Life insurance provisions are often included in separation agreements as security for spousal support or child support. The terms of the separation agreement will require one spouse to carry life insurance in a particular amount, and typically require the irrevocable designation of the children or ex-spouse as the beneficiaries. Failure to comply with a life insurance provision in a family law separation agreement can be remedied by the BC courts. Recently, in Pedrozo v. Hope, 2020 BCSC 1578, the ex-wife of a BC man successfully sued his estate after learning that he had changed his beneficiary designation without her consent. But for her former husband’s breach of the life insurance provision in their separation agreement, she would have been entitled to the $250,00 face value of the policy—and the court ordered that amount payable to her.
Life insurance provision in BC separation agreement
Carmen Pedrozo and Douglas Hope were married in Colombia in November 2004 when she was 26 years old and he was 54. Ms. Pedrozo brought a 4-year-old son to the marriage named Jose. Mr. Hope had two older children by a prior relationship, his son Darcy and a daughter Breanne. Ms. Pedrozo and Mr. Hope lived in Parksville, BC before separating permanently in December 2013. Ms. Pedrozo filed a Notice of Family Claim seeking division of matrimonial property and support for herself and Jose, who by then was 15. The parties settled their differences by mediation, signing a separation agreement in October 2015. The separation agreement provided in part as follows:
- Child support: Mr. Hope was to pay $1,667 per month for Jose’s support starting November 1, 2015 for as long as he remained a child of the marriage and lived with Ms. Pedrozo.
- Spousal support: Mr. Hope was to pay spousal support of $5,500 per month on a fixed term starting November 1, 2015 with the final payment due on July 1, 2019.
- Security for support: the separation agreement required Mr. Hope to maintain the life insurance policy currently in place on his life in the face amount of $250,000 as security for child and spousal support and irrevocably designate Ms. Pedrozo as beneficiary for the full amount of $250,000 for so long as he is obligated to pay spousal and child support.
Breach of life insurance provision and unexpected death of spouse
Several months after the separation agreement was filed in court, Mr. Hope removed Ms. Pedrozo from the policy and substituted his older children, Darcy and Breanne, as beneficiaries. He took no further steps to comply with the insurance provision. Mr. Hope paid his child and spousal support payments up to and including August 1, 2018, but then he died unexpectedly on August 14, 2018. At the time of his death, Mr. Hope continued to be obligated to pay child support and spousal support, and thus was bound by the contractual commitment to carry life insurance payable to Ms. Pedrozo in the amount of $250,000. His breach of the insurance provision meant that on his death the money that should have gone to Ms. Pedrozo was paid instead to Darcy and Breanne in the amount of $125,000 each.
Ex-wife sues former husband’s estate to enforce life insurance provision
Ms. Pedrozo brought an estate claim, seeking payment of $250,000 payable under Mr. Hope’s insurance policy. By that time, Jose was 20, and both of Mr. Hope’s children were in their 30s. Mr. Hope’s estate opposed the claim, arguing that Ms. Pedrozo’s damages for breach of contract should be limited to the amount of support payable to her from the date of the deceased’s death until July 1, 2019. On August 6, 2019, the parties consented to an order for the unconditional payment of $79,387 to Ms. Pedrozo from Mr. Hope’s estate, representing the cumulative total amount of child and spousal support payable from Mr. Hope’s death up to and including July 1, 2019, which was the last payment date before Jose’s 19th birthday, and the end of the fixed term spousal support obligation specified in the separation agreement.
Reasons for the BC court’s decision in this estate law claim
Mr. Justice Baird found that the insurance provision created a clear and unambiguous duty that comprised one of the most important conditions of the separation agreement. It was plainly devised to provide comfort to both parties that Ms. Pedrozo and Jose would be adequately looked after in the event of Mr. Hope’s death at any time while he was bound to pay support for either of them. If the parties intended for Ms. Pedrozo’s entitlement to the full insurance proceeds to be limited in some way, clear language to that effect would infallibly have been included in the terms of settlement. Its absence rendered this case a straightforward matter of putting Ms. Pedrozo in the position that she would have enjoyed absent Mr. Hope’s breach of this important term of the separation agreement. The key facts were not in dispute:
- Mr. Hope breached the insurance provision by not naming Ms. Pedrozo as the sole and irrevocable beneficiary of the policy in question.
- If Mr. Hope had complied with the insurance provision, it would have been unlawful for him to remove Ms. Pedrozo as irrevocable beneficiary without her consent: see s. 60 of the Insurance Act, R.S.B.C. 2012, c.1.
- But for Mr. Hope’s breach, Ms. Pedrozo would have been paid the $250,000 face value of the policy.
- If this had happened, Mr. Hope’s estate would have had no lawful basis for an action against Ms. Pedrozo for unjust enrichment.
It would be inequitable to deny Ms. Pedrozo the full amount that she would have received if Mr. Hope had complied with his contractual obligations. Mr. Justice Baird ordered damages of $170,613 payable from the deceased’s estate ($250,000 less the $79,387 already paid) to compensate for his breach of the insurance provision. Ms. Pedrozo was also awarded her costs of the claim payable from Mr. Hope’s estate.
Bottom line on life insurance provisions in separation agreements
A deceased’s estate may be ordered to pay the amount owing under an insurance policy if the deceased failed to comply with a contractual commitment to maintain life insurance as security for child support or spousal support.