In Ontario, when a person gets divorced and then dies his/her bequest in their will to the former spouse is revoked.1 The law reads the will as if the former spouse died first. So what happens when someone owned an insurance policy that designated the former spouse as the beneficiary – or what about the RRSP? Does divorce automatically revoke those designations? Let’s review the Richardson Estate v. Mew case2 which addresses this question.
In this case Michael married Stephanie. Their marriage lasted 26 years and they had two adult children by the time they divorced. In their separation agreement Michael agreed that Stephanie would be irrevocably designated as the beneficiary under a specific life insurance policy. However, the separation agreement indicated that the policy of insurance was to expire on February 28, 1995. Instead, possibly through inadvertence, the policy remained in effect after February 28, 1995 and the designation of Stephanie as the beneficiary was never revoked.
After Michael divorced Stephanie he married Anne and had three children with her. The premiums for this life insurance policy was paid out of Anne and Michael’s joint account. When Michael was diagnosed with Alzheimers, Anne paid the premiums out of her own money believing she was the beneficiary. Michael died. Justice Strathy was asked to decide who got the life insurance proceeds.
Stephanie said she was the beneficiary of the policy and Anne cried foul. Her lawyers argued that the equitable remedy for constructive trust should be invoked to prevent unjust enrichment and that there was an alternate claim for rectification3.
Stephanie, the first wife, relied upon section 190(2)4 of the Insurance Act Ontario R.S.O. 1990, c. I.8. She said that there are certain steps the legislation requires for the beneficiary designation to be changed. Michael never took those steps so Stephanie was still the beneficiary. To fully appreciate the argument Justice Strathy briefly reviewed the history of this legislation.
His Honour pointed out that at prior to its repeal in the 1970s Ontario’s Insurance Act provided that divorce revoked the designation of a spouse as a beneficiary of a life insurance policy. That provision was absent in the new version of the Insurance Act. The new law was considered in a number of cases5 that concluded that the legislature intended that the designation of the beneficiary in the insurance policy should continue unless and until altered regardless of any moral qualms about the first wife receiving a “windfall”. But what if the spouses specifically signed an agreement that had in mind that neither of them should be the beneficiary of each other’s insurance?
Justice Strathy pointed out that in one these cases6 the spouses agreed in minutes of settlement that neither party had a claim against the insurance policies owned by the other party. This provision was incorporated in the decree nisi and judgement. However, under the Insurance Act, the owner of the policy has to make a “declaration”, as defined by the Act, to change the beneficiary. The husband never changed the designation on the policy and the court ruled that the divorce judgment did not fall into the definition of “declaration7” in the Insurance Act. The former spouse received the proceeds of insurance. The courts have followed the same results with RRSPs.8
As I read these cases I understand why people might be bothered by the disinclination of courts to use equity to override the strict interpretation of the Insurance Act. To some, strict compliance with the formalities of the act seem unjust. On the other hand, as Justice J.J. Clarke said in one of these cases, “….it is not the role of the court to speculate as to what the deceased may have intended to do or may have thought that he had done.”9
As pointed out by Justice Strathy, there were several cases relied upon by Ann where more of an equitable approach was taken by the court10 O.J. No. 2892 (Ont. Gen. Div.) and Roberts v. Martindale (1998), 162 D.L.R. (4th) 475, (1998) B.C.J. No. 1509 (B.C. C.A.).]. In one case, Newport v. Mountainside Medical Pharmacy Ltd.11 the owner of a business designated the business as the beneficiary of a life insurance policy. The business was sold. Thereafter, the vendor died. The purchasers of a business claimed entitlement to the proceeds of the life insurance policy as an asset of the business. The vendor never intended for the insurance policy to be sold as an asset of the business. The purchasers never intended to buy the policy nor did they pay anything for it, but they made the same argument as Stephanie. The purchasers argued that regardless of the parties’ intention, by virtue of the obligation to strictly comply with the formalities of the Insurance Act and given the absence of a “declaration” the purchasers were entitled to the life insurance proceeds. In this case Justice Adams was prepared to order the rectification of the contract to reflect the true intentions of the parties and he allowed recovery based on the doctrine of unjust enrichment.12
In our case Justice Strathy rejected Anne’s argument. He suggested the other line of cases where unjust enrichment called for the overriding of the provisions of the Insurance Act did not apply in this case. He referred to Newport v. Mountainside Medical Pharmacy Ltd. as an extreme case13. On the issue of rectification Justice Strathy had this to say,
“While I have jurisdiction to rectify the policy in this case, I am unable to say, with anything approaching the level of confidence necessary to grant rectification, that the evidence establishes that the continuation of Stephanie as the beneficiary of the policy was a mistake and that Michael’s true intent was to name Anne as the beneficiary.”14
Anne’s motion was dismissed. She appealed and Justice Strathy’s decision was affirmed on appeal.15
This blog is not intended to serve as a comprehensive treatment of the topic. It is not meant to be legal advice. When one compares the end results of Justice Strathy’s decision in Richardson Estate v. Mew to Justice Adam’s decision in Newport v. Mountainside Medical Pharmacy Ltd. it should be clear that every case turns on its specific facts and it would be a mistake for the reader of this blog to conclude how it might impact on the reader’s case. In this case, had Anne convinced Justice Strathy that the continuation of Stephanie as a beneficiary was a mistake then he might have been inclined to rectify the contract. The bottom line – nothing replaces retaining a qualified, competent lawyer, well versed in this niche area of practice and getting some good legal advice.
