The Importance of Life Insurance Clauses
Waldman v. Waldman Estate, 2016 CarswellOnt 19730
This case of the Ontario Superior Court of Justice signifies the importance of life insurance clauses in Separation Agreements and a lawyer’s role in implementing same. Generally, in order to be effective, a life insurance clause in a Separation Agreement must first be put in place and then actually designate one spouse as an irrevocable beneficiary. Without the aforementioned in place, there is no point in having a life insurance clause as proposed security for support.
In this case, the parties separated on February 4, 1997 and the wife retained a divorce lawyer to assist her with the matter. While the divorce lawyer was acting for the wife, he negotiated an Interim Separation Agreement on her behalf. The main issue in the claim against the divorce lawyer arises out of the life insurance provision within the Interim Agreement. The life insurance clause in said agreement provides: “The Husband shall maintain his existing life insurance policy, naming the children as irrevocable beneficiaries and the Wife as trustee.”
The husband never named the children as irrevocable beneficiaries on his life insurance policy as required under the Interim Agreement. Instead, the husband executed a change of beneficiary form for his life insurance, naming his estate as beneficiary in direct contravention of the life insurance policy.
After finalizing the Interim Agreement, the wife retained new counsel. The new lawyer was able to negotiate a final Separation Agreement, which resolved all claims between the parties. Nonetheless, before the final Separation Agreement had been executed, life insurance was a live issue between the parties.
In March 1999, Justice Lack made an Order which provided that the husband must provide confirmation of his life insurance coverage. The husband did not comply with the Order.
In April of 1999, the husband provided an updated beneficiary designation which designated his estate to the wife who held same in trust for the parties’ children. However, the wife realized that there was a significant reduction in the face value of the policy and raised her concerns with her new lawyer.
Ultimately, the parties were able to settle all matters between them, including life insurance, and entered into a final Separation Agreement in July of 1999. Following same, by the terms of the Interim Separation Agreement, the Interim Agreement was no longer in effect once the final Separation Agreement was signed.
Following the parties’ separation, the husband’s life insurance policy provided a death benefit of $1.25 million. Yet, on or about October of 2001, the policy was reduced to $200,000. The husband died in September of 2012, at which time, the death benefit has been reduced to virtually nothing.
The wife then launched a lawsuit which had since been settled against all defendants but the divorce lawyer. The wife’s claim against her divorce lawyer asserted that he should have made sure the life insurance named the wife as irrevocable beneficiary in trust for the children as required by the Interim Agreement. The wife argued that the divorce lawyer’s failure to do so was negligent and has caused the loss claimed.
The motion judge, Justice Mesbur, did not agree with the wife’s claim. Rather, Justice Mesbur found that the wife’s loss occurred when the husband died without the agreed to life insurance in place. Notably, since the interim Separation Agreement had been replaced with the final Separation Agreement, the divorce lawyer could not be liable.
Justice Mesbur went further and noted that the interim Separation Agreement had materially different insurance provisions from the final Separation Agreement as the interim Agreement required the husband to make the wife an irrevocable beneficiary and the final Separation Agreement did not. The wife’s main argument against the divorce lawyer was that he should have made sure that the irrevocable beneficiary designation was in place before he transferred the file to the new lawyer.
The wife argued that if the husband had made the irrevocable insurance designation in a timely fashion, he would not have been able to change the beneficiaries without the wife’s consent. However, Justice Mesbur held that the final separation agreement ended the issue of the interim separation agreement. Justice Mesbur also indicated that the wife was content with the fundamental change between the interim Agreement and the final Agreement given that she signed the final Agreement. In the end, Justice Mesbur ruled that there was no genuine issue for trial and dismissed the claim against the divorce lawyer.