Death benefit cases 1

Trustees must ensure that they gather relevant information before exercising a discretion to pay death benefits. This may include seeking information from family members, colleagues and friends of the deceased. Another obvious source of information is the member's expression of wish form. However, care should be taken not to blindly follow the expression of wishes form if the member's personal circumstances have changed since it was completed. The following cases illustrate the Ombudsman's approach in practice.

MacKay v Oban Times Scheme Trustees (22.2.00) J00296

In this case the widow of a member complained she had suffered injustice involving financial loss as a result of the trustees' maladministration in failing to award her the lump sum benefit from the scheme which became payable following her husband's death. The lump sum was payable by the trustees "as they see fit" to one or more of beneficiaries. "Beneficiaries" were defined as the member's widow or widower, his grandparents and their descendants and spouses, widows or widowers of those descendants, the member's dependants, anyone with an interest in his estate and anyone he nominated in writing to the trustees.

Before reaching a decision on the distribution of the lump sum, the trustees gave much thought to the question of to whom it should be paid. In his conclusions, the Ombudsman suggested that an obvious source of information to help answer such a question would have been the expression of wish form. However, in this case, the member had visited the Personnel Manager (who herself was a trustee) two months prior to his death and asked for the return of his expression of wish form. The member told her that he did not wish his wife to benefit from any lump sum following his death and he was given a new expression of wish form by the Personnel Manager for completion. He failed to return the new form and no such form was subsequently found.

The trustees discovered that the member had been married in 1995 but separated from his wife in 1997. It appeared that his wife had instigated divorce proceedings during 1997. Given that the member had not completed a replacement expression of wish form and knowing that his wife had instigated divorce proceedings some four months before his death, the trustees were not minded to make payment of the lump sum to his widow. The trustees were aware that the member had two grown up children from a former marriage and, in exercise of their discretion, elected to distribute the scheme lump sum equally between them. The widow objected to this decision.

The Ombudsman stated that it would be impossible for him to find that the trustees failed to exercise properly their discretion as to the disposal of the lump sum. The matters they considered were relevant to their decision and they had not been shown to have considered any irrelevant matters. He decided it was not open to him to interfere with their decision to prefer the children to the widow in exercise of their discretion. Only if it were established that the trustees had acted improperly or irrationally or misdirected themselves, could the Ombudsman find them guilty of maladministration. Accordingly, he did not uphold the complaint against the trustees.

Dewhurst v Standard Life (15.6.99) H00527
The complainant alleged injustice arising from maladministration by the administrator of the scheme (Standard Life) because it paid out death benefits without being in possession of all the relevant information.

Solicitors acting for the complainant had written to the administrator to inform them of the death of the member. The administrator confirmed that it held a nomination in favour of two other beneficiaries, and invited the complainant to provide information as to her "personal circumstances" so that it could consider her claim to the death benefit. The complainant's solicitors replied setting out in some detail the history of her 30 years of marriage to the member. The complainant further sought to establish her claim to the death benefits by contending that she had made a considerable financial contribution to the marriage, particularly at times when the member had been unemployed or in difficulty with his business. However, the administrator, believing the nomination to be a true reflection of the member's wishes, issued payment to the two beneficiaries for the total death benefit.

Following an enquiry by OPAS, the complainant learned that the death benefit had already been paid out. A customer services representative in the administrator's claims department told OPAS that she had exercised the administrator's discretion with regard to the settlement of the death benefits on its behalf. When asked why no account had been taken of the letter from the complainant's solicitors she stated that she had no record of receiving it. In its formal response and later correspondence, the administrator accepted that it had received the complainant's solicitors' letter but that it had been retained wrongly in another department instead of being forwarded to its claims department.

The Ombudsman felt that the purported exercise of discretion by the administrator was invalid not because it came to a decision which was clearly wrong but, fundamentally, because it had not been in possession of all the relevant information. The Ombudsman found that the administrator's failure to consider all the complainant's solicitors' letter, which meant it was not aware of all the circumstances of the claim, in compliance with its own professed procedures set out in the nomination form, was compounded by the administrator's failure to reply to three reminder letters from the complainant's solicitors. The Ombudsman stated that, in purporting to exercise the discretion for the trustee, the administrator must have been prepared to observe fiduciary duties involving the "utmost thoroughness and care" in accordance with the rules. He said it was clear that the administrator had failed to put in place adequate procedures to ensure that its staff who carried out these duties on its behalf were properly authorised to do so or that they understood the full seriousness of the duties they were required to perform. It also failed to monitor them to ensure that their actions met the standards required of a fiduciary.

