Forgot to Change the Insurance Beneficiary?

Insurance BeneficiaryMany separated spouses simply fail to change the designated insurance beneficiary from their former spouse to a new party. I know of what I speak, as I only realized 10 years later that I had done the same thing. It is easy to do.

Schiller- Arsenault v Proudman 2015 BCSC 1924 involved a female deceased, who had failed to change the designation of a life insurance policy from her former husband to her sister, the residual beneficiary under well, though she had intended to do so. The respondent claimed the funds as the named beneficiary of the insurance policy .

Equity prevailed.

The court found that the former husband in making such a claim to his  deceased wife’s insurance funds was a breach of the separation agreement, and in breach of his equitable obligation to refrain from taking any steps to pursue a claim to the policy proceeds.  The surviving sister and residual beneficiary was entitled to the proceeds .Since competing parties claimed the proceeds, the insurance company paid the funds into court pending settlement or court determination.

I was very pleased that the court followed the decision of Roberts v. Martindale  162 DLR (4th) 475; [1999] 1 WWR 778; 55 BCLR (3d) 63; 109 BCAC 97; 21 ETR (2d) 259; a 1998 decision of the BC Court of Appeal that dealt  with similar facts and found the claim was a fraud and a constructive trust was imposed upon the funds and given  to the intended beneficiary.

    As in this case, the Court in Roberts v. Martindale concluded that at all times after separation and divorce, the Deceased intended to arrange her financial affairs so that the plaintiff – Roberts – would inherit her estate and enjoy all financial benefits arising or payable upon her death.  As in this case, the Court concluded that at all material times the Deceased and the Plaintiff (Petitioner here) believed that steps had been taken to revoke the beneficiary designation under the Policy.

[34]        At para. 21 of the Reasons of Justice Southin, writing for the Court, stated:

There is a maxim of equity that it will not permit even an act of Parliament to be used as an instrument of fraud.

[35]        In the following paragraphs, the Court upheld the decision of the trial judge that Martindale could not retain the proceeds of the insurance policy:

26. But I am comfortable in this case in saying that it would be against good conscience for the appellants to keep this money because Mr. Martindale had, by the separation agreement, surrendered any right he might have had to the property of the deceased.  A policy of life insurance is a species of property of the insured, albeit the amount payable under the contract of insurance does not fall into possession until the insured’s death, and by law, cannot be taken by the insured’s creditors.

27. For the appellant, Mr. Martindale, to claim from the insurer the proceeds was a breach of the separation agreement and such a breach is sufficient, in my opinion, to call in aid the doctrine of the remedial constructive trust.  To put it another way, it is not the mistaken belief of Mrs. Martindale which gives rise to a remedy; it is the bargain which Mr. Martindale made.

[36]        The decision in Roberts v. Martindale was followed in Hemmerling Estate v. Hemmerling, 2000 ABQB 808 (CanLII) In that case, Justice Nash found that the deceased’s former spouse was in breach of a separation agreement (“Minutes of Settlement”) by failing to sign a renunciation of Interest to the proceeds of a RRSP in which she had been named as beneficiary.  The court noted that the separation agreement clearly stated that it was intended to be a resolution of all issues between the parties.

[37]        In the alternative, the court said that the deceased’s former spouse held the money in a constructive trust.

[38]        Roberts v. Martindale was also followed and applied in Holowa Estate, 2011 ABQB 23 (CanLII); and most recently, in this province, in Tarr Estate v. Tarr, 2013 BCSC 1994 (CanLII).  In Tarr Estate, the deceased’s former wife had been named the irrevocable beneficiary of joint survivor benefits payable under the Teachers’ Pension.  The deceased and his former spouse subsequently entered into a separation agreement that purported to be a final resolution of all issues between the former spouses, including division of property and debts, life insurance and succession rights, and included a general release of all claims.

[39]        After the death of Mr. Tarr, his former wife refused to release her claim to the pension benefits.  The Estate brought the action to recover the benefits already received by the respondent; and to obtain a declaration that she held the survivorship benefits in trust for the Estate.  In the Tarr case, the separation agreement included a specific reference to the pension plan.

[40]        Justice Butler wrote:

23. It is settled that a pension administrator cannot change the joint life beneficiary of a pension post-commencement.  However, that does not mean a beneficiary’s entitlement is absolute.  A beneficiary can agree to waive their survivorship benefits.  In such instances, the court can make an order that the beneficiary is not entitled to survivor benefits and has a duty to hold such benefits in trust for a newly designation beneficiary:  Wice v. Wice, 2009 BCSC 655 (CanLII).

26. In the present case, by virtue of the Separation Agreement, Ms. Tarr relinquished her right to any survivorship benefits arising out of Mr. Tarr’s pension.  In breach of her agreement, Ms. Tarr has retained the survivor benefits.  That breach is sufficient to require the use of the doctrine of a remedial constructive trust to enforce the bargain reached by the Tarrs.

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.

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