Perron-Malenfant v. Malenfant (Trustee of), [1999] 3 S.C.R. 375
In the Matter of the Bankruptcy of Raymond Malenfant,
Colette Perron, Alain Malenfant, Eusthelle Malenfant,
France Malenfant and Lynn Malenfant
between
Pierre Poliquin of the Firm Samson Bélair/Deloitte & Touche Inc.,
trustee in the Bankruptcy of debtors Raymond Malenfant,
Colette Perron, Alain Malenfant, Eusthelle Malenfant,
France Malenfant and Lynn Malenfant Appellant
v.
Colette Perron-Malenfant Respondent
and
La Laurentienne Vie Inc. Respondent in the Quebec Superior Court
Indexed as: Perron-Malenfant v. Malenfant (Trustee of)
File No.: 26451.
1999: March 15; 1999: September 17.
Present: L’Heureux‑Dubé, Gonthier, Cory, McLachlin, Iacobucci, Bastarache and Binnie JJ.
on appeal from the court of appeal for quebec
Bankruptcy -- Property of bankrupt -- Life insurance policy -- Right to surrender -- Policy not exempt from seizure under provincial law -- Whether cash surrender value of policy should be excluded from property divisible among creditors in bankruptcy -- Bankruptcy and Insolvency Act, R.S.C., 1985, c. B-3, s. 67(1) -- Civil Code of Lower Canada, arts. 2547, 2552, 2554.
The respondent policyholder insured her husband’s life in a life insurance policy and designated herself a revocable beneficiary. She had the right to surrender the policy for its cash surrender value pursuant to the terms of the policy. The respondent, her husband and her children were petitioned into receivership. The trustee in bankruptcy advised the insurer that he was exercising the right to surrender the policy on behalf of the respondent, and that it should therefore resiliate the policy and pay into the bankruptcy its cash surrender value. The insurer complied. The Superior Court dismissed the respondent’s motion for an order enjoining the trustee to return the cash surrender value to the insurer, and for another order enjoining the insurer to reinstate the policy. The Court of Appeal reversed the decision and ordered the trustee to return the cash surrender value to the insurer.
Held: The appeal should be allowed.
The trustee is entitled to seize the policy and exercise the surrender right to obtain its cash surrender value. The exemption provisions of the Civil Code of Lower Canada governing life insurance contracts were meant by the legislature to be exhaustive. The legislature’s intention is derived from the language of arts. 2552 and 2554 C.C.L.C., considering the legislative history of the provisions and in particular the fact that the articles were introduced into the Civil Code of Lower Canada as part of the comprehensive insurance-law revision that took place in Quebec in the early 1970s, and the interpretation of arts. 2552 and 2554 C.C.L.C. themselves in the context of the themes running through the revision of the Civil Code of Lower Canada. It is clear that the legislature intended the provisions to protect from seizure all rights under those contracts that qualify, especially the right to surrender. At the same time, the legislature specifically stipulated that these rights were exempt from seizure only under the two described classes of policies. The natural conclusion, a contrario, is that the rights under all other policies, including the right to surrender for a cash surrender value, are seizable. The legislature chose to protect two particular classes of policies from seizure because it perceived a significant threat to these, namely the threat that creditors, to whom the right to surrender a life insurance policy was otherwise generally available, could terminate a policy by exercising the right. It is open to the legislature to enact an exhaustive set of rules governing seizability in a particular area. Where that is the case, the express rules themselves, and only those rules, govern seizability.
By virtue of s. 67(1)(b) of the Bankruptcy and Insolvency Act, this exclusive provincial code of unseizability is determinative as to what rights the trustee can seize and exercise for the benefit of creditors. This determination avoids the need to consider the personal rights doctrine under both the Bankruptcy and Insolvency Act and the general law of Quebec. The best interpretation of the life insurance seizability exemptions is that all the rights under a non-exempt policy are seizable, including the right to surrender the policy for its cash surrender value.
Here, the respondent’s policy does not qualify under either of the only available exemptions, since under the policy, the respondent is both beneficiary and policyholder and since the designation of the respondent as beneficiary was never made irrevocable, and does not benefit from the presumption of irrevocability of art. 2547 C.C.L.C. Articles 2552 and 2554 C.C.L.C. therefore do not operate under s. 67(1)(b) of the Bankruptcy and Insolvency Act to exclude the rights attached to the respondent’s life insurance policy from the property that passes to the bankruptcy trustee. The Quebec legislature maintained the unseizable class of family life insurance policies defined vis-à-vis the beneficiary’s relationship to the policyholder, not the life insured. This Court cannot undo the Quebec legislature’s express choices and adopt the policy of the common law provinces, only because it is convenient to do so in a particular case. This is something to be left for the consideration of the legislature itself.
Cases Cited
Referred to: Banque canadienne nationale v. Carette-Poulin (1934), 56 B.R. 143; Lauwers v. Tardiff, [1966] C.S. 79; Royal Bank of Canada v. North American Life Assurance Co., [1996] 1 S.C.R. 325; Mercure v. A. Marquette & Fils Inc., [1977] 1 S.C.R. 547; Re Pearson (1977), 23 C.B.R. (N.S.) 44; Zenith Tire & Repair v. Angle & Lemessurier Reg’d, Sup. Ct. Mtl., E-106243, February 13, 1934; Jarry Automobile Ltée v. Medicoff, [1947] C.S. 465; Gagnon v. City of Montreal, [1956] R.P. 385; Wallace v. United Grain Growers Ltd., [1997] 3 S.C.R. 701; Re Holley (1986), 59 C.B.R. (N.S.) 17; In re Max Mendelson (1940), 21 C.B.R. 304; Crown Life Insurance Co. v. Perras, [1953] B.R. 659; Fortier v. Nault, [1954] C.S. 131; Re de Grandpré (1969), 15 C.B.R. (N.S.) 262; Re Comptois (1981), 40 C.B.R. (N.S.) 118; Aubry (Syndic de), [1988] R.J.Q. 2211; Banque Canadienne Nationale v. Carette, [1931] S.C.R. 33; Construction Gilles Paquette ltée v. Entreprises Végo ltée, [1997] 2 S.C.R. 299; Lalonde v. Sun Life Assurance Co. of Canada, [1992] 3 S.C.R. 261.
Statutes and Regulations Cited
Act respecting insurance, R.S.Q., c. A-32.
Act respecting insurance, S.Q. 1974, c. 70.
Act to consolidate and amend the law to secure to wives and children the benefit of assurances on the lives of their husbands and parents, S.Q. 1878, 41-42 Vict., c. 13, ss. 12, 26.
Act to secure to Wives and Children the benefit of Assurances on the lives of their Husbands and Parents, S. Prov. C. 1865, 29 Vict., c. 17.
Bankruptcy and Insolvency Act, R.S.C., 1985, c. B-3, ss. 2 “property”, 67(1) [am. 1992, c. 27, s. 33].
Civil Code of Lower Canada [as am. 1974, c. 70], arts. 1031, 1265 [rep. 1980, c. 39, s. 45], 2468-2500, 2501-2561, 2562-2605, 2593a) [ad. 1933, c. 111, s. 1], 2606-2692.
