Dispute Over $250,000 Insurance Designation Goes All the Way to Supreme Court of Canada
A few weeks ago we wrote about a recent Family Law case called LaMorre v. Kershaw, that involved an insurance policy. We talked about clauses in negotiated Minutes of Settlement between former spouses that operate to “secure” or reinforce the payment of spousal support from one spouse to the other. This is achieved through the use of a clause that requires the support-paying spouse to take out a certain amount of life insurance, and to designate the other spouse as the beneficiary of the policy. That way, if the life-insured spouse passes away, the recipient spouse – in the role of named beneficiary – is automatically entitled to insurance proceeds, which are calculated to cover the amount of support that he or she would have received if the spouse were still living.
The LaMorre v. Kershaw case highlighted what can happen if the provisions in the Minutes of Settlement are not sufficiently clear, especially around the questions of: 1) whether the named beneficiary is irrevocably designated under the policy; and 2) whether the support payor/insured person can change the beneficiary designation without the other spouse’s or the other beneficiary’s consent. Things went wrong in LaMorre v. Kershaw, mainly because the Minutes did not sufficiently address these items, and the support-paying husband was able to remove his former wife as beneficiary without her knowledge, in order to name his new relationship partner instead.
A similar issue arose in a case called Moore v. Sweet, that went all the way to the Supreme Court of Canada. The husband had purchased a term life insurance policy during the marriage, and designated his first wife as a revocable beneficiary. After they separated, they verbally agreed that the first wife would nonetheless keep paying the premiums, and that the husband would keep her on as the beneficiary. Unbeknownst to her, however, he secretly and irrevocably changed the beneficiary to name his new common-law (second) wife instead. This meant that when the husband later died, the $250,000 in insurance proceeds went to the second wife, rather than the first wife, who by that point had paid about $7,000 of her own money in policy premiums post-separation.
The case went through several expensive levels of hearing before various judges, eventually landing before the Supreme Court of Canada. After considering a relatively complex legal argument from each of the parties’ lawyers, the top Court applied constructive trust principles, ultimately ruling that the second wife had been enriched at the expense of the first wife. To remedy the situation, the Court imposed a remedial constructive that operated to the first wife’s benefit.
Needless to say, it’s best to avoid having to litigate these kinds of disputes in the first place – especially since the cumulative lawyers’ fees for three levels of hearing and appeal likely surpassed the $250,000 that was in dispute.
Instead, in the context of drafting Minutes of Settlement to resolve support claims, make sure that they are clearly-drafted to ensure that the support-paying spouse cannot unilaterally change the beneficiary designation, and leave the other spouse out in the cold when it comes time to collect on the insurance policy.
For the full text of the decisions, see:
LaMorre v. Kershaw, 2020 NSSC 108 (CanLII)
Moore v. Sweet, 2018 SCC 52 (CanLII),  3 SCR 303