Separation Agreement: Will Your Life Insurance Clause Be Considered Security for Support or a Stand-Alone Obligation?
Birnie v. Birnie, 2019 CarswellOnt 5594
In Birnie v Birnie, the couple created a separation agreement that included a life insurance clause. The question was whether the life insurance clause was meant to act as security for spousal support or as a stand-alone clause. If the clause was deemed to stand-alone, Ms. Birnie would be entitled to the entire amount under the policy.
Mr. and Ms. Birnie implemented a separation agreement in October 2004. According to the agreement, Mr. Birnie had to obtain a life insurance policy in the amount of $500,000. Ms. Birnie was to be the irrevocable beneficiary of this policy. However, Mr. Birnie never obtained the policy mandated in section 5(g) of the separation agreement. In August 2017, Mr. Birnie passed away.
Ms. Birnie brought an application for summary judgment. She sought $500,000 from Mr. Birnie’s estate in accordance with the life insurance clause. She argued that section 5(g) of the separation agreement was a stand-alone clause. In other words, the insurance policy was not merely security for support payments; instead, the clause was a separate entity that Ms. Birnie was entitled to. The estate trustee disagreed.
In Ontario, the Succession Law Reform Act states that the amount payable under an insurance policy will form part of the deceased’s testamentary disposition (s.72(1)(f)). In Dagg v Cameron Estate, the court discussed the presence of a life insurance clause in a separation agreement. If a life insurance policy is mere security for support, the money needed to fulfill support payments will be granted. However, the remainder will form part of the estate. Nonetheless, a life insurance policy can operate as an independent benefit and the recipient may be entitled to the entire amount.
Ultimately, the court found that section 5(g) of the separation agreement was a stand-alone clause and determined that Ms. Birnie was entitled to the entire amount. The court referenced an earlier case called Turner v DiDonato that applied the principles of contractual interpretation to an insurance clause within a separation agreement. In that case, Mr. DiDonato was obliged to maintain a life insurance policy in the amount of $100,000.
To determine whether the insurance policy was security for spousal support or a stand-alone clause, the court read the contract holistically and noted the following facts:
- The contract did not contain specific language linking the insurance clause to the support obligations.
- The agreement did not contain a clause allowing the insurance policy to be adjusted in conjunction with diminishing support obligations.
For these reasons, the court held that the clause was free-standing.
In the present case, the separation agreement does not explicitly state that the insurance clause is meant to secure support. In addition, there is no other clause allowing Mr. Birnie to alter the future value of the policy. The judge stated that if the insurance policy was mere security, the separation agreement would allow adjustments over time. Furthermore, the court read the document in its entirety and concluded that the agreement was meant to be a final document free from amendments or the opportunity to litigate. The intent to sign a final and all-encompassing separation agreement favors the finding of a stand-alone clause. This type of clause is less susceptible to litigation.
The estate trustee argued that the insurance clause should be considered security based on the following facts:
- The insurance clause was located within the “Spousal Support” heading.
- Mr. Birnie had to maintain insurance for as long as he paid support.
The judge considered these arguments but referred to Turner v DiDonato once again. In that case, similar circumstances were present. Yet, the Court of Appeal upheld the judgement in favor of a stand-alone clause. Furthermore, the separation agreement analyzed in this case and the surrounding facts align with that of Turner v DiDonato.
The insurance clause was independent from the support obligations and summary judgement was granted to Ms. Birnie for the entire policy amount.
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