Case law: Life insurance, will and family law obligations

Dagg v. Cameron Estate 2017 ONCA 366: This case is a good illustration of how family law issues can continue long after the case has been initially resolved — in this case, beyond the death of one of the parties.

Stephen and Anastasia Cameron were married in 2003 and had two children. In 2010, Stephen took out a $1 million life insurance policy on his life in which he named Anastasia as the beneficiary.

They separated in 2012. There were several consent orders made that required Stephen to maintain Anastasia as the irrevocable beneficiary on any life insurance policies that he held to secure his child and spousal support obligations.

Stephen began dating Evangeline Dagg shortly after his divorce. They were never married but they had a child in 2013.  Stephen died in late 2013, very shortly after being diagnosed with cancer. Anastasia remained the sole and irrevocable beneficiary on his life insurance policy. Other than this, Stephen’s estate was insolvent.

In 2014, Evangeline brought a dependant support application under s. 72(1) of the Succession Law Reform Act (the “SLRA“) on her behalf and on behalf of her 3-year-old son, seeking that the entirety of the life insurance policy be “clawed back” into Stephen’s estate. This would have meant that the life insurance policy would become part of the estate, allowing her to make a claim to at least some of it.

This provision is restricted by s. 72(7) of the SLRA, which states that s.72(1) “does not affect the rights of creditors of the deceased in any transaction with respect to which a creditor has rights.” Both the trial judge and Divisional Court on appeal found that while Anastasia was an unsecured creditor of the estate, she was not a creditor in accordance with s. 72(7) of the SLRA. This meant that Anastasia’s insurance premium would no longer be irrevocable and could be clawed back into the estate.

Anastasia appealed to the Court of Appeal. Justice Brown held that both the Family Law Act and the Divorce Act provide authority for a court to order a support payor to designate the support recipient as the irrevocable beneficiary of a life insurance policy to provide funds at the time of a payor’s death to satisfy the support obligations.

The Court of Appeal found that the Divisional Court had erred by holding that Anastasia was not a creditor in accordance with s. 72(7) of the SLRA. Money was required to be available to Anastasia to satisfy Stephen’s support obligations to her. Therefore, the amount of money necessary to satisfy Stephen’s support obligations would be protected from s. 72(1) of the SLRA.

An important clarification was made on the purpose of the irrevocable beneficiary for support payment: the irrevocable beneficiary is not entitled to a windfall, but rather to have enough money to satisfy support payments, including any arrears. Any excess can be clawed back into the estate.

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