Foskett v. McKeown

A trustee steals trust funds and uses them to pay the premiums of a life insurance policy settled on innocent volunteers. Can the wronged beneficiaries trace into the policy proceeds and claim a pro rata share? The English courts have not previously considered this issue, although there are plenty of American cases on the point.1 The American authorities are agreed that, where all the premiums have been paid with trust money, the entire proceeds of the policy should go to the wronged beneficiaries. Most also favour the award of a pro rata share in the policy proceeds where trust money has been used to pay only a portion of the premiums. However, while this is likely to be the most equitable method of resolving the latter situation, the English Court of Appeal’s recent decision in Foskett v. McKeown 2 makes it clear that no universal rule can be laid down to determine the parties’ respective entitlements, for the reason that these cannot be decided by reference to equitable principles alone, but must also be decided with regard to the terms of the policy in each case.

Mr Murphy was a trustee of money to which the plaintiffs were beneficially entitled. He effected a whole life policy on his own life in the sum of £1 million, commencing in November 1986. The policy included an element of unit-linked investment. An annual premium of £10,220 was payable throughout his lifetime, and the policy provided that “in consideration of the payment of the first Premium already made and of the further Premiums payable and subject to the Conditions of the Policy the [insurer] will on the death of the Life Assured pay to the Policyholder or his successors in title … the benefits specified”. Condition 4 provided that “units” would be allocated to the policy on the