Furthermore, the administrator was criticised for its failure to keep records of its formal decision and the reasons for reaching it. In his directions, the Ombudsman recommended that the administrator should consider taking measures to provide all staff authorised to handle and settle claims with personally addressed letters stating this fact and setting out clearly the terms of their authorisation and any restrictions or limitations. Secondly, he suggested the administrator review its audit procedures to ensure that no formal documents are removed from a claims file and destroyed without insuring that an adequate copy has been retained in its long term record systems.

Anker v Sunnybank Fabrications Scheme Trustees (3.9.99) H00727
The Ombudsman expressed concern that the distribution of the lump sum death benefit appeared to have been simply a result of negotiation between the insurer and the solicitor acting for a potential beneficiary. According to the Ombudsman, it was clear that the trustee had never given any consideration to its powers and responsibilities in respect of the death benefits payable. By its own admission, no resolution had been made about the distribution of the lump sum. This was sufficient to constitute maladministration, even though the Ombudsman emphasised that there was no suggestion that the trustees would have come to a different conclusion had they considered the issue properly.

McGovern v Unilever Scheme Trustees (1.11.99) J00031
In this case, the father of the deceased complained that the trustees had failed to carry out the wishes of his dying son in respect of the payment of the lump sum payable on his son's death.

The member was diagnosed with cancer which proved terminal. Shortly before his death he met privately in hospital with his father at which time, the complainant alleged, he gave his father a list of assets which included the pension lump sum and appointed him as his executor. The complainant alleged that his son instructed him to carry out his wishes. The member told his father that he would telephone the employer's solicitor the following day to draw up a will. This did not happen. Two days before his death his line manager visited him in hospital with a form which would allow him to nominate his girlfriend for a dependant pension and also with the form which dealt with the lump sum death benefit. The form was filled out to name his fiancé as the person to be considered for a 100 per cent share of the lump sum benefit. The line manager went through the implications of signing each of the forms several times. She said that the member, although very weak, acknowledged with a "thumbs-up" sign and nodded at the forms in front of witnesses. All the witnesses were comfortable that the member had understood the purpose of the visit and the outcome. He had then signed the nomination form. The complainant later asserted that due to the advanced state of his illness his son had not been in a position to make any decision over such matter and alleged that the purported nomination of his girlfriend was invalid.

The Ombudsman found that there was sufficient documentary evidence to enable the trustees to conclude that the member had known what he was doing and intended to do it. He stated that the trustees had been under no duty to make any further enquiries and consequently he was not prepared to overturn their implicit conclusion that the form signed on his deathbed had revoked the form he had made seven years previously.

Goodland v Seetru Scheme Trustees (28.2.97) D12153

This case involved the oral nomination of a beneficiary by a member on her "death bed" to a solicitor. The beneficiary was the member's colleague. The question arose as to whether the nomination was effective so as to override a previous nomination of the lump sum to the member's estate. Shortly before her death, the member's solicitor (who was also a trustee) visited her to discuss alterations to her will. The purpose of his visit was to discover the value of her estate including the value of the death benefit payable from the scheme. He telephoned her with the information and the member expressed a wish that a colleague should receive part of the lump sum although no amount was specified. Before an engrossment of the will could be made and signed, the member died. The trustees decided to dispose of approximately two-thirds of the total lump sum death benefits to the member's colleague. The complainant, her elderly father and dependant, objected to what he said was an improper exercise of discretion.

This case involved a conflict of rules as new rules had been proposed which extended the category of persons who could be regarded as "dependants" and could be considered by the trustees as potential recipients for the benefit, and included any person whom the member had notified to the trustees and any person beneficially entitled under a will. Under the old rules the category was more restrictive, requiring financial dependency or for the proposed beneficiary to be related to the member, neither of which covered the colleague. However, it was decided that since the old rules still applied, the notification in favour of the colleague should have been disregarded as the member could not nominate him under the old rules and the only valid nomination that was made was the earlier one to her estate.

