When going through a separation or divorce, one of the issues that often comes up is life insurance, particularly the onus of one of the parties to carry a life insurance policy that names the other as a beneficiary. This usually arises when one of the parties pays the other spousal or child support, with the insurance policy meant to provide for the party receiving support in the event of the payor’s death. An interesting question recently put before the Ontario Superior Court of Justice is whether such a policy in a standalone clause, or part of a broader clause in a separation agreement.

The policy

The couple were married in 1987 and separated in 2002. They signed a Separation Agreement in 2004. One of the stipulations of the agreement was that the husband was supposed to secure a life insurance policy valued at $500,000 with the former wife (the husband remarried) names as an irrevocable beneficiary. Unfortunately, the husband failed to follow through on this obligation. He had been paying his former wife $6,250 per month in spousal support up until his death in 2017.

As mentioned earlier, the husband remarried. The current wife was names as the trustee of his estate. The former wife brought an application to the court looking to collect the $500,000 she had expected to receive from the insurance policy. Her argument was that the requirement of the husband to purchase insurance was a stand-alone clause of the agreement, and as such it is fully enforceable against the estate.

The current wife opposed the former wife’s application. She was of the opinion that the insurance policy was part of a larger agreement on spousal support, and that any spousal support previously paid should be clawed back from any payout.

The court’s analysis

The court treated the issue as one of contractual interpretation. The test it applies was whether the insurance policy was supposed to act as security for the husband’s spousal support obligations. The court stated it was not ready to assume any language not stated in the contract, which meant that it had to consider the clause to be stand-alone. In its decision the court wrote,

“The logic supporting such an interpretation is clear. One can easily envisage scenarios whereby an insurance clause is intended to not only “secure” support, but to also provide other forms of compensation to a recipient spouse. For example, spouses have been known to leave property to their former partners in their wills as a show of either affection, appreciation, guilt or regret. The same logic can apply to insurance clauses in separation agreements. Perhaps the life insurance is intended to simply “secure” future spousal support obligations. Or perhaps the life insurance is intended to “secure” those obligations as well as show some form of appreciation to a former spouse for the reasons described above. Surely, this analysis must be undertaken on a case-by-case basis.”

The court agreed  with the former wife’s points to support this finding. They were:

• The Separation Agreement contains a lack of express language indicating that the sole purpose of securing insurance was to “secure” support;
• The release section of the contract suggests that the Separation Agreement was intended to be a full and final settlement of all issues, including SLRA matters.  The preamble of the contract echoes this intention.   The intent to resolve matters precludes a finding that the insurance was intended solely as “security” for support since such an interpretation would likely lead to further litigation; and
• There is no “draw down” clause whereby (the husband) could lower the amount of insurance he was forced to secure as his total lifetime support obligations presumably lessened.

The court’s decision meant the former wife was eligible to be paid out $500,000 as a result of the husband’s failure to secure a life insurance policy.

Contact the experienced lawyers at Arbesman Hamilton LLP for any of your estate or family law needs. We work extensively in both family and estate law, and regularly advise clients on a wide range of issues that can touch on both of these areas of law. Contact us online or at 416-481-5604 to book a consultation today.