Beneficiary of Life Insurance Policy Wins

Insurance

Milne Estate v Milne 2014 BCSC 2112 relates to a successful claim for the full value of an insurance policy that the deceased failed to maintain in favour of the beneficiary contrary to a court order.

The Court reviews the principles of contract interpretation from the Athwal v Black Top Cabs 2012 BCCA 107

 

Sherrie and Scott Milne began a 20 year relationship in 1991. Their only child Scottie was born in 1994. In or about 2002, Mr. Milne took out a life insurance policy with a death benefit of $500,000 (the “Policy”), naming Mrs. Milne as the beneficiary. Mr. and Mrs. Milne separated in April 2011. A family law proceeding was commenced.

A term of the Court  Order  obligated Mr. Milne to maintain “the Policy”, with Mrs. Milne as the beneficiary, for as long as he was required to pay child and or spousal support.

[3]             On March 15, 2013, in breach of the Order, Mr. Milne changed the beneficiary of the Policy from Mrs. Milne to Albertina Vicente, his new partner. He died on August 4, 2013. His will, executed on March 22, 2012, provides for a distribution of $50,000 to his parents and $20,000 to Scottie. The balance of his estate is left to Ms. Vicente.

The girlfriend’s defence was basically she was owed the monies for arrears of spousal support .

 

The wife claimed a number of various claims to recover the breach of the contract that he was to keep her ass a paid up beneficiary of a policy of insurance of $500,000, and that he breached that agreement by naming another.

The wife’s claim that he owed her a fiduciary duty that could allow the court to order a constructive trust upon the funds was dismissed.

 

The Court referred to inter alia:

41. The trial judge in Wolfson had relied upon Soulos, as well as the Court of Appeal’s earlier decision in Roberts. v. Martindale, [1998] B.C.J. No 1509 where a good conscience constructive trust was imposed over insurance proceeds in the absence of a fiduciary relationship. In that case the husband had expressly surrendered all rights he might have had in the wife’s property in their separation agreement. The wife owned a life insurance policy which designated the husband as the beneficiary. They separated when she developed terminal breast cancer. After that, she intended for her sister to be the beneficiary of her life insurance in place of the husband and honestly but mistakenly believed she had taken the steps necessary to change the designation. Madam Justice Southin found it would be against good conscience for the husband to keep the insurance proceeds because to do so would be to breach the separation agreement sufficient to “call in aid the doctrine of remedial constructive trust”.

[42]         Roberts made no reference to Soulos and its four conditions. The trial judge in Ladner v. Wolfson, 2010 BCSC 1408 interpreted Roberts as extending the analysis in Soulos:

[59] Although the relationship between former spouses is not a fiduciary one, the decision of the Court of Appeal in Roberts indicates equal importance must be attached to the enforcement of obligations incurred upon the break-up of a marriage. The relationship is, or may be, “trust-like” in the sense that the economic well-being of one former spouse is dependent on the extent to which the other honours those obligations and the dependent spouse may be highly vulnerable to the use and disposition of assets and income over which he or she has no control. Mr. Ladner flagrantly disregarded those important obligations, to the benefit of his estate. That is conduct which the court must condemn and, where possible, deter.

[43]         The Court of Appeal distinguished Roberts, and expressly declined to comment on its appropriateness in light of Soulos (para. 59). I note that more recently in Love v. Love, 2013 SKCA 31the Saskatchewan Court of Appeal went somewhat further observing that Roberts had not been followed by any other appellate level court and commenting on the absence of any reference in Roberts to Soulos as a “difficulty”.

[50]         I do not interpret Wolfson as foreclosing a finding of fiduciary duty as between separated or divorced spouses. The existence of a fiduciary obligation is primarily a question of fact to be determined by examining the specific facts and circumstances of the case (Lac Minerals Ltd. v. International Corona Resources Ltd., [1989] 2 S.C.R. 574 at p. 648 as cited in Wolfson at para. 45). Mrs. Milne’s submissions however do not persuade me that Wolfson is properly distinguishable. Therefore, I conclude neither Mr. Milne nor Ms. Vicente owed Mrs. Milne a fiduciary obligation to Mrs. Milne and there is no basis upon which to declare a constructive trust over the proceeds of the policy in her favour.

The Claim For Breach of Contract

[53]         There is no disagreement that a consent order is a matter of contract between the parties to the order. S. (M.C.) v. S. (J.H.), 2003 BCCA 252.

