The deceased and her former common law spouse had given up all claims to each other’s property under a separation agreement. Therefore, the spouse was not entitled to receive the proceeds of a life insurance policy on the deceased’s life, though he had not been removed as the beneficiary.

Insurance law – Life insurance – Beneficiaries – Separation agreements

Shiller-Arsenault v. Proudman, [2015] B.C.J. No. 2280, 2015 BCSC 1924, British Columbia Supreme Court, October 21, 2015, W.G. Baker J.

This petition action was brought to determine entitlement to the proceeds of a life insurance policy issued by Manufacturer’s Life Insurance Company (“ManuLife”), which Manulife had paid into court. The petitioner was the deceased’s sister and had been named in the deceased’s will as alternative executor of her estate and as beneficiary of the residue of the estate. The respondent was the deceased’s former common-law spouse.

The deceased and the respondent purchased a house together in 2008 and, at the same time, the deceased purchased the life insurance policy on her own life from ManuLife and named the respondent as revocable beneficiary. The purpose of the policy was for the respondent to have sufficient funds to pay out any mortgage or amount owing to the deceased’s estate in respect of her interest in the home in the event of her death. By 2011, the relationship between the deceased and the respondent had deteriorated to the point that they began living separate and apart, although they both continued to reside in the house they purchased. In November 2012, they entered into a separation agreement which included a release which provided that each party gave up all claims with respect to property as against the other at law, in equity, or by statute. Pursuant to the separation agreement, the deceased purchased the respondent’s one-half interest in the house for one-half of the appraised value. The deceased died in September 2013 and both the petitioner and the respondent filed a claim with ManuLife for the proceeds of the policy.

The court reviewed a variety of documentary evidence and concluded that there was no doubt that the deceased intended to revoke the respondent’s designation as beneficiary under the policy and that it was more probable than not that she believed that she had taken the necessary steps to do so. The court further concluded that the deceased had no intention of allowing the respondent to benefit under the policy and intended that her sister, the petitioner, should receive the proceeds of the policy. The court followed the decision of the British Columbia Court of Appeal in Roberts v. Martindale, [1998] B.C.J. No. 1509, where it was held that a policy of life insurance is a species of property and that the beneficiary had, by a separation agreement, surrendered any right he might have to the property of the deceased and it would be against good conscience for him to keep the insurance proceeds. The Court of Appeal in Martindale held that for the beneficiary to claim the insurance proceeds was a breach of the separation agreement and was sufficient to invoke the doctrine of the remedial constructive trust.

The court in the case at bar held that the respondent had engaged in wrongful conduct and was under an equitable obligation to refrain from taking any steps to pursue a claim to the life insurance proceeds. He filed a claim to the proceeds in breach of his contractual obligations under the separation agreement and took active steps to pursue property despite having agreed that he had no further interest in that property. It did not matter that the separation agreement did not specifically refer to insurance policies. It was clear that the separation agreement was intended to be a full and final settlement of entitlement to any and all property, including policies of insurance. The petitioner was therefore entitled to receive the proceeds of the policy.

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