Tag: Insurance Act
The answer is no in Ontario. Currently, only a limited number of Canadian provinces (Quebec, New Brunswick, Nova Scotia, and Saskatchewan) will allow a policy holder to sell his/her insurance policy to a third party.
Life insurance policies are commonplace in Canada. A life insurance policy is a contract with the insurance company and it is a contract to pay out a sum of money upon the death of the life insured. While most people may be content to maintain their life insurance policy, as is, until their death, those who are in need of cash during their lives may wish to sell the policy for a present-day payout while the purchaser maintains the premiums (and any other obligations to the insurance company) in exchange for the payout on the death. The sale of a life insurance policy by the policy holder is also known in the industry as a “life settlement”.
According to Tyler Wade’s article on ratehub.ca, the practice of selling one’s own insurance policy was popularized in the U.S. when investors saw the AIDS epidemic in the 1908’s as an opportunity where they could offer those suffering from AIDS a payout during their lifetime in exchange for the death benefit in their policies believing, then, that this group of individuals had a shorter life span. The vulnerability of the individuals within this market group and the potential for financial abuse are often cited as the reasons why life settlements ought to be prohibited for public policy reasons.
In Ontario, life settlements are prohibited under section 115 of the Insurance Act, as follows:
“Trafficking in life insurance policies prohibited
115 Any person, other than an insurer or its duly authorized agent, who advertises or holds himself, herself or itself out as a purchaser of life insurance policies or of benefits thereunder, or who trafficks or trades in life insurance policies for the purpose of procuring the sale, surrender, transfer, assignment, pledge or hypothecation thereof to himself, herself or itself or any other person, is guilty of an offence.”
In 2017 and 2018, there was an attempt to legalize life settlements by amending section 115 (through Bill 162) and by amending the Act to allow third-party lenders to use life insurance policies as collateral (through Bill 20). Both Bills received opposition from non-profit groups like the Canadian Life and Health Insurance Association due to the potential for financial abuse and section 115 of the Act has remained as is in Ontario.
While it is difficult to comment on how the potential for financial abuse can be mitigated by implementing countermeasures, it is unfortunate that Ontarians have limited options once the policy is in place.
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Earlier this year, we argued the appeal in Moore v Sweet before the Supreme Court of Canada. On Friday, the Court released its decision, which has provided what, in our view, was necessary clarification of the juristic reason component of the test for unjust enrichment. The Supreme Court has also confirmed the circumstances in which a constructive trust remedy is appropriate within the context of unjust enrichment. Our firm was pleased to argue the appeal at the Supreme Court in February 2018 and to learn on Friday of our client’s success in the reversal of the split decision of the Ontario Court of Appeal.
The facts of the case were relatively straightforward: The appellant had previously been married to the deceased. Around the time of their separation, the appellant and the deceased entered into an oral agreement whereby the appellant would remain the designated beneficiary for the life insurance policy on the deceased’s life on the basis that she would continue to pay the related premiums. The appellant paid the premiums on the life insurance policy until the deceased’s death approximately 13 years later, while, unbeknownst to the appellant, the deceased named his new common law spouse (the respondent), as irrevocable beneficiary of the policy soon after the oral agreement was made. At the time of his death, the deceased’s estate was insolvent.
At the application hearing, Justice Wilton-Siegel awarded the appellant the proceeds of the life insurance policy on the basis of unjust enrichment. The respondent was successful in arguing before the Ontario Court of Appeal that the designation of an irrevocable beneficiary under the Insurance Act was a “juristic reason” that permitted what was otherwise considered the unjust enrichment of the respondent at the appellant’s expense. The appellant was subsequently granted leave to appeal to the Supreme Court of Canada.
Justice Coté, writing for the Majority, agreed that the test for unjust enrichment was flexible and permits courts to use it in the promotion of justice and fairness where required by good conscience. The Court clarified that the juristic reason permitting an unjust enrichment needs to justify not only the enrichment of one party but also the corresponding deprivation of the other party. While the irrevocable beneficiary designation may have required the payment of proceeds for the policy to the respondent, it could not be considered as also requiring the appellant’s deprivation of the proceeds to which she was entitled under the oral agreement. The Court found that a designation of an irrevocable beneficiary under the Insurance Act precludes claims by creditors of an estate, but it does not state “with irresistible clearness” that it also precludes a claim in unjust enrichment by a party who has a contractual or equitable interest in the proceeds.
