Separation agreements commonly include a requirement that one of the spouses maintains a life insurance policy in favour of the other in order to “secure” support payments (either child support or spousal support). It is equally as common to find out, on the death of the supposedly insured spouse, that she let the insurance policy lapsed, changed the designated beneficiary, or reduced the amount of the policy. What happens next? Can the surviving spouse recover the full amount of policy from the spouse’s estate, or only ongoing support payments? While the answer will depend on the wording of the separation agreement, the general rule is that surviving spouse may recover the full amount of the policy.

This issue was recently addressed in Birnie v Birnie, 2019 ONSC 2152. Mr. and Ms. Birnie separated in 2002 and signed a separation agreement in 2004. As part of the agreement, Mr. Birnie agreed to maintain a life insurance policy in the amount of $500,000 naming Ms. Birnie as irrevocable beneficiary “for so long as the Husband is required to pay spousal support to the Wife.”

Following Mr. Birnie’s death, it was discovered he never obtained such a policy. Ms. Birnie brought a claim against her ex-husband’s estate for $500,000 pursuant to the contract. Mr. Birnie’s second wife, who was his estate trustee and sole beneficiary of his estate, opposed the application.

Ms. Birnie brought a motion for summary judgment seeking $500,000 from the estate. It was her position that the estate was required to fulfill the deceased’s contractual obligations. Thus, the estate was liable for Mr. Birnie’s $500,000 life insurance commitment. In addition, Ms. Birnie argued that the requirement to obtain life insurance was not intended to solely “secure” spousal support payments, but was a “stand alone” clause.

In response, the estate trustee argued that only the portion of the funds required to “secure” spousal support should be paid to Ms. Birnie.

As a preliminary issue, the Court held that this was a question of contractual interpretation, which was properly determined on a motion for summary judgment. In particular, the Court held that it did not necessarily require viva voce evidence in order to interpret a separation agreement.

The Court then turned its attention to interpreting the separation agreement. In particular, the Court found that it must decide whether the obligation to obtain an insurance policy was solely for the purpose of “securing” spousal support payments. In other words, was the policy intended to create a pool of funds from which Ms. Birnie’s ongoing spousal support payments would be made, or was it a “stand alone” benefit (i.e. an independent obligation) owing to Ms. Birnie.

In answering the question, the Court looked to two Court of Appeal for Ontario cases dealing with similar situations: Turner v DiDonato, 2009 ONCA 235, and Dagg v Cameron Estate, 2017 ONCA 366. In particular, the Court found:

“From para. 32 of Turner v DiDonato, it is clear that the test to be met is one of whether the SOLE purpose of the insurance clause is to act as “security” for support obligations. Absent such singularity of purpose, the court presumably is to find that the clause was intended to act as a “stand alone” clause.”

The Court concluded that, on a balance of probabilities, the insurance obligation was intended to be a “stand alone” clause because: (i) the separation agreement lacked express language indicating that the sole purpose of obtaining insurance was to “secure” the spousal support payments; and (ii) there was no “draw down” clause whereby Mr. Birnie could gradually lower the amount of insurance he was required to maintain as his total lifetime support obligations lessened.

As a result, the Court granted summary judgment in Ms. Birnie’s favour: $500,000 was payable to her as a creditor of the estate.

This line of cases has established that, absent express language limiting the purpose of the insurance policy to provide security for support payments, the presumption will be that the insurance policy plays a variety of roles (for example, to assuage guilt or to show appreciation). Without that express language, the insurance policy will be viewed as an independent obligation owed by the spouse and enforceable against her estate on death.

The distinction between “security for support” and “stand alone obligation” has wider consequences than just determining the amount owing to the surviving spouse. It also impacts dependant support claims commenced under Part V of the Succession Law Reform Act, RSO 1990, c. S.26 (the “SLRA”). It is only where an insurance clause in a separation agreement is intended to act solely as security for support that the insurance proceeds may be available to a dependant through the clawback provisions of s. 72 of the SLRA (i.e. the surviving spouse no longer automatically takes priority over a dependant’s claim for support).