Death, Divorce and Dollar Amounts: How Life Insurance Is Being Used as Security for Support Payments
Dagg v. Cameron Estate, 2017 ONCA 366
This recent decision alters the way Canadian legal minds view the treatment of insurance in cases of spousal or child support. It also offers further definition of the payor/payee relationship in cases of spousal and child support as one of a creditor and debtor.
Stephen and Anastasia Cameron married in September of 2003. During this marriage, they had two children. In 2010 Stephen took out a $1 million-dollar life insurance policy from Canada Life Insurance Company. In this policy, Anastasia was the beneficiary and Stephen was the owner.
The couple separated January 13, 2012, and that September, they started legal proceedings. In early 2013 the presiding judge, Roswell J. made a consent order requiring Stephen to pay monthly child support and spousal support to Anastasia. This order also stipulated that Stephen would keep Anastasia as an irrevocable beneficiary of any life insurance policy. This way, in the event of his death, she would still get the money she was entitled to.
Following the separation, Stephen began a relationship with Evangeline Dagg in January of 2012. Though they never married, she became pregnant in 2013 and had a son with Stephen in February 2014, giving birth 3 months after Stephen passed away from cancer.
In the November before his death, Stephen executed a Last Will and Testament and a Canada Life Title form. These two documents amended the beneficiary designation. Instead of Anastasia being the sole beneficiary of the insurance policy, the will indicated that she would receive 10%, his two children would receive 17% and 19.4% respectively, and Evangeline would receive 53.6%. When Anastasia learned about this change, she brought a motion seeking to restore her designation as the sole benefactor under the policy, claiming Stephen was $18,000 in arrears for child and spousal support.
Justice Nelson heard the motion and found that Stephen was in breach of the Justice Roswell’s previous order. He then ordered that Canada Life Insurance Company be directed to amend the beneficiary designation to its original state. The insurance company complied, and Stephen died soon after.
Evangeline subsequently brought an application under section 72(1) the Succession Law Reform Act (SLRA) against Stephen’s estate. This section of the SLRA deals with support for dependents. Essentially, she was asking the court to “claw back” a portion of the $1 million benefit for that support of herself and her child. However, this section does not affect the rights of creditors of the deceased in any transaction with respect to which a creditor has rights (SLRA s. 72(7)).
The question before the court therefore became whether Anastasia was a creditor of the estate in this context.
While the Divisional Court ruled that Anastasia was not a creditor of the estate, the Court of Appeal overturned this and declared that she was. The Court of Appeal recognized that the court can order a payor of child or spousal support to get an insurance policy that names the payee as the benefactor, and that the payor/payee relationship was inherently that of a creditor and debtor. However, the court clarified that life insurance is not meant to give the beneficiary a windfall gain, but rather act as security to ensure that the recipient gets what they are owed.
Therefore, the Court of Appeal declared that Anastasia was a creditor who could make a claim to the proceeds of the policy, but only up to the amount that she was owed based on the court order for support that was in place upon Stephen’s death. Then Evangeline would be able to make a claim for any remaining money under the SLRA if she was found to be a dependent of Stephen’s at a subsequent trial.