Insurance Policies - Hull on Estates #192
Listen to: Insurance Policies- Hull on Estates #192
This week on Hull on Estates, Rick Bickhram and Natalia Angelini discuss the estate of Michael Galliford Richardson, specifically in regard to insurance policies.
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Insurance Policies -
Natalia Angelini: Hello and welcome to
Welcome to
Rick Bickhram: Hi and welcome to another episode of
Natalia Angelini: And I’m Natalia Angelini.
Rick Bickhram: If you want to be heard on
Natalia Angelini: So today we’re going to be blogging on a fairly recent decision in the Richardson Estate. It’s a decision of the Honourable Justice Strathy that was upheld in the Court of Appeal. And it’s dealing with insurance policies. Some of the key facts are that the deceased had a long-time, first marriage. He married in 1965. They had 2 children. He was a rising star in his field and his wife had given up her job to raise the children. And by 1990, which is some 20 or 30 years later, he really was at the pinnacle of his career and was quite successful at that time. At around that time, he became involved with another woman who later became his second spouse and that led to a separation from his first wife and a divorce with her in 1992, followed by the marriage to his second wife immediately thereafter. Then in 1994 he entered into a separation agreement with his first wife and its provisions are what are relevant for the purposes of the litigation.
Rick Bickhram: Correct. And one of the provisions that are relevant is particularly the provision dealing with the insurance policy. Pursuant to the separation agreement, the deceased was required to maintain an insurance policy for his first wife which might be varied pending any future variation proceeding.
Natalia Angelini: So the separation agreement specifically says that the deceased would maintain the policy with his first wife as beneficiary until 1995. And it also says that the amount of life insurance which the deceased would be required to provide for his first wife, if any, after 1995 would be an issue to be determined in a variation proceeding that was contemplated earlier in the agreement. So it’s noteworthy that that was explicitly contemplated. It’s also noteworthy that even though the parties released each other in the separation agreement, one of its terms also said that the earlier provision dealing with the insurance policy and the contemplated variation was binding on the Estate and would constitute a first charge on the Estate. So even though they had those releases, it was clear as between them that this insurance issue was not put to bed.
Rick Bickhram: Correct. Moving ahead, in 1994 to comply with the separation agreement, the deceased executed a beneficiary designation which was revocable but nevertheless it appointed his first wife as the beneficiary under the policy.
Natalia Angelini: Right and that was because he had actually accidentally changed…I’m not sure if it’s accidental…but he had changed it a year earlier because he had lost the policy and he had put his second wife on as the beneficiary. So he corrected that in 1994.
Rick Bickhram: I think it’s interesting to note that in the second wife’s evidence she asserts that Michael told her, or the deceased told her that this 1994 beneficiary designation was just a temporary measure and that it would later…you know, he would rectify it later down the road.
Natalia Angelini: Right, her evidence was that she would be re-designated as the beneficiary. So then what happened is the deceased never revoked the beneficiary designation and continued to make the premium payments up until 2006 when he was able to…it was really up until the time he was able to do so. And by that time, he had been suffering with Alzheimer’s and the 2007 premium was actually paid by the second wife. And that’s another noteworthy point.
Rick Bickhram: Also I thought what was pretty interesting was between 1995 through to 2007, just before his death there were proceedings that were commenced and it dealt with variation of support, right? So remember earlier on, we discussed that the quantum of the insurance policy might be changed pursuant to any future variation proceeding. And between 1995 and 2007, I believe there were two variation proceedings.
Natalia Angelini: Right, so the support arrangements were varied and yet the insurance issue was actually never addressed. And I think that likely played a part in the decision because it I guess goes to the inference that had he actually intended to revoke it, it would have been addressed at some point during those prior proceedings. Instead the fact that he didn’t I think lends support to the position that, you know, he either no longer intended to or for perhaps some other reason, I mean we’re speculating. But for some other reason he was content with leaving things as they were. So the issues for the Court were really to decide two questions: whether the second wife should be entitled to the equitable remedy of constructive trust to prevent the alleged unjust enrichment to the first wife; or alternatively should the designation be rectified?
Rick Bickhram: Yeah, and I guess going through the analysis of constructive trust…do you want to…hold on for one second.
Natalia Angelini: I’ll do this next little bit.
Rick Bickhram: Okay.
