Law Times

Page 12 February 23, 2015 • Law Times www.lawtimesnews.com Insurance for support obligations a hard sell But options exist to address client concerns, avoid litigation By Judy van rhiJn For Law Times roviding security for support obligations through the use of life insurance is a common practice many lawyers and their clients give little thought to. Un- fortunately, the use of existing employment-related policies involves pitfalls that can expose families to inadequate support and lawyers to claims for neg- ligence. While it's possible to obtain insurance specifically tailored to support obligations, lawyers find the product can be a hard sell. Allan Papernick, a family lawyer in Toronto, believes both counsel and their clients under- estimate the need for additional life insurance. "Only when someone dies do we realize that insurance wasn't adequately considered when the lawyers did the agreement," he says. "That's why we are advised by our insurers that it is a huge area of potential risk for neg- ligence claims. People assume that term life insurance through employment will be sufficient, but sometimes it is not well de- fined. It may be only one or two years' income, and people forget that if they leave employment or get laid off, they don't have cov- erage." Steve Benmor of the Ben- mor Family Law Group had the experience as a young lawyer of seeing his opposing counsel sued in a case where his client died with no security arranged. "That serves as a reminder to me, and frankly to every lawyer, not to ignore the issue," he says. "The lion's share of people al- ready have group life insurance through their employment. The question they ask isn't usually, 'Do I have to go out and buy in- surance?' but who to make the beneficiary." Rick Peticca of Shulman Law Firm notes there's an assump- tion in the Family Law Act that the payer already has an insur- ance policy in place when sepa- ration occurs. "Section 34(1)(j) requires a person who has in- surance to designate the spouse or child as the beneficiary ir- revocably to secure the support obligation." It has taken recent interpreta- tions in Katz v. Katz and Rahim v. Adil to make it clear the court has the power to order a party to obtain life insurance even though it declined to use it in both cases. In Katz, the husband was unable to obtain normal insurance because of his health while in Rahim he had employ- ment insurance that was suffi- cient for the purpose. There are those who warn that will often not be the case and not just because the amount is inadequate. Fraser Rideout, owner of Familysure Corp., points out that group insurance involves a contract between the insurer and the company. "There is no control over chang- es or cancellations, which makes it unsuitable for support ar- rangements. It may not be there at claim time or the individual may have changed jobs. It's a matter of time before a lawyer is sued for writing in a group in- surance in a support agreement. If someone's laid off, who's the payee going to sue?" In Papernick's experience, very few people actually buy life insurance. "There are RRSPs and TFSAs and other ways to invest in the future. Insurance is not so attractive unless you are self-employed. Government employees in particular think they should be covered for ev- erything." Papernick finds most people decide to rely on their existing policies. "One of the problems that leaves for lawyers is how much is enough? $75,000 or $100,000 sounds like a lot, but if you die early with young chil- dren or a large spousal obliga- tion, it may not be enough. You can hire actuaries to calculate life expectancy and cost of liv- ing, but nobody does that. It's a hit-and-miss thing." Benmor says the first step to addressing the issue is to re- member to talk about it. The second is calculating the correct amount and the third is being aware of the decreasing nature of the obligation. "As time goes forward, the amount of life in- surance you need decreases, and what if there's no support obli- gation anymore? Do you turn it off or assign it to someone else — maybe a new partner or the adult child? People settle cases at a moment in time and these are all things that it is not common practice to consider." If people have purchased private insurance, it's possible to review the face value of the policy after a period of time and adjust it to ref lect the fact the obligation has decreased. But Peticca finds most people wait until the obligation has expired completely to review the policy. "Most people try to wait until it ends," he says. "They don't reduce as it goes along. There needs to be word- ing to the effect that when the children become self-sufficient adults or there is time-limited spousal support, the beneficiary can be changed. When there is not appropriate wording, most people are of a reasonable mind and will sign an amendment to the agreement. If they can't reach agreement, they then go to court." People can avoid all of this with a life insurance policy spe- cifically tied to the support ob- ligation. Rideout notes his prod- uct mirrors the order or agree- ment. Upon the payer's death, the beneficiary receives a stream of support payments rather than a lump sum. "There is a module of support for every child that expires as each child's obligation expires. Premiums reduce as the child comes off the policy." "The important thing about a reducing term policy is that it adjusts as the need for coverage becomes less," says Papernick. "You may know that the child support obligation will last an- other five years or there is time- limited support for the spouse. With regular life insurance, if you die the month before it ends, someone will have a wind- fall and that rankles people." Rideout agrees. "There are not many men who want to leave a million dollars to their ex-wife and her new boyfriend. When we come in with a prod- uct solution that does exactly the same thing as what the order is supposed to do and ask if they are happy with that, the answer is always yes." Papernick recommends re- ducing term insurance to his clients and finds that those who have gone in that direction are very happy with it. "All the problems are solved by reducing term insurance. You purchase coverage for the length of the contract or obligation. It's not covering an arbitrary amount; it's covering payments. The in- surance company does all the calculations and premiums are fair and it keeps lawyers on the right side of negligence claims." Despite his enthusiasm, Pa- pernick often finds the policy to be a hard sell and he has never had a lawyer insist on it from the other side. "I don't know why. It's a rela- tively inexpensive solution. I think it's driven by clients being cost-conscious. People think in- surance is free because they get it at work and they don't want to pay for extended negotiations. But a bit more time could save money in the long run." LT FOCUS TF: 1.888.223.0448 T: 416.868.3100 YOUR ADVANTAGE, in and out of the courtroom. (YHU\WLPH\RXUHIHUDFOLHQWWRRXUßUP\RXDUHSXWWLQJ \RXUUHSXWDWLRQRQWKHOLQH,WLVDOODERXWWUXVWZHOOSODFHG Since 1936 Thomson, Rogers has built a strong, trusting, and collegial relationship with hundreds of lawyers across the province. As a law firm specializing in civil litigation, we have a record of accomplishment second to none. With a group of 30 litigators and a support staff of over 100 people, we have the resources to achieve the best possible result for your client. Moreover, we are exceptionally fair when it comes to referral fees. We welcome the chance to speak or meet with you about any potential referral. We look forward to creating a solid relationship with you that will benefit the clients we serve. www.thomsonrogers.com TRUST ROBERT BEN | DAVID MACDONALD | IAN FURLONG Untitled-5 1 2015-02-17 11:04 AM P "Physicians said the only way certain trauma happens to the eye is by shaking. Parents were being charged until one law- yer researched it and found an expert who said that was not the case. It's only medical evidence. It comes back to the law- yer's responsibility to look at all the evidence. In custody and access, there would have to be some good evidence against a neutral third-party assessment or opinion. It doesn't mean that whatever the assessment says should go into the order word for word. The judge has an obligation to investigate and look behind it. The other side has an obligation to do their due diligence and challenge it." LT Motherisk controversy Continued from page 10

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