- The exception to this rule is if the testamentary document expresses a contrary intention stating that the testator wants to benefit his/her former spouse. See section 17(2) of the Succession Law Reform Act, R.S.O. 1990, c. S.26.
Revocation, change in circumstances
Exception on termination of marriage
(2)Except when a contrary intention appears by the will, where, after the testator makes a will, his or her marriage is terminated by a judgment absolute of divorce or is declared a nullity,
(a) a devise or bequest of a beneficial interest in property to his or her former spouse;
(b) an appointment of his or her former spouse as executor or trustee; and
(c) the conferring of a general or special power of appointment on his or her former spouse, are revoked and the will shall be construed as if the former spouse had predeceased the testator. R.S.O. 1990, c. S.26, s. 17. ↵
- 2008 CarswellOnt 7180, (2008) O.J. No. 4892, (2009) W.D.F.L. 187, 171 A.C.W.S. (3d) 934, 250 O.A.C. 146, 300 D.L.R. (4th) 503, 64 R.F.L. (6th) 97, 69 C.C.L.I. (4th) 189, 93 O.R. (3d) 537 ↵
- In Schnurr, Estate Litigation, 2nd Ed. Rectification is defined as follow, “Rectification is an equitable remedy whose purpose is to prevent a written document from being used as an engine of fraud or misconduct ‘equivalent to fraud’. The traditional rule was to permit rectification only for mutual mistake, but rectification is now available for unilateral mistake . . . provided certain demanding preconditions are met. . . . The court’s task in a rectification case is corrective, not speculative. It is to restore the parties to their original bargain, not to rectify a belatedly recognized error of judgment by one party or the other.” Sylvan Lake Golf & Tennis Club v. Performance Industries Ltd. (2002), 209 D.L.R. (4th) 318 at 330, (2002) 1 S.C.R. 678, 20 B.L.R. (3d) 1, (2002) 5 W.W.R. 193, 98 Alta. L.R. (3d) 1, 283 N.R. 233, 299 A.R. 201, 266 W.A.C. 201, 50 R.P.R. (3d) 212, per Binnie J. ↵
- Designation of beneficiary
Designation of beneficiary
190. (1) An insured may in a contract or by a declaration designate the insured’s personal representative or a beneficiary to receive insurance money.
Change in designation
(2) Subject to section 191, the insured may from time to time alter or revoke the designation by a declaration (Emphasis added). ↵
- McLean v. Guillet (1978), 22 O.R. (2d) 175, (1978) O.J. No. 3637 (Ont. Dist. Ct.); Vail v. Vail Estate (1988), 34 C.C.L.I. 261, (1988) O.J. No. 1875 (Ont. H.C.). ↵
- Gaudio Estate v. Gaudio (2005), 16 R.F.L. (6th) 72, (2005) O.J. No. 1773 (Ont. S.C.J.). ↵
- See section 171(1) under Part V Life Insurance under the Insurance Act.
“declaration” means an instrument signed by the insured,
(a) with respect to which an endorsement is made on the policy,
(b) that identifies the contract, or
(c) that describes the insurance or insurance fund or a part thereof,
in which the insured designates, or alters or revokes the designation of, the insured’s personal representative or a beneficiary as one to whom or for whose benefit insurance money is to be payable; (“déclaration”)
- s. 53 of the Succession Law Reform Act, R.S.O. 1990, c. S.26, excepts RRSP’s proceeds from devolving to the estate of the deceased in the same manner as s. 196(1) of the Insurance Act. Please see Gaudio Estate v. Gaudio (2005), 16 R.F.L. (6th) 72, (2005) O.J. No. 1773 (Ont. S.C.J.), a wife signed a separation agreement contracting out of her entitlement to share in her husband’s estate and purporting to settle all claims between them. She had been designated as the beneficiary of a group life insurance policy as well as two RRSPs. Justice J.J. Clarke followed Vail v. Vail Estate and Vodden v. Vodden ↵
- Justice Strathy refers to this comment in paragraph 34 of his endorsement. It was Justice J.J. Clarke’s decision in Gaudio Estate v. Gaudio (2005), 16 R.F.L. (6th) 72, (2005) O.J. No. 1773 (Ont. S.C.J.). ↵
- Newport v. Mountainside Medical Pharmacy Ltd. (1995), 9 E.T.R. (2d) 272, [1995 ↵
- Newport v. Mountainside Medical Pharmacy Ltd. (1995), 9 E.T.R. (2d) 272, (1995) O.J. No. 2892 (Ont. Gen. Div.). ↵
- See paragraph 44 of Newport. ↵
- In Para 39 of his decision Justice Strathy explains why this case might be considered extreme, “…The deceased had contracted HIV and had developed AIDS in the year before his death. He committed suicide, leaving a wife from whom he was separated. Prior to his death, he had sold the shares in his pharmacy business to the defendant. One of the assets of the business was an insurance policy on his life. While the deceased was separated from his wife, he continued to support her and his children financially and his will named her estate trustee and sole beneficiary. She was also the beneficiary of a number of policies of life insurance.” ↵
- See para 61 of Richardson Estate case. ↵
- Additional reasons at Richardson Estate v. Mew (2008), 2008 CarswellOnt 8000, 64 R.F.L. (6th) 113, 69 C.C.L.I. (4th) 206 (Ont. S.C.J.); affirmed Richardson Estate v. Mew (2009), 2009 ONCA 403, 2009 CarswellOnt 2576, 64 R.F.L. (6th) 126 (Ont. C.A.). ↵