The Ombudsman held that even if the new rules were in force at the date of the member's death, it was not accepted that the member intended, or was in a fit state of mind to make, any effective notification in the first place. Further, such notification would have to had to have been to the trustees, whereas the solicitor's conversation with the member was patently in his capacity as her solicitor advising on her will, not one of trustee. The Ombudsman held that there had been a breach of trust and maladministration and that the resolution in favour of the colleague must be set aside.

Elson v BT Supplementary Scheme Trustees (19.5.98) F00859

This case involved a complaint by the dependant of a deceased member who alleged that the trustees had improperly exercised their discretion in relation to the lump sum death benefit payable on the member's death and that the administrator and those employees of the employer's Welfare Department who were most directly concerned with the matter were guilty of maladministration in not ensuring that the members last wishes were implemented.

The member was told that three- quarters of the lump sum death benefit would be paid under the main scheme, the remainder being paid under a supplementary scheme. The member was told that the supplementary scheme was separately administered from the main scheme and had different trustees. The member filled out an expression of wish form in relation to the supplementary scheme in 1990. This nominated her parents and brother to receive the death benefits. She did not fill out a form in relation to the main scheme. A year later she moved in with the complainant in what she and the complainant intended to be a long term relationship. The complainant subsequently became a house husband and was partially financially dependent on the member. A subsequent handbook was sent to the member which made no mention of the supplementary scheme whatsoever. In 1992 the member completed an expression of wish form for the main scheme, requesting the trustees to pay any lump sum payable under the scheme to the complainant. Just above the place for signature, the member wrote "This expression of wish cancels any previous expression of wish I have completed relating to the benefit payable under the scheme on my death".

Various communications ensued between the member and the employer's Welfare Department after she had been diagnosed as having a terminal illness. The employer's Welfare Department believed the expression of wish form to the main scheme was all encompassing. They were not aware that the member had signed an expression of wish form for the supplementary scheme in 1990 or even that there was such a form (as membership in the supplementary scheme was not then open to people in the members grade). A year later the member made a will leaving everything to the complainant. Several months after that the member died.

A week after her death the employer's Welfare Department wrote a confidential memo to the trustees which said that the member had been in regular touch with the department for six months prior to her death. It identified the complainant as being the member's common- law husband and explained that they had had a very close and caring relationship over several years and that the complainant had been nursing her all the way through her illness. It added that the member's parents who were separated were financially independent and had satisfactory incomes relative to their needs and that the member had never married and had no children or dependants. This memo was correct except that it did not state the complainant's financial dependence on the member.

The trustees of the main scheme exercised their discretion and paid the lump sum under the main scheme to the complainant. Three months later the trustees, having reconsidered their decision in the light of the earlier expression of wish form, paid the lump sum death benefit to the relatives in accordance with the earlier expression of wish form.

The Ombudsman found as a fact that the member had thought she had effectively cancelled the earlier expression of wish form for the supplementary scheme by completing the other one two years later. He stated it was "overwhelmingly apparent" from the papers that the member wanted the complainant to receive all the death benefits when she died and that she had thought she had taken care of all steps to ensure that this could happen. The Ombudsman ruled that in paying the lump sum death benefit to the member's relatives, the trustees were acting contrary to the member's wishes. They also paid money to relatives who were financially independent of the member, as opposed to the complainant who was a potential beneficiary twice over in that he was partially financially dependant on the member and also the sole beneficiary under her will.

He also found the employer, through its Personnel and Welfare Departments, guilty of maladministration in failing to mention the supplementary scheme in the handbook and failing to ensure that Welfare Staff advisers were aware of the supplementary scheme. He found that when the trustees reconsidered their original decision they posed the wrong question relating to the earlier form. Except that the form still existed, there was no evidence to suggest that the difference between the two forms was intentional, and in fact there was every indication that the difference was unintentional.

Moreover the trustees had acted out of a "misconceived view" of the weight to be attached to the form. The rules did not give priority to persons nominated in the expression of wish form. However, by treating the form as overriding, the trustees were distorting, and hence not acting in accordance with, the terms of the discretion conferred upon them. Although the trustees paid "lip service" to the principle that they had a discretion to exercise, the Ombudsman felt that they had in fact fettered their discretion out of existence. The Ombudsman considered that the trustees should have realised that the earlier expression of wish form could not represent the member's wishes, and should have ignored it.