Civil Code of Quebec, S.Q. 1991, c. 64, arts. 2460-2462, 2696-2714.
Code of Civil Procedure, R.S.Q., c. C-25, art. 553(12).
Husbands’ and Parents’ Life Insurance Act, R.S.Q. 1925, c. 244.
Husbands and Parents Life Insurance Act, R.S.Q. 1964, c. 296, ss. 12, 30.
Authors Cited
Bergeron, Jean-Guy. Les contrats d’assurance (terrestre), vol. 2. Sherbrooke, Qué.: Éditions SEM, 1992.
Brierley, John E. C., and Roderick A. Macdonald, eds. Quebec Civil Law -- An Introduction to Quebec Private Law. Toronto: Emond Montgomery, 1993.
Côté, Pierre-André. The Interpretation of Legislation in Canada, 2nd ed. Cowansville: Yvon Blais, 1991.
Couteau, Émile. Traité des assurances sur la vie, vol. 1. Paris: Marchal, Billard, 1881.
Hardy-Lemieux, Suzanne. L’assurance de personnes au Québec. Avec la collaboration de Alain Roch et les rédacteurs des Publications CCH/FM. Québec: Publications CCH/FM, 1989.
Lluelles, Didier. Droit des assurances -- aspects contractuels, 2e éd. Montréal: Thémis, 1986.
Norwood, David, and John P. Weir. Norwood on Life Insurance Law in Canada, 2nd ed. Scarborough, Ont.: Carswell, 1993.
Plamondon, Luc. “Des bénéficiaires et des propriétaires subrogés en assurance sur la vie”. In Meredith Memorial Lectures 1978, The New Quebec Insurance Act. Toronto: Richard de Boo, 1979, 115.
Plamondon, Luc. “Life Insurance in Quebec Since 1976: Some Points of Interest”. In Meredith Memorial Lectures 1978, The New Quebec Insurance Act. Toronto: Richard de Boo, 1979, 69.
Québec. Assemblée nationale. Journal des débats, 2e sess., 30e lég., vol. 15, no 82, le 19 novembre 1974, p. 2873.
Quebec. Civil Code Revision Office. Report on the Québec Civil Code, vol. 1. Québec: Éditeur officiel du Québec, 1978.
Québec. Ministère des Institutions financières. Compagnies et Coopératives, Service des assurances. Rapport Faribault, 1957-60.
Versailles, Maurice. Report on the Codification of Quebec Life Insurance Law. Montreal, 1936.
Walton, Frederick Parker. The Scope and Interpretation of the Civil Code of Lower Canada. Toronto: Butterworths, 1980.
APPEAL from a judgment of the Quebec Court of Appeal, [1998] R.J.Q. 1, 2 C.B.R. (4th) 303, [1997] Q.J. No. 3716 (QL), setting aside a decision of the Superior Court, [1993] Q.J. No. 2117 (QL). Appeal allowed.
Maurice Dussault, Madeleine Roy and Pierre Hémond, for the appellant.
Jean-Philippe Gervais and Simone Bonenfant, for the respondent.
English version of the judgment of the Court delivered by
1 Gonthier J. – This case raises the following question: if a life insurance policy is not exempt from seizure under the law of Quebec, should its cash surrender value nevertheless be excluded from the property divisible among creditors in a bankruptcy? At the heart of this appeal is whether, notwithstanding the Quebec legislature’s express choice to exempt from seizure the rights under only certain specific types of life insurance policies in arts. 2552 and 2554 of the Civil Code of Lower Canada (hereinafter “Civil Code”), the right to surrender a non-exempt policy should nevertheless be excluded from the trustee’s seizin on the basis that it is a right strictly attached to the person. The analysis considers the relevant articles in the context of the Civil Code as a whole, while paying due attention to their source, An Act respecting insurance, S.Q. 1974, c. 70 (hereinafter “Insurance Act”), which introduced a new and complete code of rules to govern life insurance.
2 For the reasons set out below, I have concluded that the Quebec legislature intended its exemption provisions for life insurance contracts, that is arts. 2552 and 2554 of the Civil Code, to be exhaustive, and therefore, by virtue of s. 67(1)(b) of the Bankruptcy and Insolvency Act, R.S.C., 1985, c. B-3, determinative as to what rights the trustee can seize and exercise for the benefit of creditors. This determination avoids the need to consider the personal rights doctrine under both the Bankruptcy and Insolvency Act and the general law of Quebec. In my view, the best interpretation of the life insurance seizability exemptions is that all the rights under a non-exempt policy are seizable, including the right to surrender the policy for its cash surrender value.
I – Facts
3 On March 30, 1978, the respondent insured her husband's life for $300,000 in a life insurance policy taken out with La Laurentienne Vie Inc. (hereinafter “the Company”). The respondent policyholder designated herself a revocable beneficiary. The respondent had the right to surrender the policy for its cash surrender value pursuant to the following term of the policy:
[translation] Cash surrender value or paid-up insurance
On written request and in consideration of the cancellation of this coverage and of any related extended benefit, the policyholder may:
– obtain the amount of the surrender value as determined according to the attached Table A;
4 From the mid-1960s to December 1992, the respondent was in business with her husband. At some time during this period (the record not being clear on this point), their children joined in. They operated hotels and office buildings. In December 1992, they were petitioned into receivership. On April 16, 1993, the appellant trustee in bankruptcy advised the Company that he was exercising the right to surrender the policy on behalf of the respondent, and that the Company should therefore resiliate the policy and pay into the bankruptcy its cash surrender value. At that time, the cash surrender value was worth $84,900. The Company complied with the trustee's request, resiliating the policy on May 5, 1993.
5 The respondent brought a motion to the Superior Court for an order enjoining the appellant to return the cash surrender value to the Company, and for another order enjoining the Company to reinstate the policy.
II – Applicable Legislation
6 The relevant provisions from the Bankruptcy and Insolvency Act, R.S.C., 1985, c. B-3 (hereinafter “Bankruptcy Act”), are ss. 2 and 67(1):
2. In this Act,
. . .
“property” includes money, goods, things in action, land and every description of property, whether real or personal, legal or equitable, and whether situated in Canada or elsewhere, and includes obligations, easements and every description of estate, interest and profit, present or future, vested or contingent, in, arising out of or incident to property;
67. (1) The property of a bankrupt divisible among his creditors shall not comprise
(a) property held by the bankrupt in trust for any other person, [or]
(b) any property that as against the bankrupt is exempt from execution or seizure under the laws of the province within which the property is situated and within which the bankrupt resides,
but it shall comprise
(c) all property wherever situated of the bankrupt at the date of his bankruptcy or that may be acquired by or devolve on him before his discharge, and
(d) such powers in or over or in respect of the property as might have been exercised by the bankrupt for his own benefit. [Emphasis added.]
7 The Bankruptcy Act, as it applies in this case, incorporates by reference the exemptions from seizure for life insurance policies under the laws applicable in Quebec. The policy, at the time of the bankruptcy, was governed by Chapter Second – “Of Insurance of Persons” – of Title Fifth of Book Fourth of the Civil Code. Within this chapter (arts. 2501-2561), the rights under two classes only of life insurance are exempt from seizure. These classes are defined by arts. 2552 and 2554:
2552. When the beneficiary of the insurance is the consort, descendant or ascendant of the policyholder or of the participant, the rights under the contract are exempt from seizure as long as the beneficiary has not received the sum insured.