The Court embarked on a long detailed analysis of contract law and concluded that the wife was owed $500,000, the value of the contract in damages for breach of contract. Her claim to tie the monies to spousal support was dismissed.

[70]         The principles of contractual interpretation were clearly articulated by the Court of Appeal in Athwal v. Black Top Cabs Ltd., 2012 BCCA 107:

[42] The contractual intent of parties to a written contract is objectively determined by construing the plain and ordinary meaning of the words of the contract in the context of the contract as a whole and the surrounding circumstances (or factual matrix) that existed at the time the contract was made, unless to do so would result in an absurdity. Where the language of a contract is not ambiguous (that is, when viewed objectively it raises only one reasonable interpretation), the words of the written contract are presumed to reflect the parties’ intention. An interpretation that renders one or more of the contract’s provisions ineffective will be rejected.

[43] Extrinsic evidence to explain the meaning of an unambiguous contractual provision is not admissible. Evidence of a party’s subjective intention in executing the contract, or of their understanding of the meaning of the words used in the contract, is not admissible to vary, modify, add to or contradict the express words of the written contract. This is particularly so where a contract contains an “entire agreement” clause. …

[71]         The Court of Appeal in Atwal referred at some length to its earlier decision in Water Street Pictures Ltd. v. Forefront Releasing Inc., 2006 BCCA 459 in describing how and when extrinsic evidence  may be considered to aid the interpretation of an agreement which provided:

[23] Recourse to extrinsic evidence to aid in the interpretation of an agreement is the court’s last resort. It is only when the intentions of the parties cannot be objectively determined from the words they have chosen to employ, such that there is ambiguity, that the law permits consideration to be given to evidence of their conduct in making their agreement and in fulfilling their obligations. …

[24] Thus, the court looks first to the words of the agreement, read as a whole, aided, if necessary, by evidence of the circumstances or what is referred to as the factual matrix existing when the agreement was made. Such evidence is generally restricted to circumstances known to both parties that illuminate the meaning a reasonable person would give to the words employed…

[25] If, after undertaking the first step of the analysis, the text is ambiguous, extrinsic evidence becomes admissible for the purpose of resolving the ambiguity and determining what was actually agreed. But there must be a true ambiguity before recourse can be had to evidence of the way in which the parties conducted themselves. It is well recognized that a court is not to search for ambiguity. …

[27] Where an ambiguity exists, a court in this province (unlike an English court) may consider not only evidence of the parties’ conduct in making their agreement, such as the course of their negotiations, but also the conduct of the parties in performing their agreement. It is, however, clear that evidence of that kind must be approached with caution.

[72]         The Executor argues, based on the wording of the Order, the evidence of Mrs. Milne and the surrounding circumstances that the purpose of the policy was to secure payment for Mr. Milne’s support obligations. The Executor submits it is particularly important to consider the factual matrix here because the Order does not contain multiple terms that allow for the sort of contextual analysis that occurred in Turner.

[73]         Bearing in mind the principles of contractual interpretation set out above, Mrs. Milne’s evidence about her own understanding of the purpose of the life insurance term is extrinsic evidence and not admissible to vary, modify, add to or contradict the express words used in the Order. Other extrinsic evidence in this case would include the perhaps conflicting hearsay evidence of Mr. Milne’s statements to both Ms. Vicente and Mrs. Milne about his work plans and his views about Mrs. Milne’s spousal support claim. Extrinsic evidence as distinct from the factual matrix may only be considered as an aid to interpretation after finding the insurance term ambiguous, meaning it gives rise to more than one reasonable interpretation. The objective of contractual interpretation is to protect the reasonable expectations of the parties, as set out in the language of their agreement (Turner).

[74]         Neither the Executor nor Mrs. Milne suggests however the meaning of the insurance term is ambiguous. In fact, both urge upon me an interpretation they see as arising from the plain meaning of the words. The Executor’s position is the factual matrix supports that interpretation.