Then they should have made further enquiries. The Ombudsman stated that one obvious line of enquiry would have been to find out whether the complainant was financially dependent on the member. Another obvious line of enquiry would have been to hear what the Welfare Department had to say about the earlier expression of wish form. The trustees would then have realised that the Welfare Department knew nothing about the earlier form and hence had not advised the member in respect of it.

Redford-Gyseman v Legal and General (28.3.00) J00400

The complainant, the ex-husband of a deceased member, alleged that he had suffered injustice as a result of maladministration by the administrator's failure to award him the lump sum benefit which became payable following the member's death. At the date of her death the member had been separated from the complainant for eight years and divorced from him for three years. Under the scheme rules the lump sum was payable by the trustees "at their discretion" to either the member's estate and/or the person named in the latest nomination. At the time of joining the scheme, when still married, the member had nominated the complainant as the person to whom the lump sum should be paid in the event of her death before retirement. Soon after learning of her death, the trustees discovered that the member had been separated from the complainant for eight years but the complainant had not been replaced as her nominated beneficiary under the scheme.

Consequently, the trustees felt that they should delve more deeply into the members personal background before deciding how they should exercise their discretion in respect of the lump sum. The trustees contacted the complainant as well as two brothers of the deceased member. The trustees noted that the complainant did not feature as a beneficiary in the member's will. They concluded that they should exercise their discretion in respect of the lump sum in favour of her estate. The complainant alleged that, although divorced, his relationship with his ex- wife was amicable thus accounting for the fact that she had not notified the trustees of any change of her nominated beneficiary. However, the trustees discovered evidence which demonstrated that the relationship between the complainant and the member was far from amicable.

The Ombudsman found that the trustees had taken "considerable steps" to ensure that they considered all material aspects of the members personal circumstances. He decided not to uphold the complaint or to interfere with the trustees' decision.

Guise v Equitable Life (7.2.00) H00468

In this case the complainant alleged that the trustee and administrator had acted perversely and contrary to the deceased members wishes in paying half of the proceeds to another beneficiary. The complainant had been the member's partner for a number of years prior to his death and was named in the expression of wish form as the beneficiary to whom the lump sum benefit should be paid. She was also the full beneficiary under the member's will. The administrator confirmed to the complainant that arrangements were being made to pay the proceeds of the plan to her but that the whole benefit could not be paid as a lump sum as under the rules it was only permitted to pay up to a certain amount. The balance of the proceeds would be used to buy a pension.

However the administrator subsequently paid half of the proceeds of the plan to the member's wife after a phone call from her explaining why she thought she was entitled to the benefits under the plan. The member's wife had objected to the distribution of half of the lump sum death benefit to the complainant, claiming that her late husband had fully supported her until he became ill. She stated that although she and her husband had separated, their relationship had remained amicable. She also alleged that there had been further "problems" recently when it had been discovered that her signature had been falsified on legal documents transferring shares out of her name and the proceeds stolen. This matter was being investigated by the police. She further claimed that naming the complainant as a beneficiary of the plan and in the member's will had been under duress.

The Ombudsman found that both individuals qualified for consideration as potential beneficiaries under the plan. He ruled that the administrator's decision had been "perverse" in that it had received and considered prejudicial allegations without properly testing their truth. No evidence had been provided to substantiate the allegations against the complainant. Further, at no time was the complainant given the opportunity to comment on these allegations.

The Ombudsman did not accept the administrator's claim that no weight was given to the allegations. He ruled that the alleged matters were taken into account as being relevant even though the allegations were later considered to be unfounded. He stated "It would be perverse for trustees, as for other discretionary decision makers, to receive and have regard to prejudicial allegations on relevant matters without properly testing their truth, i.e. giving any persons potentially adversely affected by an appropriate and timely opportunity of refuting allegations". He directed the administrators to reconsider properly the complainant's claim for the whole of the lump sum death benefit from the scheme.

