Ontario Appeal Court Decision Raises Alarm for Pension Administrators

The recent decision of the Ontario Court of Appeal in Carrigan v. Carrigan Estate¹ may be cause for concern for pension plan administrators in Ontario. The case involves the proper interpretation of the spousal priority claim to a pre-retirement death benefit.

The key facts are as follows: Mr. Carrigan and his wife Ms. Carrigan were married in 1973 and subsequently had two daughters. They separated in 1996, but did not legally divorce. Mr. Carrigan started living with Ms. Quinn in 2000 and continued living with her until his death in 2008. In 2002, while living with Ms. Quinn, Mr. Carrigan designated Ms. Carrigan and his two daughters as the beneficiaries of the death benefit under his pension plan.

The case turned on the interpretation of section 48 of Ontario’s Pension Benefits Act (PBA), which gives priority to a spousal claim to a pre-retirement death benefit. Specifically, subsection 48(1) states that the entitlement to the benefit payment goes to "the person who is the spouse of the member or former member on the date of death." However, subsection 48(3) provides that the spousal priority claim under subsection (1) does not apply if the plan member "and his or her spouse are living separate and apart on the date of the death of the member." If there is no spousal priority claim, the designated beneficiary is entitled to the benefit under subsection 48(6).

The trial judge held that Ms. Carrigan and Ms. Quinn both met the definition of "spouse" under the PBA. The trial judge held that since Mr. and Ms. Carrigan were living separate and apart at the time of Mr. Carrigan’s death, Ms. Carrigan was not entitled to the death benefit as a spouse by virtue of subsection 48(3). And since Ms. Quinn was Mr. Carrigan’s common law spouse at the date of his death, she was entitled to the benefit by virtue of subsection 48(1).

The Court of Appeal agreed that both Ms. Carrigan and Ms. Quinn met the definition of a "spouse" under the PBA, but disagreed with the trial judge’s section 48 analysis, with the majority of the Court holding that the word "spouse" in subsection 48(3) must always refer to the legally married spouse, since common-law spouses cannot, by definition, be "living separate and apart". Therefore, since Ms. Carrigan triggered subsection 48(3), entitlement under subsection 48(1) could not apply. The designated beneficiary was therefore the person entitled to the death benefit (which, in this case, happened to be the legal spouse). A minority of the Court of Appeal dissented and would have upheld the decision of the trial judge granting priority to Ms. Quinn, the "spouse in the house."

The decision of the Court of Appeal appears to favour the wishes of the plan member, instead of advancing the goal of protecting spousal interests. While this decision is being appealed to the Supreme Court of Canada, pension plan administrators should be mindful of spousal interests where plan members are separated but not divorced from their legal spouse.

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¹ Carrigan v. Carrigan Estate, 2012 ONCA 736 [Carrigan].