Second Wife Unjustly Enriched by Life Insurance Policy
The field of law known as “unjust enrichment” comes up more and more. In the case of Moore v. Sweet, the Supreme Court of Canada had to consider such a case.
Briefly, Michelle Moore separated from her husband Larry Moore. They arrived at a deal whereby she would keep paying the annual premiums on his life insurance, and he would leave her as the designated beneficiary. Naturally, the designation was “revocable”.
And, years later, Larry became the common law spouse of Risa Sweet and designated her as the beneficiary under the policy.
Larry passed away in 2013. Up to this time, Michelle had paid about $7,000.00 in insurance premiums. The policy proceeds in the amount of $250,000.00 were paid into Court. Clearly, both Michelle and Risa were innocent parties.
After some discussion about the law, the majority (7-2 split) of the Supreme Court of Canada concluded that Michelle who had made all the insurance premium payments over the years was entitled to the money. The receipt of the funds by Risa Sweet was impressed with a constructive trust in favour of Michelle in order to prevent unjust enrichment.
At issue, was whether Michelle would be entitled to the return of her $7,000.00 with interest or the full proceeds of the insurance policy in the amount of $250,000.00. At trial, the decision favoured Michelle, on appeal to the Ontario Court of Appeal, that decision favoured Risa, and upon further appeal, we are back to Michelle.
Ordinarily, the Court would simply have awarded a personal Judgment against Larry’s estate, except for the fact that there was no money. And, there was a link to the insurance funds. Had those premiums not been paid, there would have been no payout on Larry’s death.
All too often, it’s easy to guess what might happen. Here, we have 8 Judges favouring the first wife and 4 Judges favouring the second wife. It’s a difficult case, but the insurance company is only going to pay out once, and Larry’s estate was impecunious, so there was no money there.
As we go forward, there will be more cases based in the ever increasing body of law known as “restitution”. It’s outside of contract law, outside of tort law, and outside of family law.
For further interest of those anxious to know more of the details, here’s the headnote * of the case:
Moore v. Sweet, 23 November 2018, Supreme Court of Canada
During L and M’s marriage, L purchased a term life insurance policy and designated M as revocable beneficiary. They later separated, and entered into an oral agreement whereby M would pay all of the policy premiums and, in exchange, L would maintain M’s beneficiary designation.
Unbeknownst to M, L subsequently designated his new common law spouse, R, as the irrevocable beneficiary of the policy. When L passed away, the proceeds were therefore payable to R and not to M. At the time of L’s death, his estate had no significant assets. M, who had paid about $7,000 in policy premiums since separation, commenced an application regarding her entitlement to the $250,000 policy proceeds.
The application judge held that R had been unjustly enriched at M’s expense and impressed the proceeds with a constructive trust in M’s favour. The Court of Appeal allowed R’s appeal and set aside the judgment of the application judge.
Held (Gascon and Rowe JJ. dissenting): The appeal should be allowed.
Per Wagner C.J. and Abella, Moldaver, Karakatsanis, Côté, Brown and Martin JJ.:
R was enriched, M was correspondingly deprived, and both the enrichment and deprivation occurred in the absence of a juristic reason. Therefore, a remedial constructive trust should be imposed for M’s benefit.
A constructive trust is understood primarily as 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 can show three elements:
(1) that the defendant was enriched;
(2) that the plaintiff suffered a corresponding deprivation; and
(3) that the defendant’s enrichment and the plaintiff’s corresponding deprivation occurred in the absence of a juristic reason.
Regarding the first element, the parties do not dispute the fact that R was enriched to the full extent of the insurance proceeds in the amount of $250,000, by virtue of her right to receive them as the designated irrevocable beneficiary of L’s policy.
The second element focuses on what the plaintiff actually lost and on whether that loss corresponds to the defendant’s enrichment, such that the latter was enriched at the expense of the former. The measure of deprivation is not limited to the plaintiff’s out‑of‑pocket expenditures or to the benefit taken directly from him or her. Rather, the concept of loss also captures a benefit that was never in the plaintiff’s possession but that the court finds would have accrued for his or her benefit had it not been received by the defendant instead.
This element does not require that the disputed benefit be conferred directly by the plaintiff on the defendant. In this case, the extent of M’s deprivation is not limited to the $7,000 she paid in premiums. She stands deprived of the right to receive the entirety of the insurance proceeds, a value of $250,000. It is also clear that R’s enrichment came at M’s expense. Not only did M’s payment of the premiums make R’s enrichment possible, but R’s designation gave her the statutory right to receive the insurance proceeds. Because R received the benefit that otherwise would have accrued to M, the requisite correspondence exists: the former was enriched at the expense of the latter.
To establish the third element, it must be demonstrated that both the enrichment and corresponding deprivation occurred without a juristic reason.
The juristic reason analysis proceeds in two stages.
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, such as disposition of law or statutory obligations. A plaintiff’s claim will necessarily fail if a legislative enactment justifies the enrichment and corresponding deprivation.
In this case, a beneficiary designation made pursuant to ss. 190(1) and 191(1) of the Insurance Act does not provide a juristic reason for R’s enrichment at M’s expense.
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.
The legislature is presumed not to depart from prevailing law without expressing its intention to do so with irresistible clearness. While the Insurance Act provides the mechanism by which beneficiaries become statutorily entitled to receive 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.
Furthermore, the Insurance Act provisions applicable to irrevocable beneficiary designations do not require, either expressly or implicitly, that a beneficiary keep the proceeds as against a plaintiff in an unjust enrichment claim, who stands deprived of his or her prior contractual entitlement to claim such proceeds upon the insured’s death.
Accordingly, an irrevocable designation under the Act cannot constitute a juristic reason for R’s enrichment and M’s deprivation. 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. Therefore, no established category of juristic reason applies.
Once the plaintiff has successfully demonstrated that no category of juristic reason applies, a prima facie case is established and the analysis proceeds to the second stage.
At this stage, the defendant must establish some residual reason why the enrichment should be retained. Considerations such as the parties’ reasonable expectations and moral and policy‑based arguments come into play. In the present case, it is clear that both parties expected to receive the proceeds of the life insurance policy. However, the residual considerations favour M, given that her contribution towards the payment of the premiums actually kept the policy alive and made R’s entitlement to receive the proceeds upon L’s death possible.
Once each of the three elements of the cause of action in unjust enrichment is made out, the remedy is restitutionary in nature and can take one of two forms:
- Personal, or
A personal remedy is essentially a debt or a monetary obligation and can be viewed as the default remedy for unjust enrichment.
In certain cases, however, a plaintiff may be awarded a remedy of a proprietary nature. The most pervasive and important proprietary remedy for unjust enrichment is the constructive trust.
Courts will impress the disputed property with a constructive trust only if
- the plaintiff can establish that a personal remedy would be inadequate; and
that there is a link between his or her contributions and the disputed property.
Ordinarily, a personal award would be adequate in cases such as this one where the property at stake is money.
In the present case, however, the disputed insurance money has been paid into court and is readily available to be impressed with a constructive trust.
Moreover, M’s payment of the premiums was causally connected to the maintenance of the policy under which R was enriched.
A constructive trust to the full extent of the proceeds should therefore be imposed in M’s favour.
In this circumstance I have reformatted the headnote into paragraphs, added italics and numbered conclusions for easy reading.
Brian Madigan LL.B., Broker