2554. The stipulation of irrevocable designation binds the owner even if the beneficiary has no knowledge of it.
As long as the designation of a beneficiary as irrevocable subsists, the rights of the policyholder, the participant and the beneficiary are unseizable. [Emphasis added.]
These exemptions from seizure also serve as the relevant exemptions in the Code of Civil Procedure, R.S.Q., c. C-25:
553. The following are exempt from seizure:
. . .
(12) Anything declared unseizable by law.
III – Judgments
A. Superior Court, No. 200-11-001360-919, November 5, 1993
8 Letarte J. of the Superior Court rejected the respondent's motion. In keeping with the dominant view of the jurisprudence and doctrine in Quebec, he held that the respondent, as policyholder and beneficiary of the policy, possessed in her patrimony the right to surrender the policy for its cash surrender value, and that this right passed to the trustee pursuant to ss. 2 and 67(1)(c) and (d) of the Bankruptcy Act. The respondent's policy was not of the kind that benefited from either of the two exemptions from seizure provided for in the Civil Code, namely the exemption for privileged beneficiaries (art. 2552) and the exemption for policies with the designation of an irrevocable beneficiary (art. 2554).
9 The trial judge rejected the respondent's theory that the right to surrender the policy for its cash surrender value could not pass to the trustee because such a right was “exclusively attached to the person” (Civil Code, art. 1031). Instead, Letarte J. endorsed the view that the provisions of the Bankruptcy Act extend further than art. 1031 of the Civil Code, even if this meant that the trustee in bankruptcy enjoyed greater rights than creditors did before bankruptcy.
B. Court of Appeal, [1998] R.J.Q. 1
10 The Court of Appeal reversed the decision of the trial judge. Writing the unanimous opinion of the court, Baudouin J.A. arrived at his conclusion working from what he identified as the two controlling principles in the case.
11 The court held that the right to surrender a life insurance policy, in civil matters, had always been considered a “purely personal” right or a right “exclusively attached to the person”. In support, Baudouin J.A. cited a line of authority extending from Banque canadienne nationale v. Carette-Poulin (1934), 56 B.R. 143, to Lauwers v. Tardiff, [1966] C.S. 79, referred to also in several subsequent Federal Court and Provincial Court decisions of the early 1980s. Creditors could never exercise for their benefit those of their debtor’s rights that were extrapatrimonial or “purely personal”. This, according to Baudouin J.A., was an established principle of both civil and common law. In Quebec civil matters, this principle was illustrated by art. 1031 of the Civil Code (the oblique action).
12 The court below extended this principle into the bankruptcy area, applying a second principle that Baudouin J.A. derived from this Court's decision in Royal Bank of Canada v. North American Life Assurance Co., [1996] 1 S.C.R. 325: [translation] “bankruptcy cannot confer on creditors greater rights than they would have had if the bankruptcy had not occurred” (per Baudouin J.A., at p. 5, italics in original). Since the bankruptcy could not place creditors in a better position vis-à-vis their debtor, and since the right to surrender the policy for its cash surrender value could not be exercised by creditors in an oblique action, the court below allowed the appeal, and ordered the trustee to return the cash surrender value to the Company.
IV – Issue
13 The issue before this Court is whether the right to surrender a bankrupt’s life insurance policy is exempt from seizure, even though the rights under the policy are not exempt, and whether a trustee in bankruptcy is thereby prevented from exercising this right and distributing the policy’s cash surrender value among the bankrupt’s creditors.
V – Analysis
A. The Bankruptcy Act
14 The Bankruptcy Act gives the trustee broad seizin over the bankrupt’s property. The trustee, in essence, steps into the shoes of the bankrupt at the onset of the bankruptcy. In Mercure v. A. Marquette & Fils Inc., [1977] 1 S.C.R. 547, de Grandpré J. considered the role of the trustee as regards the bankrupt’s insurance policies, in that case a fire insurance policy. At p. 553, he wrote:
When the trustee is appointed he assumes responsibility in two areas:
(a) he becomes the debtor’s representative;
(b) he becomes the representative of all the general creditors to the extent that he can even act on their behalf against the debtor.
. . .
From the time of the bankruptcy onward, all insurance policies should read as if the trustee’s name appeared in place of that of the debtor: nothing more.
In Royal Bank, supra, at para. 49, I adopted as a correct statement of the law the following passage from the reasons of Henry J. of the Ontario Supreme Court in Re Pearson (1977), 23 C.B.R. (N.S.) 44, at p. 48:
What comes into the hands of the trustee on the occurrence of the bankruptcy are the rights and interests of the insured in the insurance money and in the contract as they stood at the date of the bankruptcy.
Henry J.’s passage, and my reasons in Royal Bank, supra, at para. 49, went on to explain the relevance and operation of provincial exemptions from seizure in the bankruptcy context:
. . . while an asset which is exempt under provincial law passes into the possession of the trustee at the time of bankruptcy, the exemption itself bars the trustee from dividing the asset among creditors where s. 67(1)(b) [of the Bankruptcy Act] is operative.
15 In this case, it would appear from the face of the relevant provincial legislation that s. 67(1)(b) is not operative. The respondent’s life insurance policy is not exempt from seizure under the relevant law applicable in Quebec at the time of the bankruptcy, namely arts. 2552 and 2554 of the Civil Code. Article 2552 exempts from seizure the rights under a life insurance contract “[w]hen the beneficiary of the insurance is the consort, descendant or ascendant of the policyholder”. The respondent’s policy does not qualify for the exemption, since under her contract with the Company she is both beneficiary and policyholder. Being united in one person, there is no privileged relationship between the two “parties” that would attract the protection provided under art. 2552. Article 2554 exempts from seizure the rights of the policyholder and the beneficiary “[a]s long as the designation of a beneficiary as irrevocable subsists”. Once again, the respondent’s policy does not qualify for the statutory exemption, since the designation of the respondent as beneficiary was never made irrevocable, and does not benefit from the presumption of irrevocability of art. 2547 of the Civil Code. Articles 2552 and 2554 therefore do not operate under s. 67(1)(b) of the Bankruptcy Act to exclude the rights attached to the respondent’s life insurance policy from the property that passes to the bankruptcy trustee.
B. The Parties’ Submissions
16 The respondent submits that the right to surrender the policy is nevertheless exempt from seizure, drawing on jurisprudence under art. 1031 of the Civil Code. This provision codifies the creditor’s remedy known as an oblique action:
1031. Creditors may exercise the rights and actions of their debtor, when to their prejudice he refuses or neglects to do so; with the exception of those rights which are exclusively attached to the person. [Emphasis added.]
Over the years, Quebec courts were required to determine which rights were “exclusively attached to the person”. They found that the surrender option was such a right.
17 In Zenith Tire & Repair v. Angle & Lemessurier Reg’d, Sup. Ct. Mtl., E‑106243, February 13, 1934, the Superior Court held that allowing a judgment creditor to exercise his debtor’s right to surrender a life insurance policy would be “an illegal and unjust interference both in the rights of the insured and in the business of the [insurance] Company” (p. 3). The right to surrender was also referred to as “personal”, and therefore unavailable to a judgment creditor, in Jarry Automobile Ltée v. Medicoff, [1947] C.S. 465.
