“The Ontario Court of Appeal dealt with the interplay between ss. 72(1)(f) and 72(7) of the [Succession Law Reform Act] in Dagg v. Cameron Estate, 2017 ONCA 366 (CanLII). Brown J.A., writing for a unanimous court, framed the issue to be decided as follows at para. 5:
The novel issue raised by this appeal can be stated in the following way: Where a support payor owns a life insurance policy and has been required by court order to name the spousal or child support recipient as the irrevocable beneficiary of the policy, upon the payor’s death what rights does the support recipient have to the policy’s proceeds in the face of a competing claim by another dependant of the deceased brought under Part V of the SLRA?
At paras. 75 and 76, Brown J.A. effectively found that where a payor is subject to a court order that requires her/him to name a support recipient as an irrevocable beneficiary, that portion of the insurance proceeds needed to satisfy support payments is not subject to the “clawback” sections of the SLRA:
I conclude that where, at the time of his death, a spousal or child support payor owns a policy of insurance that is subject to a court order requiring the designation of the support recipient as the irrevocable beneficiary of the policy, s. 72(7) protects from the claw back of s. 72(1) that part of a policy’s proceeds needed to satisfy the deceased’s obligations to the spousal and child support recipients, calculated in accordance with the support orders in place at the time of his death. I reach this conclusion in the following way.
Under both the FLA and the Divorce Act, a court can secure the payment of support obligations by formally granting a charge against property. However, the jurisprudence discloses that the more common practice is for a court to order a support payor to designate the support recipient as the irrevocable beneficiary under a life insurance policy. While colloquially such an order is described as one that “secures” payment of the support obligations in the event of the payor’s death, it would be more accurate to say that such an order makes available a pool of money — the proceeds of the life insurance policy — to satisfy the support payor’s obligations calculated in accordance with the support orders in place at the time of his death. [Emphasis added.]
The court was clear, however, that not all life insurance requirements described in separation agreements are intended simply as “security” for support payments. At para. 83, Brown J.A. stated:
Second, [the support recipient]’s rights as a creditor of the deceased in respect of the Policy for the purposes of s. 72(7) flow from court orders. Those rights can be no greater than what the courts could confer under such orders. Under the FLA and Divorce Act, courts only have the jurisdiction to order life insurance beneficiary designations to the extent needed to satisfy support obligations. Such orders can provide no greater protection in the face of a competing claim to the policy’s proceeds by a claimant under Part V of the SLRA. Should parties intend a life insurance policy to operate as a kind of “stand alone” benefit upon the payor’s death, not linked to his obligation to pay child or spousal support, it is open to them to strike such a bargain and memorialize it in a separation agreement: Turner v. DiDonato, 2009 ONCA 235 (CanLII), 95 O.R. (3d) 147, at para. 38. [Emphasis added.]
Thus, I must determine whether or not the life insurance clause in the Birnies’ Separation Agreement was intended to act as a pool of funds to “secure” Mr. Birnie’s spousal support obligations or whether it is a “stand alone” benefit as described in Turner v. DiDonato.”