Lim v Walia

Under section 9(1) of the Inheritance (Provision for Family and Dependents) Act 1975, the court must first identify whether the deceased had a severable interest immediately before death and then value that interest at that time. A contingent terminal-illness benefit under a joint-life policy may be jointly held and severable, even though proof and a claim are required. Valuation must account for the imminence of death and the asset’s terms. Where one sum is payable only once, terminal illness merely brings payment forward. If no claim is made before the first death, the contingent right ends on death and has nil value. Payment of the sum as a death benefit does not revive that right.

Philip Lim, an infant son of the deceased, brought proceedings under the Inheritance (Provision for Family and Dependents) Act 1975. The High Court, by an order dated 26 September 2012, determined a preliminary issue in his favour, holding that immediately before her death the deceased was beneficially entitled to a joint tenancy under a joint-life insurance policy to benefit from her assumed terminal illness.

The deceased had made no terminal-illness claim before her death. The insurer instead paid the policy proceeds to the surviving policyholder as a death benefit. The appeal concerned whether the deceased had a severable interest in the terminal-illness benefit and, if so, what value that interest had immediately before death.

By a majority, Arden LJ and McFarlane LJ allowed the appeal. McCombe LJ dissented and would have dismissed it.

1. Section 9(1) inquiry. The court had to determine separately whether the deceased had a severable interest immediately before death and what value that interest had at that time.
2. Nature of the interest. The terminal-illness benefit was jointly held because the policy made no provision for payment to only one policyholder. It was therefore severable, although contingent on proof of terminal illness and an appropriate claim. The death benefit was distinct and, under the policy’s construction, was payable to the survivor.
3. Valuation. Powell v Osbourne [1993] 1 FLR 1001 required the court to take account of the imminence of death when valuing a severable interest under section 9(1). Dingmar v Dingmar [2007] Ch. 109 confirmed that valuation is not mechanically frozen at the valuation date and that the asset’s terms must be considered. The distinction from section 8 was maintained.
4. Application to the policy. The policy provided one sum payable once. The terminal-illness benefit was only a right to bring forward payment of that sum. Since no terminal-illness claim had been made before death, the deceased’s contingent right ended when death occurred. Its value immediately before death was therefore nil. The insurer was justified in paying the death benefit to the appellant.
5. Result. There was no valuable severable interest capable of being treated as part of the net estate under section 9(1). The High Court was wrong to order payment into court of one-half of the death benefit.

McCombe LJ considered that the assumed terminal illness gave the deceased an existing proprietary half-share immediately before death. In his view, the later payment as a death benefit did not negate that pre-death right, and the policy proceeds could be used as representing the deceased’s former share.

1. Court of Appeal (Civil Division): On 29 July 2014, by a majority comprising Arden LJ and McFarlane LJ, the appeal was allowed.
2. High Court of Justice, Chancery Division: On 26 September 2012, His Honour Judge Hodge QC determined the preliminary issue in favour of Philip Lim, holding that the deceased had been beneficially entitled to a joint tenancy under the policy to benefit from her assumed terminal illness.