18 In the case Gagnon v. City of Montreal, [1956] R.P. 385 (Sup. Ct.), at p. 393, the court concluded as follows:
If, as a matter of principle, any judgment creditor of an insured was to be held to be entitled, at all times, to the cash surrender value of an insurance policy issued on his debtor’s life, then the purpose for which life insurance is sought and obtained and the protection given by law to insured and beneficiaries would become illusory, precarious and would consequently be defeated. . . . On the ground of public policy, the right to exercise the cash surrender value option which automatically cancels all other essential rights under the policy must be held to be exclusively personal to the insured.
In that case, the creditors were seeking payment of court costs owed to them by the debtor, who held an insurance policy on his own life for the benefit of his mother.
19 In Lauwers v. Tardiff, supra, the Superior Court refused to grant the creditor’s motion to order the debtor to surrender his life insurance policy. The insurance provider was subject to a garnishment order, and the cash surrender value would have gone to the creditor. The court held, first, that the oblique action was not appropriate in these circumstances, since the debtor had not neglected to exercise a right in any meaningful sense; he had simply decided to opt for keeping his insurance in place. In addition, the court held that the right to surrender the policy was personal, and could not be exercised by the creditor (at p. 81):
[translation] The right to exercise the surrender option accorded to the insured is personal; a creditor cannot decide to exercise this right in order to receive the cash surrender value. An insurance contract is an act which provides for future contingencies, and it would be contrary to its nature to allow creditors to divert it from its purpose by forcing surrender by the insured.
20 David Norwood, in his treatise on the law of life insurance in Canada, Norwood on Life Insurance Law in Canada (2nd ed. 1993), provides a comprehensive discussion on the protection against exigibility by an ordinary judgment creditor that the courts in Quebec and the rest of Canada have accorded to the right to surrender an in-force life insurance policy. I find it useful for our purposes to quote from his text (at pp. 246-48) at some length:
The contest of execution by a creditor of the insured is most commonly exemplified by the attempt by the creditor to force the surrender of an in-force life insurance policy to meet the debt owed by the insured. The [Uniform Life Insurance] Act and the [Civil] Code expressly protect certain beneficiaries, but the issue of exigibility is best tested where there is no beneficiary in place, so that no statutory exemptions from execution or seizure cloud the picture.
As will be discussed in detail, the in-force life insurance product is simply not exigible at law by a judgment creditor to the point that it may be forced into surrender, even when the eventual policy benefit is in favour of the insured or the insured’s estate, and a beneficiary has not been designated.
. . .
[S]urrender of a life insurance policy is cancellation of the contract and its insurance benefits. Surrender releases the insurer of its future obligation to pay insurance benefits upon the happening of the event insured against. The insurer may pay a cash surrender value for this release, but forcing surrender would destroy the basic purpose of the contract.
. . .
Cancellation of the life insurance contract by a creditor would bring about irretrievable consequences, since the insured cannot buy back or restore the life insurance contract, which one could accomplish in almost every other form of personal property siezed [sic] by a creditor. In other words, a debtor whose property is seized may replace it at a later stage by buying it back or buying other property of equal value. This is not so, in the case of an in-force life insurance policy, for the reasons that (i) the life insured may no longer be insurable and (ii) even if the life insured is insurable, the individual cannot be insured at the original premium price because the life insurance premium is geared to age.
In Quebec, civil law protects the insured from execution by a creditor against an in-force policy upon the basis that surrender is a personal right not available to the insured’s creditors [art. 1031 of the Civil Code]. It is submitted that this has the same basis in logic as applies in the common law provinces. The Quebec courts have loudly pronounced the basic legal position that to permit a creditor to execute against the policy would cause an irrevocable loss contrary to the shelter inherent to the nature of life insurance.
. . .
Certainly, in the common law provinces as well as in Quebec, no court has allowed an ordinary judgment creditor to force the surrender of an in-force life insurance policy, even when no beneficiary is in the picture. [Emphasis in original.]
21 The respondent seeks to import this protective logic into the bankruptcy context by one of two ways. The first method involves invoking a principle that I acknowledged in Royal Bank, supra, at para. 16: “creditors should not gain on bankruptcy any greater access to their debtors’ assets than they possessed prior to bankruptcy”. The second method involves using bankruptcy case law in which courts have decided that certain rights of the bankrupt will not vest in the trustee on account of their “personal” nature. See e.g. Wallace v. United Grain Growers Ltd., [1997] 3 S.C.R. 701, at para. 38; Re Holley (1986), 59 C.B.R. (N.S.) 17 (Ont. C.A.), at p. 35. In effect, we have been asked to find that the “personal rights” immunity co-exists at all times with, and should apply in addition to, the statutory exemptions for rights under specific life insurance contracts provided in arts. 2552 and 2554.
22 The appellant trustee pointed this Court to authority that has consistently upheld a bankruptcy trustee’s power to seize and exercise the bankrupt’s right to surrender a life insurance policy. In the case In re Max Mendelson (1940), 21 C.B.R. 304, the bankrupt had a life insurance policy on his own life, and had designated his brother beneficiary. The bankrupt died. The Appellate Division of the Supreme Court of New Brunswick held that the trustee in bankruptcy could not take the life insurance proceeds, but only because the trustee had not changed the beneficiary before the bankrupt’s death. Before his death, the court held, the trustee had all the powers of the bankrupt policyholder, and could have surrendered the policy for its cash value.
23 In Crown Life Insurance Co. v. Perras, [1953] B.R. 659, the Quebec Court of Appeal dismissed an appeal from a decision granting the trustee the power to surrender a life insurance policy, but only because the insured had acquiesced in the trustee’s surrender. Barclay J.A., for the majority, dismissed the appeal because the bankrupt himself failed to appear, and the insurance company who did appear was held to have no standing. In Fortier v. Nault, [1954] C.S. 131, the Superior Court addressed the merits of the issue, and concluded (against some of the obiter dicta of the judges in Crown Life, supra) that the trustee does indeed have the power to surrender the bankrupt’s policy. Ste-Marie J. cited s. 39(d) of the Bankruptcy Act (now s. 67(1)(d)), which gives the trustee broad powers over the debtor’s property, and concluded that its scope extended beyond the limits on creditors’ rights that had been held to exist under art. 1031 of the Civil Code. We were also referred to Re de Grandpré (1969), 15 C.B.R. (N.S.) 262 (Que. Sup. Ct.); Re Comptois (1981), 40 C.B.R. (N.S.) 118 (Que. Sup. Ct.); and Aubry (Syndic de), [1988] R.J.Q. 2211 (Sup. Ct.). In this review of the jurisprudence, it is also worth noting that in Lauwers v. Tardiff, supra, in which the surrender right was held to be “personal” and unavailable to an ordinary judgment creditor, Mayrand J. recognized that a different conclusion had been reached in the bankruptcy context, where a trustee’s power had been held to include the exercise of the right (citing Fortier, supra).
