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Update: Life Insurance as Security for Support Obligations

On December 20, 2018 I commented on the troublesome issue of Life Insurance as Security for Support Obligations, particularly in relation to the Court of Appeal’s decision in Dagg v Cameron, 2017 ONCA 366 and the “clawback” provisions of section 72 of the Succession Law Reform Act (“SLRA”).


I noted therein the recently reported  Larmer v. Birnie, 2018 ONSC 5313 involving this issue.

The motion for summary judgment has now been heard and very helpful reasons have been released at Birnie v. Birnie, 2019 ONSC 2152 (April 12, 2019). Justice Varpio accepted the position of the first spouse (Ms. Birnie) that “the contractual clause requiring Mr. Birnie to secure insurance is a “stand alone” clause, fully enforceable as against the Estate such that she is entitled to the entire amount claimed” [5].

Recall that in Dagg, Justice Brown confirmed that there were situations where the section 72 SLRA “claw back” of life insurance proceeds could be avoided:

Should parties intend a life insurance policy to operate as a kind of “stand alone” benefit upon the payor’s death, not linked to his obligation to pay child or spousal support, it is open to them to strike such a bargain and memorialize it in a separation agreement: Turner v. DiDonato2009 ONCA 235 (CanLII), 95 O.R. (3d) 147, at para. 38.  [Emphasis added.] [29]

Justice Varpio follows the DiDonato decision entirely in finding that the operative clause in the Birnie Separation Agreement is a “standalone “ contractual obligation and is not subject to a section 72 clawback.

The Court analyzed the terms of the Separation Agreement together with a detailed review of the case law regarding the “Fundamental principles of Contractual Interpretation.” Justice Varpio concluded:

Accordingly, it is clear to me that there is no genuine issue for trial insofar as the insurance obligation in the Separation Agreement is not intended to act solely as “security” for spousal support.  Instead, the impugned clause is a “stand alone” clause whereby Ms. Birnie would be entitled to receive $500,000 upon Mr. Birnie’s passing. I accept that the parties structured this clause to both “secure” support as well as accomplish other ends.  Any other interpretation is inconsistent with:

(1) the other terms of the Separation Agreement;

(2) the releases, especially clause 17(c) of the Separation Agreement which explicitly states that the parties may deal with their estates “free from any claim or action by the other under the Succession Law Reform Act.”  Ms. Larmer’s position ignores the plain wording of this section of the Separation Agreement; 

(3) the stated intention of the parties in the preamble of the Separation Agreement;

(4) the lack of any “drawdown” clause whereby Mr. Birnie could reduce the amount of insurance he was required to secure over time; and

(5) the lack of explicit language, as per Turner v. DiDonato, expressing such a “sole” intent. [58]

As a result, the first spouse was entitled to Judgment for the $500,000 due to her under the Separation Agreement. This decision is essential reading for family law lawyers, estate planners, administrators and litigators. Highly recommended.

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