While reaching the opposite result, the dissent acknowledged that this was a difficult appeal, in which both parties were innocent and had strong moral claims to the proceeds of the life insurance policy.
We thoroughly enjoyed the opportunity to argue this case before the Supreme Court of Canada earlier this year and look forward to following the role of this decision in further developments in the Canadian law of unjust enrichment.
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Beneficiary designations for a life insurance policy can be an important estate planning tool. However, as with any testamentary document or disposition, questions can arise about the insured’s actual intentions after death.
In the recent decision of Sun Life v Nelson Estate et al., 2017 ONSC 4987, the Court was asked to resolve such an ambiguity by considering the validity of an insurance declaration under the deceased’s Will and the validity of a change of beneficiary designation on file with the insurer.
Juanita (the “Deceased”) died in December 2009. The Deceased was entitled to group life insurance coverage with Sun Life in the amount of $148,500.00. Following the Deceased’s death, Sun Life deposited the proceeds of the policy into Court. The Deceased’s two children (the “Respondents”) brought a Motion for a declaration that they were solely entitled to the proceeds.
The Deceased had been married to the respondent, Justin Nelson (“Justin”), since 2006. Following the Deceased’s death, Justin signed an acknowledgment that the Respondents were entitled to the proceeds of the policy. He had made no claim to the proceeds since the Deceased’s death, and his whereabouts were unknown as of the hearing of the Motion.
Beneficiary Declarations Under the Insurance Act
Pursuant to section 190 of the Ontario Insurance Act, an insurance may designate the insured, the insured’s personal representative or a specific beneficiary pursuant to the insurance contract or a declaration, including a declaration under the insured’s Will.
Section 171(1) of the Act sets out the criteria for a valid declaration. The declaration must be made by way of an instrument signed by the insured. The declaration must also be an instrument with respect to which an endorsement is made on the policy, that identifies the contract, or that describes the insurance or insurance fund (or a part thereof).
The Issue in Sun Life v Nelson Estate
In 2007, the Deceased’s employer’s group policy with Sun Life was terminated and transferred to Desjardins Financial Security (“Desjardins”). The Deceased completed an application for enrolment and an irrevocable beneficiary designation in favour of the Respondents. She also advised her financial advisor that she had changed the beneficiary for the policy from Justin to the Respondents.
However, after the Deceased’s death, it was discovered that her coverage had remained with Sun Life instead of being transferred to Desjardins because she was disabled at the time of the transfer. As a result, there were two beneficiary designations in the Deceased’s file.
The Deceased’s Last Will and Testament also included a beneficiary declaration that directed the “proceeds of the insurance policy” to be held in trust for the benefit of the Respondents. The term “insurance policy” was not defined in the Will, and the Deceased was insured under two policies at the time of her death.
Thus, the Court was asked to consider the validity of the declaration under the Will and the validity of the change of beneficiary designation in 2007.
Justice Brown’s Decision
After reviewing the facts, the Honourable Justice Carole Brown concluded that the declaration under the Will was ambiguous and did not refer to a specific insurance policy. Accordingly, the declaration under the Will failed.
However, with respect to the change of beneficiary designation form, the Court was satisfied that the Deceased clearly intended for the Respondents to be the beneficiaries of the policy. The evidence before the Court included the Deceased’s statements to the Respondents, the change of beneficiary designation form and the fact that Justin had signed an acknowledgment that the Respondents were the beneficiaries of the policy.
In the result, the Court held that the change of beneficiary designation form was valid within the meaning of section 171(1), and ordered that the proceeds be paid out to the Respondents equally.