24 The appellant also cited several learned authors who support the position that the trustee is vested with the power to exercise the surrender option under a life insurance contract. Didier Lluelles, in Droit des assurances __ aspects contractuels (2nd ed. 1986), at p. 293, writes:
[translation] With respect to the trustee in bankruptcy, however, since the trustee is vested with the powers of the bankrupt in or over his or her property (Bankruptcy Act, R.C.S., 1970, c. B-3, s. 47(d)), the trustee may exercise the surrender option if there is no irrevocable beneficiary (C.c. 2554 and Bankruptcy Act, s. 47(b)) or no revocable beneficiary protected by article 2552 C.c. (Bankruptcy Act, s. 47(b)).
See also J.‑G. Bergeron, Les contrats d’assurance (terrestre) (1992), vol. 2, at p. 474; S. Hardy-Lemieux, L’assurance de personnes au Québec (1989), at pp. 8,152 and 8,155. In his treatise at pp. 253-54, Norwood also devotes some attention to the trustee’s, as opposed to an ordinary creditor’s, position vis-à-vis the rights under the debtor’s life insurance policy:
Where the insured not only fails to meet a creditors’s [sic] claim but goes bankrupt, federal law under the Bankruptcy Act meets up with provincial insurance common law and statutory law. In essence, the Bankruptcy Act prevails except where it expressly defers to provincial exemptions. . . . [T]he Bankruptcy Act honours the Uniform Act and the Civil Code when they exempt life insurance proceeds in the hands of a beneficiary since the proceeds fall outside of the estate of the insured, and exempt the in-force life insurance policy itself when a family beneficiary or an irrevocable beneficiary or a beneficiary for value is in place.
Otherwise, the trustee in bankruptcy (unlike the ordinary judgment creditor) “steps into the shoes” of the insured, and may, accordingly, surrender the policy where it is payable to the estate of the insured or to a non-family beneficiary in circumstances where the insured himself could do so. [Emphasis in original.]
C. Articles 2552 and 2554 of the Civil Code
25 Reviewing these various arguments, I have decided that the most coherent way to approach this appeal is to decide first whether the exemption provisions of the Civil Code governing life insurance contracts, introduced in 1974 as part of a sweeping revision of insurance law in Quebec, were meant by the legislature to be exhaustive. To the extent that the legislature did so intend, arts. 2552 and 2554 displace and supersede, for the purposes of this appeal, the jurisprudence regarding the exigibility of the surrender value of life insurance contracts under art. 1031. Because I conclude that the legislature did so intend, this Court need not decide in this case whether the right to surrender a life insurance policy is a “personal right”. Articles 2552 and 2554 of the Civil Code make irrelevant in the life insurance context any other basis for exemption which may have existed, and which might still exist for other purposes, under the general law of Quebec or the Bankruptcy Act.
26 In undertaking my analysis, I have considered Baudouin J.A.’s warning (at p. 9) against confusing the unseizability of an asset with the inherent nature of a right:
[translation] The concept of seizability of property or an asset must not be confused with the nature of the right. In order for a right to be seizable by creditors, it must necessarily be patrimonial in nature. Thus, the legislator may exempt an asset from seizure by the creditors, as it did, for example, in articles 2552 C.C. and 2457 C.C.Q., since the debtor’s patrimony is the “common pledge” of his or her creditors (art. 2644 C.C.Q.). It appears to me to be another matter to be determined that, as is the case here, despite its unquestionable economic value, the right itself cannot be exercised by anyone other than the bankrupt. In such a case, unseizability has no importance whatsoever nor any legal relevance because it is not the monetary value which is unavailable to the third party, but the very exercise of the right that could lead to the recovery of that value.
In my view, however, it is open to the legislature to enact an exhaustive set of rules governing seizability in a particular area. Where that is the case, the express rules themselves, and only those rules, govern seizability. The court applies those rules to the exclusion of other considerations not because it has confused seizability as provided by those rules with the inherent nature of the rights at issue, but because the legislature’s express and exhaustive rules supersede considerations that would cut across and undo the legislated divisions.
27 In this case, the legislature’s intention of creating a comprehensive and exhaustive “unseizability code” for life insurance contracts is derived from the language of arts. 2552 and 2554, considered in their proper context. The analysis proceeds in two steps. I first consider the legislative history of the provisions, and in particular the fact that the articles were introduced into the Civil Code as part of the comprehensive insurance-law revision that took place in Quebec in the early 1970s. With this background, I then focus in on the interpretation of arts. 2552 and 2554 themselves, in the context of the Civil Code as a whole.
1. Legislative History
28 Articles 2552 and 2554 were introduced into the Civil Code as part of a comprehensive revision of insurance law in Quebec initiated in 1974 by Bill 7, which was adopted as the Insurance Act (proclaimed in force in 1976). This statute modernized the insurance law of Quebec and, of particular relevance to this appeal, significantly expanded the scope and detail of life insurance regulation in the Civil Code.
29 Before the adoption of the Insurance Act, there was no comprehensive body of rules regulating life insurance in Quebec. When Bill 7 was introduced in the National Assembly, there were 10 articles governing life insurance in the Civil Code, and a special statute governing life insurance in a narrowly circumscribed area of family relations, the Husbands and Parents Life Insurance Act, R.S.Q. 1964, c. 296.
30 When Quebec’s civil law was codified in 1866, marine insurance was the most important branch of insurance law, and its rules the most elaborated. Life insurance contracts were at that time looked upon with disfavour in the civil law, having been expressly prohibited in France until the mid-19th century. See É. Couteau, Traité des assurances sur la vie (1881), vol. 1, especially paras. 43-52. They were regulated in the Civil Code by a mere nine articles (arts. 2585-2593). A tenth (art. 2593a), relating to presumptions of death in relation to absentee insured, was added in 1933. None of these provisions exempted any class of life insurance from seizure.
31 The first life insurance legislation applicable in Quebec pre-dated Confederation. This was the Act to secure to Wives and Children the benefit of Assurances on the lives of their Husbands and Parents, S. Prov. C. 1865, 29 Vict., c. 17. This Act allowed a husband to insure his life for the benefit of his wife (and children), derogating from the prohibition against inter vivos gifts between spouses contained in art. 1265 of the Civil Code. The legislation was completely revised in 1878, by S.Q. 1878, 41-42 Vict., c. 13, which among other things introduced a policy of protecting family beneficiaries. The benefit of the life insurance policy could only be revoked in favour of another family beneficiary (s. 12), and the policy was “exempt from attachment for debts due either by the insured or by the persons benefited” (s. 26). In 1925, the Act became known as the Husbands’ and Parents’ Life Insurance Act, R.S.Q. 1925, c. 244. A discussion of the various permutations of this Act in the latter part of the 19th century, and a commentary on its policy of protecting the family, is provided in Rinfret J.’s decision in Banque Canadienne Nationale v. Carette, [1931] S.C.R. 33, at pp. 42-44.
32 Already in the 1930s, there was discontent with the state of insurance law in Quebec. In the introduction to his Report on the Codification of Quebec Life Insurance Law (1936), at pp. 1, 2 and 8-9, M. Versailles summed up the situation:
The chief end and purpose of this report is to determine how the lacunae of Quebec Life Insurance law can be remedied by means of a codification of the principles and rules of law governing this particular subject.
