The heirs of a deceased borrower under a credit agreement

Article 382(3), last sentence, of the Insurance Code, effective from 01.01.2016, expressly provides that, in relation to payment under insurance of the kind described in paragraph 1, the debtor’s heirs, co-debtors and guarantors under the loan have the rights of an insured person, except the right to receive the insurance proceeds up to the outstanding amount of the debt. This protects the interests of the insured borrower’s heirs and co-debtors when an insured event occurs: they may sue for payment of insurance proceeds owed to a third party, the creditor.

The legislative history supports this reading. The explanatory memorandum to the Insurance Code bill is available at https://www.parliament.bg/bills/43/502-01-75.pdf.

“To safeguard the rights of a debtor whose debt is secured by insurance, and those of the debtor’s heirs, it is proposed that they have the rights of an insured person except the right to receive payment of the insurance proceeds for the outstanding portion of the loan or credit. Thus, if the creditor takes no action to pursue the insurance claim, the debtor or the debtor’s heirs will be able to act directly in relation to the insurer, including having standing to bring proceedings.”

Under the repealed Insurance Code, the Supreme Court of Cassation, ruling under Article 290 of the Code of Civil Procedure, delivered Judgment No. 138 of 05.01.2016 in commercial case No. 1727/2014. It recognised the deceased borrower’s heirs’ standing to sue under Article 134 of the Obligations and Contracts Act even though the borrower had no claim against the creditor under the credit agreement. Standing was based on the creditor’s right and duty to assert the rights arising under the insurance contract.

Under Article 382(3), first sentence, of the Insurance Code, when a debtor dies who was insured under paragraph 1 in respect of a non-pecuniary personal interest, the creditor must exercise due care and take all necessary steps to claim and secure payment by the insurer of the sum insured under the contract.

Read together and in light of their history, the first and last sentences of Article 382(3) mean that if an insured event occurs and the creditor fails to pursue the insurer for payment, the deceased borrower’s heirs and any person liable under the credit agreement have standing to sue the insurer. They may ask the court to order the insurer to pay the creditor the insurance proceeds due, up to the outstanding loan balance. The court must join the creditor for whose benefit the insurance was taken out as a co-claimant (Article 26(4) of the Code of Civil Procedure).

Article 456 of the Insurance Code deals with a direct action where the debtor has already paid the creditor. The special provisions of Article 382(1) and (3), by contrast, govern the debtor’s right, or that of the heirs and co-debtors, to sue if the creditor fails to act.

This article is not a legal opinion or legal advice about any particular person or situation. For assistance with a specific case, consult a lawyer.