It’s not often that the Supreme Court of Canada addresses family law issues, and we need to be guided by such important decisions. The Supreme Court of Canada recently released a decision that allowed the unjust enrichment claim of the first wife who, despite paying the premiums of the late husband’s life insurance, saw the proceeds of that life insurance go to the husband’s second wife. The decision reverses the Ontario Court of Appeal decision from 2017.
The appellant, Michelle Moore, and the owner of the life insurance policy, late Lawrence Moore, were former spouses. Michelle was Lawrence’s first wife. The two entered into an oral agreement pursuant to which Michelle would pay the policy premiums of Lawrence’s life insurance, and, in turn, Lawrence would maintain Michelle as the revocable beneficiary. Soon after, and unbeknownst to Michelle, Lawrence proceeded to designate his new common law spouse – Risa Sweet – as the irrevocable beneficiary of the policy. Lawrence passed away a few years later. The proceeds of life insurance were payable to Risa and not Michelle. Michelle had paid all of the insurance premiums up until Lawrence’s death. Lawrence never informed Michelle that she was no longer the policy’s beneficiary.
The Ontario Superior Court of Justice allowed Michelle Moore’s unjust enrichment claim over the proceeds of Lawrence’s life insurance totaling $250,000. The Ontario Court of Appeal overturned the trial decision (Lauwers J.A. dissenting). It held that that “at most, Ms. Moore was entitled to the return of the $7,000 in premiums that she paid following the separation”. The Supreme Court of Canada heard the appeal on February 8, 2018 and rendered its 7-2 judgment on November 23, 2018, granting the unjust enrichment claim in favour of Michelle Moore.
Analysis of Majority Reasons
A constructive trust is an equitable remedy that may be imposed at a court’s discretion. A proper equitable basis, such as a successful claim in unjust enrichment, must first be found to exist. A plaintiff will succeed on the cause of action in unjust enrichment if he or she demonstrates three elements:
- that the defendant was enriched;
- that the plaintiff suffered a corresponding deprivation; and
- that the defendant’s enrichment and the plaintiff’s corresponding deprivation occurred in the absence of a juristic reason.
In the eyes of the majority, the first two elements were not in serious dispute in this case. Risa Sweet was, in fact, enriched to the full extent of the insurance proceeds in the amount of $250,000. Meanwhile, Michelle Moore was deprived of the right to receive the entirety of the insurance proceeds. It is clear that Risa’s enrichment came at Michelle’s expense. The third element – the juristic reason analysis – involves a two-step inquiry. The Court provides:
The first stage requires the plaintiff to demonstrate that the defendant’s retention of the benefit at the plaintiff’s expense cannot be justified on the basis of any of the “established” categories of juristic reasons: a contract, a disposition of law, a donative intent, and other valid common law, equitable or statutory obligations. If any of these categories applies, the analysis ends; the plaintiff’s claim must fail because the defendant will be justified in retaining the disputed benefit.
If the plaintiff successfully demonstrates that none of the established categories of juristic reasons applies, then he or she has established a prima facie case and the analysis proceeds to the second stage. At this stage, the defendant has an opportunity to rebut the plaintiff’s prima facie case by showing that there is some residual reason to deny recovery. The de facto burden of proof falls on the defendant to show why the enrichment should be retained. In determining whether this may be the case, the court should have regard to two considerations: the parties’ reasonable expectations and public policy.
The respondent, Risa, relied on ss. 190(1) and 191(1) of the Insurance Act to argue that there was, in fact, a juristic reason for her enrichment. Ss. 190(1) and 191(1) of the Insurance Act provide as follows:
Designation of beneficiary
190 (1) Subject to subsection (4), an insured may in a contract or by a declaration designate the insured, the insured’s personal representative or a beneficiary as one to whom or for whose benefit insurance money is to be payable.
Designation of beneficiary irrevocably
191 (1) An insured may in a contract, or by a declaration other than a declaration that is part of a will, filed with the insurer at its head or principal office in Canada during the lifetime of the person whose life is insured, designate a beneficiary irrevocably, and in that event the insured, while the beneficiary is living, may not alter or revoke the designation without the consent of the beneficiary and the insurance money is not subject to the control of the insured, is not subject to the claims of the insured’s creditor and does not form part of the insured’s estate.