The Civil Code of Lower Canada, which was promulgated on August 1, 1866, contains but nine articles dealing exclusively with the subject of life insurance.
The Codifiers, at page 258 of their Seventh Report, say: “It is remarkable how few legal points relating to this contract have been litigated or settled by judicial authority. The reported cases are not numerous and they seem to have arisen oftener upon questions of fact than of law. The chapter consists of nine articles which have been derived chiefly from the few decisions alluded to, and some of them are taken from the Draft of a civil code for New York.”
This clearly shows the paucity of authorities on this subject when the Civil Code was enacted, and the juridical inadequacy of these few rules to cover the modern technical development of the life insurance contract.
In 1865, the Parliament of Canada passed an Act (29 Vict., ch. 17) entitled: “An act to secure to wives and children the benefit of assurance on the lives of their husbands and parents.” This Act was evidently copied from some American statute. It is very superficial in character, containing but six sections or articles.
. . .
At present, in Quebec, we are in the anomalous position of having what I might call two different sets of rules governing the rights of beneficiaries under life insurance contracts.
If the beneficiary is the wife or child of the assured, the rights of such beneficiaries are governed by an Act passed in 1878. . . .
If the beneficiary is anyone but the wife or child of the assured, the rights of such beneficiaries are governed by the principles underlying Article 1029 CC. . . . [Emphasis added.]
Versailles recommended the repeal of the Husbands’ and Parents’ Life Insurance Act and of the then nine articles of the Civil Code that related to life insurance, and he suggested the adoption, with appropriate modifications, of a French code on the subject of life insurance law.
33 By the 1960s, a consensus had emerged in favour of a complete reordering of insurance law as treated by the Civil Code. See J. E. C. Brierley and R. A. Macdonald, eds., Quebec Civil Law __ An Introduction to Quebec Private Law (1993), at para. 812; see also L. Plamondon, “Life Insurance in Quebec Since 1976: Some Points of Interest”, in Meredith Memorial Lectures 1978, The New Quebec Insurance Act (1979), 69, at p. 69. As early as 1959, a draft law to replace the title on insurance of the Civil Code had been proposed. See Québec, Ministère des Institutions financières, Compagnies et Coopératives, Service des assurances, Rapport Faribault (1957-60).
34 In 1974, the legislature finally reacted to these calls for reform, and adopted the Insurance Act. The wide-ranging criticism of the pre-existing state of insurance law is a compelling factor militating in favour of a finding that the legislature intended its revision of the law to be comprehensive. Such a conclusion is bolstered by the scope and detail of the reform apparent from the enactment itself. The Insurance Act replaced entirely the title on insurance of the Civil Code and re-organized completely the regulation of insurance contracts, including life insurance contracts. Some 100 new articles were added to the Civil Code. Articles 2468-2500 constituted a general introductory chapter on insurance. Reversing the priorities of the Code of 1866, provisions governing insurance of persons, including life insurance, received prominent treatment as the next chapter of the title on insurance (arts. 2501-2561). The Insurance Act also revised the regulation of property, fire and liability insurance (arts. 2562-2605), and to a lesser extent, because of its highly developed and detailed nature in the original Code of 1866, the provisions regulating marine insurance (arts. 2606-2692). In addition to introducing these amendments to the Civil Code in a first part, the Insurance Act also contained, in a second part, over 400 provisions that modernized and codified the administration and regulation of insurance companies as business entities (now R.S.Q., c. A-32).
35 With the necessary caution required in using this material (see Construction Gilles Paquette ltée v. Entreprises Végo ltée, [1997] 2 S.C.R. 299, at para. 20; P.-A. Côté, The Interpretation of Legislation in Canada (2nd ed. 1991), at pp. 364-67), I also draw attention to the legislative debates surrounding the adoption of Bill 7. These are of assistance in establishing the historical context within which the Insurance Act was passed, and show that the hypothesis of a legislative intention to enact a complete code on insurance law is not fanciful or far-fetched. On its second reading in the National Assembly, the Minister of Financial Institutions, Companies and Cooperatives, who sponsored the Bill, spoke generally about the proposed law:
[translation] Bill 7 replaces the Insurance Act, the Husbands and Parents Life Insurance Act, the Diocesan Mutual Insurance Companies Act, the title on insurance in the Civil Code and the Claims Adjusters Act. It partially amends the provisions of the Civil Code with respect to marine insurance.
Mr. Speaker, the first part of the bill concerns the insurance contract. It deals with all of its aspects.
. . .
The contractual part of the current bill is based on the work of Marcel Faribault and the Honourable Judge Gérard Trudel, the law of Ontario, French insurance law, the work of the Civil Code Revision Office, submissions by various associations and works from a variety of other sources. [Emphasis added.]
(Assemblée nationale du Québec, Journal des débats, 2nd sess., 30th Leg., vol. 15, No. 82, November 19, 1974, at p. 2873.)
1. Marcel Léger, Member of National Assembly for Lafontaine, contributed the following: [translation] “If it is hardly an exaggeration to speak of a code one book of which will be in our statutes and the other in the Civil Code, it is no exaggeration either to speak of a modern code.” (Id., at p. 2875.)
36 The Insurance Act was therefore quite clearly intended to be a codification of insurance law in Quebec, in the sense given to the word by Côté in his text The Interpretation of Legislation in Canada, supra, at p. 43:
Applied to an entire statute, “codification” indicates the incorporation in a single enactment of a series of legal rules relating to a given subject. Codifiers may draw on both existing statutes and the rules of the common law. The result is deemed to give a coherent and sometimes exhaustive picture of the law in a specific field. The Bills of Exchange Act [R.S.C. 1985, c. B-4], the Criminal Code [R.S.C. 1985, c. C-46], and the Quebec Labour Code [R.S.Q., c. C-27] are examples. [Emphasis added.]
In other words, the legislature turned its mind to every aspect of insurance law, and where the Civil Code’s general provisions were not adequate, crafted new provisions, all contained in the expanded title on insurance, to set out its new vision of the law.
37 The Insurance Act created an insurance code within the Civil Code. Each new provision, following the cardinal principle of interpretation of the Code, must also be read in the context of the Civil Code as a whole. See F. P. Walton, The Scope and Interpretation of the Civil Code of Lower Canada (1980), at p. 100; Brierley and Macdonald, supra, at para. 113. With this in mind, I now turn to consider the interpretation of arts. 2552 and 2554.
2. Articles 2552 and 2554
38 Articles 2552 and 2554 exempt from seizure the rights under only two classes of life insurance contracts, those with “privileged” or family beneficiaries and those with irrevocable beneficiary designations:
2552. When the beneficiary of the insurance is the consort, descendant or ascendant of the policyholder or of the participant, the rights under the contract are exempt from seizure as long as the beneficiary has not received the sum insured.
2554. The stipulation of irrevocable designation binds the owner even if the beneficiary has no knowledge of it.
As long as the designation of a beneficiary as irrevocable subsists, the rights of the policyholder, the participant and the beneficiary are unseizable.
