This decision from the Ontario Court of Appeal deals with the issue of life insurance clauses in Separation Agreements. Most often, life insurance provisions are inserted into Separation Agreements in order to secure child and spousal support obligations. Since a life insurance provision may be used as security for support in a number of different ways, however, this case is a good reminder to counsel to make certain that when drafting Agreements, that provisions relating to life insurance reflect the actual intentions of the parties.

In the case at bar, the parties had drafted a Separation Agreement, which included a provision in it stating that the Husband was to pay the wife spousal support until she reached the age of 65. The Agreement further required that the husband was to maintain a life insurance policy that would benefit the wife in the amount of $100,000.00. According to the Agreement, this obligation was required of the husband until he was no longer obligated to contribute to her support (ie. until the wife reached the age of 65 years). When the husband died at the age of 58, he did have a life insurance in place, but the life insurance policy was only worth $43,507.00. Further, when the husband died, the wife was merely 56 years of age. Since the husband had not maintained an insurance policy in the amount of $100,000.00, he was evidently in breach of his insurance obligations under the Separation Agreement. As a result of the shortfall in monies worth for the insurance policy held by the husband, the wife commenced an application against the husband’s estate and against the husband’s second wife, claiming entitlement for the shortfall in insurance proceeds.

The trial judge in this case held that the wife was entitled to the full $100,000.00, and that the shortfall from the insurance proceeds was to be paid out of the husband’s estate. The husband’s second wife appealed arguing that the insurance policy was intended as security for any outstanding support obligations, not for the independent benefit of the wife. Since it was agreed upon by the parties that the $43,507.00 thus far received by the first wife from the insurance proceeds was either equal to or greater than the amount of support that was still outstanding at the time of the husband’s death, the second wife argued that the first wife should not be so entitled to the remaining balance of insurance proceeds from the husband’s estate (ie. $56,493.00). In other words, the second wife argued that the husband’s insurance obligation was intended to be used as security for any outstanding support obligations to the first wife at the time of his death, and that it was not intended to be paid out as a lump sum at the time of his death.

The Court of Appeal scrutinized the wording in the Agreement and agreed with the Trial judge that the first wife was entitled to the full $100,000.00. The first wife admitted that the life insurance obtained by the husband was intended for the purpose of providing her with security for her spousal support payments. The first wife, however, further explained that she had signed the Agreement based on her solicitor’s explanation to her that if her husband died before she reached the age of 65, then she would receive an up front lump sum payment of $100,000.00. Evidently, the statements made by the second wife were contradictory, however, after listening to arguments relating to the interpretation of the agreement and extrinsic evidence about the wife’s understanding of the meaning of the husband’s insurance obligation, the trial judge concluded that the provision in the Agreement relating to insurance was not ambiguous and thus parol evidence would not be heard [Note: Parol evidence refers to extraneous evidence such as an oral agreement, that is not included in the relevant written document]. The Court of Appeal agreed.