Bankrupt former self-employed builder Alan Rawlins has discovered a loophole in the law.
Rawlins believed in protecting himself and his family financially and took out a life policy and an endowment policy both with critical illness add-ons, just in case anything was to happen to him.
But in 1993 he fell off a ladder and broke a vertebra and has not worked since.
By the time his critical illness (CI) policy paid out he was declared bankrupt as a result of unsuccessfully defending a negligence claim relating to work he performed.
Following a complex legal battle, the proceeds, which amounted to £85,000, were claimed by the trustee Moore Stephens, acting on behalf of Rawlins’ creditors.
Rawlins disputed this claim but last year the Court of Appeal ruled that creditors could take the proceeds of a bankrupt person’s CI policy.
Rawlins then took his case to the European Court of Human Rights to argue that his case discriminated against a disabled bankrupt in favour of a working bankrupt, according to the Insolvency Act 1986.
But the ruling from the European Court of Human Rights says the case is inadmissible.
Rawlins, 62, who now lives on state benefits, believes the European Court has discriminated against him. But he won’t give up his fight. He says: “A working bankrupt can keep the majority of his earnings and creditors would only be allowed to take a certain amount so that the person and their family could have enough to live on.
“All benefits that would have and should have lasted me for the rest of my life were taken away. That doesn’t sound civilised.
“How can you justify that? There is a section of law that fails to protect my situation. It is vile, immoral and it stinks.
“My total permanent disability benefit would have been a payment in the nature of ‘income’, but I have never seen a penny of the benefit.”
The Association of British Insurers’ CI working party chairman, Nick Kirwan, believes the case for changing the law is “overwhelming”.
“When the situation involves a case of total permanent disability and the person cannot work again it is especially worthy of ringfencing,” he says.
“If the law was to be changed, legislation could be drawn up with the fact in mind that people cannot select against the creditors because people are not eligible to take out this kind of cover after the illness.
“This means people cannot be trying to avoid their creditors and hiding their money away.
“By any standards, these are people in society we should be helping and deserve some protection in the law.”
Kirwan is pleased the case was highlighted in February this year in the House of Commons where Rawlins’ local MP, Liberal Democrat Richard Younger-Ross for Teignbridge, Devon, began moves to change the law. The initiative has won the support of five other MPs.
Dominic Thomas, an assistant solicitor at Davies Lavery, a firm of solicitors that deals with insurance issues, says: “There does seem to be a gap in the law. Rawlins is caught up in a catch-22 situation. He is better off working because a working bankrupt can retain a certain proportion of his wages for the needs of him and his family. But he cannot work and that’s the injustice of it.
“The ruling from the European Court of Human Rights went against him and the court gave no reason.
“It’s horribly unfortunate, a tragic scenario. It’s a loophole in the law which those responsible for drafting the Insolvency Act clearly failed to appreciate.”
Thomas continues: “Parliament should address the issue and it is in its interest because it is taxpayers’ money that is paying Rawlins’ state benefits when he would otherwise have had the benefit of CI cover.”