When someone purchases life insurance they can choose who their beneficiaries are – that is, those who will receive a pay-out in the event of the insured’s death. When purchasing or registering for life insurance, the insured may choose to make a beneficiary revocable or irrevocable. The difference between the two is significant. An irrevocable beneficiary must agree to any changes made to a policy, and they can’t be removed from a policy without consent. A revocable beneficiary on the other hand, has no say in whether they remain a beneficiary or as to the payouts of an insurance policy. A situation where an irrevocable beneficiary is named might be when someone looks to add a spouse, or children to their insurance policy. A recent decision by the Ontario Superior Court of Justice highlights the resilience of an irrevocable beneficiary designation.

The insured names an irrevocable beneficiary

The insured (“CF”) started work as a bricklayer with a construction company on April 1, 2001. As part of his employment he was entitled to participate in an insurance policy. Under the plan, CF had basic life coverage of $30,000 as well as Accidental Death and Dismemberment Insurance of $40,000. He designated his common-law partner (“TP”) as the beneficiary, and when given the opportunity to make her designation revocable or irrevocable he chose the latter. The insurance form stated

You must make your beneficiary designation revocable or irrevocable by checking one of the circles below.

You may change a revocable beneficiary designation at any time.  You may not change an irrevocable beneficiary designation or make certain changes to your plan without the written consent of the irrevocable beneficiary.

TP and CF separated in 2010. But prior to that, on August 25, 2009, CF completed an Application for Group Coverage form, naming his neighbor (“TB”) as his beneficiary, requesting TP to be removed from coverage.

Competing claims

CF died on April 2, 2011. Shortly thereafter TB requested payment of the insurance benefits she believed she was entitled to. However, she was advised that TP was the irrevocable beneficiary under the policy, and that all other beneficiary designations were invalid. Both TB and the insurance company attempted to reach TP. It was eventually made known that she died on January 6, 2014. Whether she knew about the death of CF is not known.

TP’s daughter went on to apply for an order directing the proceeds of the insurance benefit to be paid to her as the only heir to the estate. However, TB argued it was the wish of CF to name her as the beneficiary, entitling her to the proceeds.

TP’s daughter relied on an Ontario Court of Appeal decision from 2017 which stated,

Once an irrevocable designation is made in compliance with the Insurance Act – as it was here, in Ms. Sweet’s favour – 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:  the insurer is protected in making payment to the beneficiary, the irrevocable beneficiary by the statutory right to remain as the named beneficiary entitled to receive the insurance moneys unless he or she consents to being removed.  The regime is designed to provide an element of certainty and predictability for those statutory rights and protections, which are reinforced by the legislature’s decision, reflected in s. 191(1) that, once an irrevocable designation is properly effected, the insured loses control over the insurance moneys and the moneys are immune from attack by the insured’s creditors and do not form part of the insured’s estate, and in s. 191(2) that a purported attempt to designate an irrevocable beneficiary without complying with s. 191(1) renders the designation revocable.

In the present case, the judge stated the court accepts the Court of Appeal’s decision as a binding one, writing “It is not clear that the deceased, (CF), although clearly wishing to change the beneficiary of his insurance contracts, had the legal capacity to do so without the consent of that beneficiary who was alive at that time and not notified of that request.”

As a result, TP’s daughter was entitled to the insurance benefits.

With over 130 years of combined litigation experience, the Insurance Team at HMC Lawyers has dealt with coverage issues on countless insurance claims. Our deep familiarity with the nuances of insurance policy language and knowledge of common law allows us to provide our clients with exceptional, insightful, and timely advice. We assist clients who disagree with an insurer’s decision regarding coverage, especially in complex or high-value losses. Contact us at 403-269-7220 or reach us online to talk today.