Natalia Angelini: So in terms of the analysis, at first instance Justice Strathy did a fairly comprehensive analysis and looked at a variety of cases. So it is an interesting read. And some of the things he notes are that, you know, the designation of a beneficiary in a policy is normally unsalable. It’s a solemn act and it does not require the consent of the insurer. It’s often done privately and it is akin to a testamentary disposition. And there are various authorities that support those statements. However it used to be that the divorce had the effect of revoking the designation. And that changed in the 1970’s with the result that unless the insured person had irrevocably appointed a former spouse as a beneficiary, he or she was free to retain or change the beneficiary. And, you know, subsequent case law that Strathy also reviews established that the designation of a former spouse as a beneficiary not only survives divorce but it’s not affected by a general release in a separation agreement.
Rick Bickhram: And I think that’s a very important point for, I guess, all the parties who are considering divorces.
Natalia Angelini: Absolutely. So it seems that after His Honour’s analysis that he came to the conclusion that the case law supports a strict interpretation of the Insurance Act requirements for the change of a beneficiary of a policy, except in exceptional circumstances. And it seems the second spouse was relying on a couple of cases that adopted a more equitable approach and Justice Strathy addressed those and found them distinguishable. And Rick, maybe you can just briefly touch on what those cases were about.
Rick Bickhram: The Court held that the cases were distinguishable. One of the reasons why it was distinguishable was because this case,
Natalia Angelini: Right, so in that case the deceased had been continuing to support his spouse that he was separated from and his children. And when he sold his business, the Court found that the buyer had an implied contractual obligation to consent to the transfer of the policy and change of the beneficiary designation. So essentially the policy was rectified and it was transferred to the Estate. And it really seems to make sense in that case. I mean, I think at its core the conclusion was that the deceased didn’t intend to give a windfall to the buyer of his business at the expense of his spouse. And Justice Strathy notes that. Now the second case is another sort of…I mean it doesn’t deal with a business but it’s another case where I think it was fairly clear that the deceased had really…let’s just say there was no love lost between her and her ex-husband. And she never changed the designation of him as her beneficiary because she believed that it had all been taken care of in their separation proceeding. And without getting into too much detail, the evidence really supported that. So, you know, the Court had found that the ex-husband’s claim on the policy was really a breach of the separation agreement where he had released all of his rights in his wife’s property. So Justice Strathy notes that this is really a different case, the one that was before him. And the deceased had long-standing relationships with both the first and second wife in this case. They were seemingly loving and caring wives who made substantial contributions to his happiness and well-being. And His Honour just couldn’t find this to be one of those situations that cried out for relief.
Rick Bickhram: With respect to the claim for rectification, Justice Strathy considered the argument made by the second wife here. And he first of all states there is no doubt that the Court could rectify the policy where there was clear evidence of the deceased’s intentions. And specifically what he was looking for was the intention that the deceased wanted to change the designation, the insurance designation or the beneficiary designation more properly stated. And the problem here was that there was no clear evidence indicating what the deceased intended to do. Going back briefly on the facts, there were two variation proceedings where the deceased could have changed the insurance policy. But again he didn’t do it. I think the Court holds here…Justice Strathy holds here specifically and says “I am unable to say with anything approaching the level of confidence necessary to grant rectification that the evidence establishes that the continuation of the first wife as the beneficiary of the policy was a mistake”.
Natalia Angelini: Right, I mean the fact is there was no evidence before him at all that it was a mistake. And I think there was some speculation as to, you know, why he didn’t change it. And I guess that just doesn’t suffice for the Court. So at the end of the day the first wife was successful. But it is interesting to note that neither the first or the second spouse made any claims for dependant support under the Succession Law Reform Act. I mean they both could have done so and it’s sort of curious that neither of them did. And there was also one other side issue.
Rick Bickhram: And I think that side issue dealt with the Power of Attorney. While the second wife asserts that she acted as a Power of Attorney for the deceased and while he was alive she could have used that Power of Attorney to change the beneficiary designation. And Justice Strathy objects to that and he says that insurance beneficiary designation is akin to a testamentary disposition and the Power of Attorney doesn’t have the authority to change the beneficiary designation in that circumstance.
Natalia Angelini: Right, I mean he even sort of queries whether that would amount to a breach of fiduciary duty because when a grantor has himself made no change to the designation for many years, its likely not proper for an attorney to make that change and make it so that he or she is the new beneficiary. In any event, it ended up being a moot point because the designation was never changed. But it’s just an interesting note for anyone with a Power of Attorney out there who’s contemplating such a step.
Rick Bickhram: I think that brings us to an end of this week’s discussion. Thanks for listening and thanks for joining me today, Natalia.
Natalia Angelini: No problem Rick. It was a pleasure. I look forward to podcasting with you again, maybe in the New Year. And we’ll look forward to hearing from our listeners. Until next time, so long.
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