In other words, the respondent, Risa Sweet, argued that the proceeds of Lawrence’s life insurance were shielded by the provisions of the Insurance Act as the contract of insurance irrevocably designated her as the beneficiary, and thus there existed a juristic reason for the Respondent to keep the insurance proceeds. In rejecting this argument, Justice Côté provided that: “Nothing in the Insurance Act can be read as ousting the common law or equitable rights that persons other than the designated beneficiary may have in policy proceeds… [No] part of the Act operates with the necessary irresistible clearness to preclude the existence of contractual or equitable rights in those proceeds once they have been paid to the named beneficiary”. Justice Côté concludes by stating: “Neither by direct reference nor by necessary implication does the Insurance Act either foreclose a third party who stands deprived of his or her contractual entitlement to claim insurance proceeds by successfully asserting an unjust enrichment claim against the designated beneficiary — revocable or irrevocable — or preclude the imposition of a constructive trust in circumstances such as these”.
No juristic reason was found to apply in the circumstances, and Michelle Moore had made out a prima facie case for unjust enrichment.
The second step in the juristic reason analysis involves analysis of parties’ reasonable expectations and of public policy considerations. Risa Sweet was unsuccessful in in establishing that there were reasons to deny Michelle’s recovery. Justice Côté acknowledged Risa’s expectation to receive the insurance money upon Lawrence’s death by virtue of the fact that she had been validly designated as irrevocable beneficiary. Risa was, however, designated as an irrevocable beneficiary after Lawrence and Michelle had already entered into their agreement, and Risa’s expectation does not take precedence over Michelle’s prior contractual right to remain the beneficiary. In any case, Justice Côté concludes, residual considerations favour Michelle, given that her contribution towards the payment of the premiums actually kept the insurance policy alive and made Risa’s entitlement to receive the proceeds upon Lawrence’s death possible in the first place.
The Court imposed a constructive trust over the proceeds of insurance in Michelle’s favour.
Analysis of Minority Reasoning
Justices Gascon and Rowe delivered the joint dissent. In holding that Michelle had failed to establish a claim in unjust enrichment, Justices argued that there was no correlative deprivation between Michelle’s failed contractual expectations and Risa’s enrichment (2nd step of the test for unjust enrichment). Further, the Justices argued that, even if correlative deprivation between parties were to be found, the Insurance Act provided a clear juristic reason for any enrichment Risa could have received through Michelle’s loss as a creditor of Lawrence’s insolvent estate (3rd step of the test for unjust enrichment). Justices Gascon and Rowe expressed concern with opening up irrevocable beneficiary designations to challenges by an insured’s creditors as this clearly encouraged litigation — a situation that the Insurance Act clearly intended to avoid.
Conclusion and Takeaways
This case establishes an important precedent for situations where one has a contractual right to be named the beneficiary of an insurance policy by virtue of paying the premiums of that policy, but, unbeknownst to that person, another person is named as an irrevocable beneficiary.
The majority of the Supreme Court held that the irrevocable beneficiary had been unjustly enriched and imposed a constructive trust in the appellant’s favour.
This case serves as a reminder to the beneficiaries under insurance policies held by third-party policyholders to verify that they remain named as irrevocable beneficiaries under those policies. This precaution is be especially relevant to separated parties who have agreed on maintaining their former partner as the beneficiary on their insurance policy.
A separation agreement should require confirmation of the irrevocable beneficiary designation from time to time, or upon the written request of the former spouse. The “best practice” for family law lawyers is for there to be a signed Direction and Authorization for the former spouse to allow that person to verify that the required beneficiary designation remains in force by obtaining that information directly from the institution that provides the life insurance (without the other spouse who is the policy-holder having to cooperate to obtain this information).
If the policyholder passes, having secretly changed beneficiaries and their estate has insufficient funds to compensate for breach of the agreement, the new beneficiary might be protected from turning over the insurance proceeds under the Insurance Act. As Moore v Sweet demonstrates, even if the original beneficiary is successful in recovering the proceeds of insurance, this process might require many years of litigation, and create immense stress and financial hardship for all involved.