[75]         The Executor argues the language of the insurance term clearly provides that Mr. Milne’s obligation to maintain Mrs. Milne as a beneficiary stands or falls with his support obligation(s). I agree, to the extent that the language of the term creates an express temporal link between Mr. Milne’s life insurance obligation and his support obligations. I do not agree however that connecting the duration of his policy obligation to that of his support obligations means that the parties objectively intended to also limit his policy obligation to the amount of those support obligations. I note, as did the Ontario Court of Appeal in Turner, the marked absence of any language providing for the Policy to stand as security in this way. The words used here requiring Mr. Milne to maintain and pay the premiums for a specific policy he already held, for the benefit of the wife, until he was no longer obligated to pay support, stand in sharp contrast to those used in Ladner, where the husband’s obligation was expressly limited to maintaining unspecified life insurance policies in an amount sufficient to cover his indebtedness and his support obligation which was also clearly defined and circumscribed in the agreement. That agreement also contemplated excess proceeds from the life insurance policies, after payment of Mr. Ladner’s outstanding obligation to the wife, in the event of his death, confirming the parties objectively intended for the insurance to provide security to the extent of his support obligation. Here, although the insurance term contemplated Mr. Milne paying spousal support, the Order adjourned Mrs. Milne’s claim, obligating Mr. Milne to pay specified child support only.

[76]           As noted above the Executor has urged me to consider the surrounding circumstances in interpreting the insurance term. To clarify, the factual matrix includes the background facts the parties must be taken to have known and had in mind when they entered into their agreement. They can be considered to clarify the meaning of the words chosen (Glaswegian Enterprises Inc. v. BC Tel Mobility Cellular Inc., [1997] B.C.J. No. 2946 at para. 18). The words of the agreement however must not be overwhelmed by the factual matrix (Swan Gold Mines Ltd. v. Goldbelt Resources Ltd. (1996), 25 B.C.L.R. (3d) 285 (C.A.) at para. 18).

[77]         With that framework in mind, I turn to consider the factual matrix here. According to the Executor, the surrounding circumstances include the parties’ acrimonious relationship, Mr. Milne’s accusations against Mrs. Milne regarding misuse of company funds, and the reality that Mr. Milne’s obligation to pay child support was not long lived, given that Scottie was 18 at the time the Order was granted. I do not regard the parties’ acrimonious relationship and Mr. Milne’s accusations against Mrs. Milne as aiding the interpretative process. One inference to be drawn is that in those circumstances, Mr. Milne would have intended that his insurance obligation under the Order to be as narrow as possible. However the same evidence would also lead to the opposite inference with respect to Mrs. Milne’s intentions. Clearly she would have wanted and negotiated for the benefit of an independent insurance obligation.

[78]         The factual matrix proposed by the Executor does not include some other important circumstances. In the Order the parties agreed each could continue to draw a significant annual salary from Far-Ko pending its sale. Given the agreement to sell the company and its subsidiaries which Mr. Milne was operating, it was apparent when the Order was granted, his source and amount of future income was uncertain and Mrs. Milne would stop receiving a salary. The Order permitted Mr. Milne to either remain with Far-Ko and its subsidiaries or establish another competing business, allowing him considerable flexibility. The surrounding circumstances therefore include financial uncertainty for the parties, although given the appraised value of Far-Ko and the subsidiaries, they would have reasonably expected to receive significant proceeds. Given the length of the parties’ relationship, Mrs. Milne’s extended absence from the work force, her role during the marriage and Mr. Milne’s apparent financial success to date, the potential size of his spousal support obligation was significant. At the same time, his child support obligation was not likely to continue for a great deal longer given that Scottie was 18 at the time of the Order. In all of those circumstances, it makes little sense that the parties would have reasonably intended for the insurance obligation to stand as security for what was only child support at the time of the Order.

[79]         In my view the only reasonable interpretation of the insurance term, based on the words used, and not used, in the context of the other terms, and the surrounding circumstances is that parties clearly intended Mr. Milne’s insurance obligation to be independent and not stand only as security for his outstanding support obligation.

[80]         Accordingly, I award Mrs. Milne damages in the amount equal to the face value of the policy – $500,000 for Mr. Milne’s breach of the Order payable from the estate. s

 

Trevor Todd

Trevor Todd is one of the province’s most esteemed estate litigation lawyers. He has spent more than 40 years helping the disinherited contest wills and transfers – and win. From his Kerrisdale office, which looks more like an eclectic art gallery than a lawyer’s office, Trevor empowers claimants and restores dignity to families across BC. He is a mentor to young entrepreneurs and an art buff who supports starving artists the world over. He has an eye for talent and a heart for giving back.

More Posts - Website - Google Plus