If there are no exceptional circumstances, the irrevocable beneficiary stands!

As we have seen in many cases, an irrevocable beneficiary designation is unassailable and the courts have clearly stated this point. But are there times when exceptional circumstances or reasons exist to justify interfering with an irrevocable beneficiary designation? Sometimes, yes. But in Pilon v. Beute, et al., 2018 CarswellOnt 6927, 2018 ONSC 2806, 291

A.C.W.S. (3d) 857 the court found no reason to interfere with the irrevocable beneficiary designation.

Charles Foster had basic life insurance and accidental death and dismemberment (AD&D) insurance through his employer’s group plan. Charles named his common-law spouse, Tracey Pilon, as the irrevocable beneficiary for both insurance benefits. In 2010 Tracey and Charles separated. Around the same time, Charles completed an application form naming his neighbor, Tracey Beute, as the beneficiary of his group life and AD&D insurance and requesting that Ms. Pilon be removed as the beneficiary.

Charles died in April 2011 and Tracey Beute, with the help of the group plan administrator, provided a death certificate and submitted a claim for the life and AD&D insurance proceeds.

When the insurance carrier advised Ms. Beute that the revocable beneficiary designation naming her as the beneficiary was invalid, she retained counsel to contact the plan administrator and the insurance carrier. The insurance carrier stated that, because she was the irrevocable beneficiary, Tracey Pilon was the beneficiary of Charles Foster’s life and AD&D insurance payout.

Both Ms. Beute and the insurance carrier confirmed that Tracey Pilon’s whereabouts were unknown. The insurance carrier eventually learned that Tracey Pilon had died in 2014, surviving Charles Foster by three years. Tracey died intestate but left behind one child, Amanda Philon. Under the intestacy rules of the Ontario Succession Law Reform Act (“SLRA”), Tracey’s entire estate would flow to her daughter. If Tracey’s irrevocable beneficiary designation was found to be valid, Amanda would also receive the life insurance and AD&D insurance proceeds, which had been paid into the court.

Amanda relied on s. 191(1) of the Ontario Insurance Act which indicates an irrevocable beneficiary designation may not be altered or revoked by the insured (owner) without the consent of the beneficiary. She also relied on the case of Moore

v. Sweet which we have considered in Two competing beneficiaries – who wins and why. In that case the court said a beneficiary designation in a life insurance policy is “normally unassailable” if there are no exceptional circumstances and there may be a good reason for unjust enrichment. This decision is even more applicable if the beneficiary designation is irrevocable.

The legislation imposes a regime over the policy and its proceeds that gives rights and protection to both the insurer and the named irrevocable beneficiary. Once an irrevocable beneficiary designation is made, the insured owner loses control over the insurance money and the proceeds are immune from the attack of the insured owner’s creditors.

Attempting to support an argument for exceptional circumstances, Ms. Beute provided documents to the court confirming that Mr. Foster tried to change the beneficiary designation. She also provided evidence that the plan administrator said she was the beneficiary and directed her how to make the death claim. The plan administrator also had her produce evidence of Mr. Foster’s accidental death so she could claim the AD&D insurance. While she took these steps, and provided evidence that Mr. Foster wanted to change the designation, the court found that this did not prove the exceptional circumstances that would warrant overriding the irrevocable beneficiary designation.

Mr. Foster did not have the legal capacity to change the designation without the consent of the irrevocable beneficiary, Tracey Pilon, who was alive at the time of his death. The court indicated that there were no exceptional circumstances or reasons to interfere with the beneficiary designation and that there is a clear regime for revoking an irrevocable beneficiary designation under the Insurance Act. Mr. Foster did not comply with the Insurance Act by failing to contact Tracey Pilon and get her consent to change the beneficiary designation.

The court affirmed that an irrevocable beneficiary designation is unassailable unless there is evidence of exceptional circumstances. In this case, the court found none. What would have completely changed the outcome of this case is if Tracey Pilon had died before Mr. Foster. If that had happened, Tracey’s rights as an irrevocable beneficiary would not have passed on to her estate, and her daughter Amanda would not have been entitled to the insurance proceeds. A simple twist of chronology could have completely changed the outcome of who received the insurance benefits.