Horwood v Dixons Scheme Trustees (21.12.99) J00013

In this case, the complainant alleged that the trustees had wrongly distributed one-third of the lump sum benefit payable on the death of her husband to his mother. The member had not executed a will but shortly after his death the police extracted a document from his computer headed "Last Will and Testament" mentioning a number of family members and friends. He left the majority of his possessions to his wife. He did not complete an expression of wish form in respect of any of his benefits.

A short time later, one of the member's colleagues made a statement to the effect that the member had told him that his wife had been having an affair. The member had been given a week off work in order to deal with his domestic problems and a week later had contacted his colleague to discuss obtaining a divorce and separating his finances from those of his wife. The scheme liaison officer of the scheme then visited the member's mother. His mother had made a number of prejudicial statements about the member's wife based on information provided to her by her son in the days leading up to his death. The mother also told the scheme liaison officer that the wife had been responsible for the member's death and mentioned an argument she had overheard between the member and his wife on the night before his death. The complainant refuted the comments on the state of her marriage.

The trustees resolved to exercise their discretion to pay one-third of the death benefit to the complainant, one- third on trust for her son and one- third to the member's mother. The complainant had seen none of the reports prepared by the scheme liaison officer until produced by the trustees as part of the Ombudsman's investigation. She admitted that her marriage was unhappy but challenged many of the other allegations made against her and much of the factual basis of the mother's account of events. In response, the trustees submitted that the complainant was less than forthcoming at her meeting with the pension liaison officer and "inferred" matters about the stability of the marriage such inferences now appearing to be untrue. The complainant's solicitors submitted that the trustees took account only of information that the marriage was not stable at the time of the member's death and that the member had told his colleague and his mother that his wife had been having an affair. They submitted that the trustees did not take account of the length of the marriage, the fact that the member was living at the matrimonial home at the time of his death, the history of family disagreements and the unsigned "Will".

However, the Ombudsman found that in failing completely to take account of the "Will", the trustees had failed to take account of a relevant document and that their decision was perverse on that basis. Further, he expressed concern that the complainant was not given an opportunity to challenge the statements made by the member's mother and by his colleague. Both those statements included hearsay evidence (which the trustees were unable to verify) which was bound to prejudice the complainant in the eyes of the trustees. He ruled that the complainant should have expressly been given the opportunity to comment on them. The trustees should have given the complainant the opportunity to comment on the report and should properly have taken any comments into account. The failure to do so rendered their decision perverse in the sense described in [1995] OPLR 79 in that they failed to obtain and take into account relevant information.

Ombudsman approach to remedies
In cases where there has been an incorrect calculation of the death benefits payable resulting in a lower amount actually being paid out to the beneficiary, and the Ombudsman has found that this has constituted maladministration, the usual remedy awarded is for the death benefits to be re-calculated according to the scheme rules. Most awards will include the accumulated arrears for the money due plus interest on the difference. In some cases, the Ombudsman will award compensation of an amount anywhere between GBP 50 and GBP 200, to compensate for the stress caused by the payment of the incorrect benefits. An example of this is case G00434 where the complainant was aware GBP 200 for the stress and inconvenience caused.

In case H00069, the complainant was wrongly led to believe from benefit statements sent to the member that death benefits would be payable. The Ombudsman finds that such cases clearly constitute maladministration. However, in cases where the only injustice caused is disappointment as opposed to demonstrating financial loss arising from detrimental reliance on the incorrect statements, then the Ombudsman will not usually make any pecuniary award since there has been no loss and no benefit is payable under the scheme rules. However, in this case he stated that "disappointment is certainly a loss" and awarded the complainant GBP 100 compensation.

However, where the beneficiary has in fact been receiving more than they are entitled to, the Ombudsman has demonstrated a pragmatic approach. In case G00278, a widow received a higher pension than she was entitled to for six years. The Ombudsman found that this had constituted maladministration but that no financial loss had resulted. In addition, the excess payments to the widow were not being reclaimed. The Ombudsman quoted the extract from [1996] OPLR 95.

"Compensation... should put the plaintiff in the same position as if the informant had performed his duty and provided correct information, not put him in the position in which he would have been if the incorrect information had been correct."

In this case the Ombudsman made no directions against the employer and did not consider it appropriate to make a pecuniary award for the widow's distress and inconvenience in the form of reduced expectations as she had already been receiving in excess of her strict entitlement for the previous six years.