Given these provisions, should the rights under other types of life insurance contracts not declared exempt from seizure, such as the respondent’s, also be exempt from seizure? In particular, should the right to surrender a policy be exempt from seizure under all life insurance contracts, whatever the particular relationships between policyholder, life insured and beneficiary therein? In my view, the provisions, considered as part of the Insurance Act reforms and within the context of the Civil Code as a whole, manifest a contrary legislative intention.
39 In undertaking its comprehensive reform of life insurance law, and determining what to exempt from seizure in arts. 2552 and 2554, the legislature must have had all elements of the life insurance contract in mind, including the right to surrender the contract for its cash surrender value. For a creditor, the most valuable right in his debtor’s in-force life insurance policy is the right to surrender the policy for its cash surrender value. In this case, for example, that value amounted to $84,900. Indeed, it is the only right in an in-force life insurance policy that has the potential to create an immediate realization of value for the seizing creditor. At p. 251 of his treatise on life insurance law in Canada, Norwood discusses what other rights are available to a creditor if he cannot exercise the right to surrender the policy:
The courts may make an order in favour of the creditor or appoint an equitable receiver to take any payment demanded by the insured from the insurer for the insured as and when the payment falls in, and this binds the insurer to turn over the payment which would otherwise flow into the hands of the debtor insured. In other words, if the insured later surrenders the policy or seeks the benefits of the policy, for example, in the form of eventually collecting annuity instalments, these proceeds have to flow to the creditor. [Bold in original; underlining added.]
In other words, if the exemption of “rights” in arts. 2552 and 2554 was not meant to protect the right to surrender the policy, the only remaining purpose of the articles would be to protect the debtor against a creditor who attaches the policy, and waits until the insured volunteers to surrender it or until some other payment eventually comes due. In my view, this would be an unreasonably restrictive reading of the provisions.
40 The legislature did not in any way restrict or qualify the use of the word “rights” in arts. 2552 and 2554. Moreover, art. 2501, in the same chapter of the Code, gives us important evidence of what “rights” the legislature had in mind in drafting the exemption provisions:
2501. In addition to the particulars prescribed in article 2480, the policy of insurance of persons must, where such is the case, indicate:
. . .
(e) the right of the owner to the surrender value or to advances on the policy; [Emphasis added.]
It is clear, therefore, that the legislature intended the provisions to protect from seizure all rights under those contracts that qualify, especially the right to surrender. At the same time, the legislature specifically stipulated that these rights were exempt from seizure only under the two described classes of policies. The natural conclusion, a contrario, is that the rights under all other policies, including the right to surrender for a cash surrender value, are seizable.
41 Any alternative interpretation of these articles empties them of much of their meaning. The respondent submits that arts. 2552 and 2554 simply supplement an underlying rule of unseizability for the right to surrender that exists for all policies under the general law, derived from art. 1031 of the Civil Code. If that were the case, however, the legislature’s enactment of arts. 2552 and 2554 would in large part be redundant, given that the right to surrender, as we have seen, is the principal component of the life insurance contract that is being protected by these provisions. I prefer an interpretation which accords with the principle that the legislature does not speak for nothing. The legislature chose to protect two particular classes of policies from seizure because it perceived a significant threat to these, namely the threat that creditors, to whom the right to surrender a life insurance policy was otherwise generally available, could terminate a policy by exercising the right.
42 This interpretation is also suggested by the particularity of the language with which the legislature chose to express itself in arts. 2552 and 2554. Compared to art. 1031 for example, which is a general expression of the oblique action, arts. 2552 and 2554 are detailed and technical rules governing a particular feature of life insurance law. Article 1031 does not deal specifically with life insurance. Articles 2552 and 2554, on the other hand, describe in considerable detail the life insurance policies whose rights are exempt from seizure, and thereby set out, by necessary implication, those whose rights are not. This is an appropriate case in which to apply the maxim generalia specialibus non derogant and to give precedence to the particular rules of arts. 2552 and 2554 introduced by the Insurance Act. See Lalonde v. Sun Life Assurance Co. of Canada, [1992] 3 S.C.R. 261, at pp. 278-79. The legislature’s decision to express itself in such detailed and specific language indicates an intention not to have the rules contained therein undermined by the application of more general provisions.
43 This textual analysis alone, however, is not determinative of the issue. Ultimately, whether to read the unseizability provisions as a code unto themselves, and as impliedly excluding other bases of exemption from seizure, depends on the coherence of the framework they would provide as such a code. In my view, the exhaustiveness of arts. 2552 and 2554 is supported by the larger themes running through the insurance law reform of the 1970s.
44 As is apparent from the legislative debates, the Insurance Act reforms were part of the larger movement to revise the Civil Code. Indeed, one of the sources for the Insurance Act was work done within the Civil Code Revision Office. See Journal des débats, supra, at p. 2873; Brierley and Macdonald, supra, at paras. 72-73, 75. It is therefore not surprising that the new insurance contract provisions, brought in by the Insurance Act, are rooted in the very themes championed by the revision of the Civil Code. These include consumer protection, the protection of the family unit, and the modernization of real security mechanisms over moveable property, giving a broader segment of society access to collateralized credit. See Civil Code Revision Office, Report on the Québec Civil Code (1978), vol. 1, at pp. xxix-xxxiii.
45 Consumer protection, while an overriding concern of the legislature in the reform of the insurance contract provisions of the Civil Code generally, plays no meaningful role in the interpretation of arts. 2552 and 2554. The legislative debates surrounding the adoption of the Insurance Act, on numerous occasions, attest to a concern for consumer protection, as does art. 2500, which makes many of the provisions governing life insurance contracts of public order, and others a minimum standard of conduct from which the parties to the insurance contract can derogate only “to the extent that it is more favourable to the policyholder or to the beneficiary”. The exemption provisions, however, have little to do with consumer protection, since they involve not the relationship between the policyholder and the insurance company, but rather the relationship between the policyholder and his or her creditors.
46 Of greater significance for evaluating the coherence of the exemptions set out in arts. 2552 and 2554 are the competing considerations of family protection and financial flexibility and innovation. The exemption provisions are a manifestation of the legislature’s desire to strike an appropriate balance between these policies.
47 Article 2552 continues the important policy of exempting from seizure the rights under life insurance contracts involving certain family relationships. This policy first appeared in Quebec in 1865, in the original version of the Husbands and Parents Life Insurance Act which prohibited seizure by creditors of the insurance money due to beneficiaries at the maturation of the policy. Nothing was said in the legislation about seizure pre-maturity. In Carette, supra, however, Rinfret J. ruled that creditors could not terminate or seize an in-force policy under the Act, since that would harm the rights of the family beneficiaries. After several minor amendments in 1869-70, the legislature in 1878 consolidated the law to secure to wives and children the benefit of life insurance. The earlier acts were repealed, and replaced by a lengthier statute of 29 articles (S.Q. 1878, 41-42 Vict., c. 13). Section 12 thereof introduced the notion of limited revocability: the benefit of the insurance policy to a family beneficiary could only be revoked in favour of another permitted beneficiary. Section 26 introduced broad protection for these insurance policies from creditors: it provided that the policies “shall be exempt from attachment for debts due either by the insured or by the persons benefited, and shall be unassignable by either of such parties”. Such exemption did not apply, however, to any policy whose benefit reverted to and was held by the insured. The Act was amended several times thereafter, with no consequence to the exemption provision (except that it became s. 30, R.S.Q. 1964, c. 296). In Carette, supra, at p. 42, Rinfret J. noted that the policy of this special law, through its various permutations, was the protection of family beneficiaries. I underlined the importance of this policy in the bankruptcy context, in Royal Bank, supra, at par. 17, in that case implemented through s. 158(2) of the Saskatchewan Insurance Act, R.S.S. 1978, c. S-26:
[T]he policy of exempting life insurance investments and policies from execution or seizure under the [Bankruptcy and Insolvency Act], where family members are designated as beneficiaries, is sound. Given the importance of insurance in providing for the welfare of dependents upon the death of the insured, an insurance policy may be characterized as a necessity.
