Insurance payable, contrary to will

“Had [the deceased] used about a half-dozen words differently in that will, [the deceased’s wife] probably would have had $112,000,” says Royal Morton, the lawyer who represented Lakhwinder Singh Bassi, the defendant in this case, who had been disinherited by his brother, Buta Singh Bassi.

Buta, who was married to Mandeep Kaur Bassi, died in October 2007. He had named his wife and brother as equal beneficiaries to the proceeds of a life insurance policy.

However, in Buta’s will, which was not drafted by a lawyer but was created using a self-help will kit, Buta included a provision disinheriting his brother “from any and all of my beneficiaries list (if any) that I might not be aware of.”

It was that clause that became the subject of litigation in the B.C. Supreme Court and the B.C. Court of Appeal.

The brothers had a falling out over finances. Buta’s will stated that Lakhwinder owed Buta more than $50,000 and had caused Buta “much grief and unhappiness.” Lakhwinder denied owing the money.

After Buta died, Clarica Life Insurance Co., which had no knowledge of the will and testament, paid Lakhwinder more than $112,000 under the death benefit of the life insurance policy.

Buta’s estate and widow sued in 2011 to recover the insurance money and the $50,000 loan from Lakhwinder.

Lakhwinder did not defend that suit and a judgment was granted against him, which the widow then sought to enforce. Lakhwinder hired Morton, who asked the court to set aside the judgment and the order for damages.

The judge hearing that motion ruled that the clause in the will was sufficient to revoke the beneficiary declaration under the insurance policy. Lakhwinder appealed.

Justice Christopher Hinkson of the B.C. Court of Appeal (COA) reviewed a number of cases dealing with wills that purport to revoke beneficiary designations, as well as Sec. 107 of the B.C. Insurance Act, which permits a designation to be revoked by declaration.

Under that legislation, the declaration must be signed by the insured and it must describe or identify the insurance policy. (Courts previously have found that an email was sufficient declaration to revoke a beneficiary.)

The question before the B.C. COA was whether the wording of Buta’s will that sought to disinherit Lakhwinder was sufficient to identify the insurance contract. The lower court held that the reference to the beneficiary list met the statutory requirements and inferred the insurance contract.

However, Hinkson disagreed, noting that a revocation of an insurance designation “must be in the clearest possible terms or it will be of no effect.” The COA set aside the order that Lakhwinder pay his brother’s estate $112,000.

Barry Corbin, a wills and estates lawyer in Toronto, says, “A will is a vehicle by which you can revoke a previous beneficiary designation.” But, he adds, the lack of reference to the insurance contract was fatal in this case.

Morton agrees that under the law it is “very easy to revoke a beneficiary. Just scribble on a piece of paper, and it doesn’t have to be witnessed.” However, there does need to be a reference to the pertinent insurance policy.

Deepak Guatam, a lawyer in B.C. who acted for the deceased’s estate, notes that a will can be used to change beneficiaries of items such as life insurance policies and insurance policies used to fund RRSPs. This case, he says, highlights that “the most prudent way to deal with a revocation is by way of the proper form rather than by relying on the will.”

That means clients who recently have had children or are recently divorced should be reminded to use the correct form to change any beneficiary designations rather than relying on their will.

Guatam says that insurance advisors should regularly review beneficiary designations on policies with clients to make sure that there is no conflict with their will.

Seumas Woods, an insurance litigator in Toronto, notes that the B.C. legislation is worded similarly to other provincial insurance legislation, so the B.C. case will be influential in other province’s courts: “Although the bar is fairly low to make the revocation, there still is a bar and you have to jump over. [Buta’s wording] wasn’t as specific as it should have been.”

Woods adds that clients often will change the beneficiary designations in their will and may or may not inform their insurance advisors. “That’s a problem,” he says. “You want to have a discussion with the client.”

Guatam notes that as long as insurance companies don’t receive notice and are unaware of a will that changes a beneficiary, they will avoid liability if they pay a policy’s proceeds to the wrong party. However, if the advisor was aware of a change and didn’t pass that information along to the insurer, that lack of action could create liability for both the insurer and the advisor.

Corbin says that the case shows that “homemade wills are much more dangerous than homemade soup.” People don’t know the law, he adds: “They assume that plain language will win the day.”

© 2013 Investment Executive. All rights reserved.