibson LJ, with whom Chadwick and Keene LJJ agreed, held that the contractual rights under both policies were assets which vested in the trustee under the Insolvency Act 1986. The rights were acquired by payment of premiums, were assignable before bankruptcy, and formed an indivisible claim against the insurer.

2. The established exception for claims personal to a bankrupt did not apply. As recognised in Heath v Tang and Ord v Upton, an action may contain a component held by the trustee for the bankrupt where damages are assessed by immediate reference to pain, suffering or other personal loss. That exception did not convert every contractual benefit triggered by illness or disability into a personal asset.

3. The policy sums were fixed contractual payments. They did not compensate for, represent, or depend on an assessment of the bankrupt's pain and suffering. The relevant contractual inquiry was permanent inability to undertake gainful employment. Disability merely triggered earlier payment of sums otherwise payable on death or maturity. The position was therefore materially different from a tort claim for personal-injury damages.

4. Peter Gibson LJ rejected an expansion of the exception based on social-policy arguments or the Cork Report. The statutory language governed, and any decision to protect insurance provision from creditors required legislation. Chadwick LJ added that the policies were prudent financial provision purchased from the bankrupt's resources; once the secured lender had been paid from other assets, the policy rights were available for creditors generally.

5. The appeal was dismissed with costs. Leave to appeal to the House of Lords was refused.

• Court of Appeal: Appeal dismissed, affirming that the policy proceeds vested in the trustee: [2001] EWCA Civ 197.
• Chancery Division: His Honour Judge Weeks QC declared that the policy sums vested in the trustee and were not held for the bankrupt: [2000] BPIR 654.