48 Articles 2552 and 2554 in one sense broadened the protection of family in the life insurance context. Article 2552 broadened the class of relationships attracting protection from seizure for insurance contracts from wives and children under the Husbands and Parents Life Insurance Act to consorts, descendants and ascendants. Moreover, to the extent that the policyholder now wanted to protect a beneficiary that fell outside of the traditional family unit, art. 2554 now allowed him or her to do so by simply designating that person as an irrevocable beneficiary.
49 The Insurance Act revisions also weakened the protection of family in the insurance context. For example, while the designation of a family beneficiary was essentially irrevocable under s. 12 of the Husbands and Parents Life Insurance Act, under art. 2547 of the Civil Code, introduced by the Insurance Act, only the designation of a spouse is presumed irrevocable, and the policyholder can defeat the presumption by contrary stipulation. In Lalonde, supra, at p. 277, I noted that “art. 2547 . . . reflects an intention on the part of the legislature to make protection of the family property less strict”.
50 In my view, arts. 2552 and 2554 demonstrate a careful balancing of the relevant considerations. Protection was accorded, but carefully circumscribed, to certain family beneficiaries, and to irrevocable beneficiaries. Underpinning these limits on protection of the family in arts. 2552 and 2554 was the legislature’s desire to maximize the financial utility of insurance policies in the hands of their owners, illustrative of another broad policy pursued by the legislature in the revision of the Civil Code, namely the creation of a legal context within which individuals would better be able to use their moveable assets to secure credit.
51 This policy is evident in the new Civil Code of Quebec, S.Q. 1991, c. 64, which contains a general regime of hypothecs on moveable property (arts. 2696-2714 C.C.Q.). It is also evident in the insurance provisions introduced by the Insurance Act in 1974. As a result of the insurance reforms, a policyholder can now assign and pledge his or her rights under an insurance contract, even where the beneficiary has been designated irrevocably (arts. 2556-2558 C.C.L.C.; now arts. 2460-2462 C.C.Q.). Moreover, the assignment of insurance entails the revocation of the revocable designation of the beneficiary (art. 2558 C.C.L.C.; now art. 2462 C.C.Q.). See L. Plamondon, “Des bénéficiaires et des propriétaires subrogés en assurance sur la vie”, in Meredith Memorial Lectures 1978, The New Quebec Insurance Act, supra, 115, at pp. 134-36. This is a significant change from the pre-existing law. Under the Husbands and Parents Life Insurance Act, s. 30, assignment of a family life insurance policy required agreement between the insured and the beneficiaries.
52 Against this background, it defies common sense to assume that the legislator wished to remain silent, in its exemption provisions, on the most important value of a life insurance policy for creditors – the cash surrender value. On the contrary, given the legislator’s policy of making rights under insurance contracts more available to creditors as part of the policyholder’s collateral, the most reasonable conclusion is that the cash surrender value of the insurance contract was exactly what the legislature had in mind when determining, in arts. 2552 and 2554, which policies should be exempt, and which should not be. The legislature, in carrying out its reform, would most certainly have wanted to address the very feature of the pre-existing law that hindered its policy, namely the tendency of the law to protect the cash surrender value from creditors. Why would a creditor want a policy as collateral if he could not exercise its principal value? It makes much more sense to conclude that the legislator wanted this value to be available to creditors, unless the policies themselves were exempt.
53 For these reasons, therefore, I conclude that the legislature intended arts. 2552 and 2554 to be a comprehensive and exclusive set of rules governing the seizability of rights under life insurance contracts.
D. Application to This Case
54 In this case, the respondent’s policy fails to qualify for either exemption. For a policy to be exempt from seizure under art. 2552, the beneficiary must be the consort (or descendant/ascendant) of the policyholder. Here, the beneficiary is the consort not of the policyholder, but of the life insured (the individual whose life is insured). Nor does the respondent qualify for the exemption provided in art. 2554. She did not designate herself the irrevocable beneficiary of her own policy.
55 The respondent sought to impress upon this Court the relevance of the fact that she was the beneficiary of a policy insuring her husband’s life. While she, as beneficiary, was not the consort of the policyholder, and therefore did not strictly meet the requirements of art. 2552, she was the consort of the life insured. The respondent argued that her policy was therefore of the same familial nature as those described by art. 2552 and merited similar protection from seizure.
56 This argument cannot succeed. The Quebec legislature maintained the unseizable class of family life insurance policies defined vis-à-vis the beneficiary’s relationship to the policyholder, not the life insured. This is historically based in the Husbands and Parents Life Insurance Act, which defined the category of protected policies vis-à-vis the family of the policyholder, who was also always the life insured. This is noted by Norwood at pp. 249-50, who contrasts Quebec’s statutory exemptions with those provided under the Uniform Life Insurance Act of the common law provinces:
Protected family beneficiaries, under the Uniform Act encompass the spouse, child, grandchild or parent of the life insured. Family beneficiaries under the Civil Code encompass the spouse, descendant or ascendant of the insured. The distinction between the common law provinces and Quebec is historical in that the original Uniform Act statutory trust extended to all policies, so that the common denominator was the life insured, whereas Quebec’s Husbands’ and Parents’ Life Insurance Act was applicable only to personal policies owned by the insured on the insured’s own life, so that the protection rested upon the relationship between the policyholder and the beneficiary. [Emphasis in original.]
This Court cannot undo the Quebec legislature’s express choices and adopt the policy of the common law provinces, only because it is convenient to do so in a particular case. This is something to be left for the consideration of the legislature itself.
E. Disposition
57 In conclusion, having regard to their language, their legislative history and their discernible policy justification, I believe that in arts. 2552 and 2554 the Quebec legislature has enacted a comprehensive and exclusive code regarding the unseizability of life insurance contracts, intended by the legislature to supersede more general rules provided elsewhere in the Civil Code or existing in the jurisprudence. This exclusive provincial code of unseizability meshes with s. 67(1)(b) of the Bankruptcy Act. Because the respondent’s policy does not qualify under either of the only available exemptions, the trustee is entitled to seize the policy and exercise the surrender right to obtain its cash surrender value. The appeal is therefore allowed, the judgment of the Court of Appeal is set aside and the judgment of the Superior Court dismissing the respondent’s motion is affirmed, with costs to the appellant in all courts.
Appeal allowed with costs.
Solicitors for the appellant: Brochet Dussault Larochelle, Sainte-Foy.
Solicitors for the respondent: Gervais & Gervais, Montréal.