Securing Support Obligations Through Life Insurance Policies (Part 2)

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BY: VALERIE DYE 

Life insurance policies can be used to ensure that child and spousal support payments continue if the support payor dies. Quite often a court order or separation agreement will specify that the support recipient be named an irrevocable beneficiary of the policy.

This requirement may seem to conflict with the requirements of the Succession Law Reform Act (‘The Act’) which allows the court to claw back money from life insurance policies to provide for persons who have been disinherited from the deceased’s estate.  Under Section 58 of the Act, where a deceased has not made adequate provision for the proper support of any of his dependants, the court, may order that such provision be made from the estate of the deceased for the proper support of the dependants.  Section 72 (f) of that Act allows the court to claw back the proceeds of a life insurance policy to provide such support, even where another beneficiary has been designated under the policy. The case of Stevens vs Fisher provides an example of this.  Ms. Stevens had been the common-law wife of the deceased for eleven years. He left nothing for her in his will, but he had a life insurance policy under which his daughter was designated beneficiary. Ms. Stevens made an application to the Superior Court of Ontario to be paid the proceeds of his insurance policy which was valued at $84,000. The court found that Ms. Stevens had indeed been a dependant of the deceased and that the deceased failed to leave her adequate provision. The Court ordered that $75,000 out of the insurance policy should be paid to Ms. Stevens and that the remaining $9,000 should be paid to his daughter.

How do we reconcile the principle in Stevens and Fisher with the situation where a deceased already has support obligations under a court order or separation agreement and has taken out a life insurance policy to secure those obligations naming the support recipient as irrevocable beneficiary?  Obviously, if the court can claw back the proceeds of insurance policy to provide for another dependant who is not a subject of a court order or separation agreement this would defeat the purpose of the order or separation agreement. This issue was decided in the case of Dagg v Cameron Estate.  Under a court order of July 2013, Cameron was obligated to pay child and spousal support totaling $4,500 each month. The court order stated that his former wife would be named an irrevocable beneficiary of the 1-million-dollar life insurance policy which was taken out to secure his support obligations. Cameron formed another relationship and died while his new partner was pregnant.  Apart from the life insurance policy, Cameron’s estate was insolvent. The new partner filed proceedings seeking support for her newborn son. She relied on section 72 of the Succession Law Reform Act which states that insurance policies can be clawed back and applied for other dependants.  In handing down its decision, the Court relied on section 72 (7) of the Act, which states that money owed to creditors cannot be clawed back and used to provide support for other dependants. As such where, by virtue of a court order or separation agreement, an individual has an obligation to pay support, the support recipient becomes a creditor and the life insurance policy naming the recipient as an irrevocable beneficiary, is used to secure that debt. The Court, therefore, cannot apply the proceeds of this policy to the support of other dependants.

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