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Umair Abdul Qadir
Life insurance is a common estate planning tool, whether it may be engaged to increase the assets available to beneficiaries, to assist in equalizing inheritances received by multiple beneficiaries (for instance, when one child will receive an interest in a family business and other assets are not available to leave an equal benefit for other children), or to fund specific types of expenses that will become payable upon death. While the owner of a life insurance policy is more often than not the person whose life is insured, this is not always the case. In Canada, in order to purchase a life insurance policy on another person’s life, the policy owner must have an “insurable interest” in the policy subject’s life. Canada’s Insurance Act defines an insurable interest as follows:
Without restricting the meaning of “insurable interest”, a person, in this section called the “primary person”, has an insurable interest,
(a) in the case of a primary person who is a natural person, in his or her own life and in the lives of,
(i) the primary person’s child or grandchild,
(ii) the primary person’s spouse,
(iii) a person on whom the primary person is wholly or partly
dependent for, or from whom the primary person is receiving, support or education,
(iv) the primary person’s employee, and
(v) a person in the duration of whose life the primary person has a pecuniary interest; and
(b) in the case of a primary person that is not a natural person, in the lives of,
(i) a director, officer or employee of the primary person, and
(ii) a person in the duration of whose life the primary person has a pecuniary interest.
Other jurisdictions similarly allow individuals or companies to take out life insurance policies on the life of another on the basis of an insurable interest in certain circumstances. As David Freedman mentioned in his recent blog post, Disney had a life insurance policy worth $50 million in American funds on the life of Carrie Fisher as one of the stars of the Star Wars franchise, which Disney purchased in 2012 for $4 billion. This is reported to be the largest ever payout of a life insurance policy of this kind.
There is much speculation with respect to how Disney will fill the void left by Fisher’s death in the final entry in the current Star Wars trilogy (Fisher had apparently finished filming for Episode VIII prior to her passing). Some suggest that the script for the following installment will be drastically re-written as a result of Fisher’s absence. Others have referred to the posthumous appearance of Peter Cushing in Star Wars: Rogue One (I personally had no idea that it was not the original actor himself until I read Suzana’s blog on the topic) in support of the potential to use CGI technology to allow Princess-turned-General Leia Organa to appear again in Episode IX. As done with Cushing in Rogue One, Disney could, in theory, digitally impose Fisher’s face onto another actor’s body. In any event, the life insurance proceeds payable to Disney will no doubt assist in offsetting any loss that it will suffer as a result of Carrie Fisher’s untimely passing.
Have a nice weekend.
Other articles that you may enjoy reading:
What language will be sufficient to effect a beneficiary designation by codicil? The decision in The Bank of Nova Scotia Trust Company v Ait-Said, 2016 ONSC 4051 (Canlii) provides some guidance on this issue.
The Testator, Mr. Briggs, made a number of amendments to his will. In particular, he had had drafted a document (“the July 29, 2013 Document”) which referred to the contents of the safety deposit box. Only a photocopy of this handwritten document was located when the records were searched. The July 29, 2013 Document provided that the contents of the Testator’s safety deposit box were to be left to Ms. Lockhart, a respondent in the proceeding. This safety deposit box included within it life insurance policies. Mr. Brigg’s wife, Ms. Briggs, had been named the beneficiary of the policies but had predeceased him.
It was Ms. Lockhart’s position that their inclusion in the box effected a declaration within the meaning of the Insurance Act, naming her beneficiary of the policies. She argued that the declaration in the holograph will should not be held to the same standard as that of a will prepared in accordance with the formalities of the Succession Law Reform Act, and that the wording of the document was sufficiently clear in its testamentary intentions to designate her as beneficiary of the policy. The Estate Trustee, the Bank of Nova Scotia Trust Company, maintained that there was no valid declaration or intention to name Ms. Lockhart the beneficiary of the policies, and that the proceeds of the policies had to be distributed in accordance with the Insurance Act.
As a preliminary concern, the Court evaluated whether this document should be admitted to probate. The Court accepted on the evidence that the July 29, 2013 Document was admissible for probate despite it being a photocopy of a handwritten document.
In making a determination as to the beneficiary of the proceeds of the policies, the Court considered the words “the total contents of my safety deposit box.” It found these words were not sufficient to meet the requirements of the provisions of Insurance Act. In its reasons, the Court stated that the document did not identify the insurance contract or the proceeds and dismissed Ms. Lockhart’s argument that there had been a valid declaration in her favour.
The Court also dismissed Ms. Lockhart’s argument that the Estate Trustee held the policies in trust for her. In doing so, it referred to the document’s emphasis on personal possessions within the safety deposit box and that in doing so the Testator likely did not intend to include the policies. The Court refused to find any fixed or final intention to leave the policies to Ms. Lockhart on this basis. The policies were therefore to be distributed in accordance with 194(1) of the Insurance Act to the Testator’s personal representative.
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