SCC says 'unjust enrichment’ means irrevocable beneficiary of insurance policy not entitled to benefits

The former spouses, Michelle and Lawrence Moore, had “entered into a contractual agreement pursuant to which Michelle would pay all of the policy’s premiums and, in exchange, Lawrence would maintain Michelle as the sole beneficiary thereunder,” Justice Suzanne Côté noted in her reasons, with Chief Justice Richard Wagner and Justices Rosalie Abella, Michael Moldaver, Andromache Karakatsanis, Russell Brown and Sheilah Martin concurring.

“While Michelle held up her end of the bargain, Lawrence did not. Shortly after assuming his contractual obligation, and unbeknownst to Michelle, Lawrence designated his new common law spouse — the respondent, Risa Lorraine Sweet … — as the irrevocable beneficiary of the policy. When Lawrence passed away several years later, the proceeds were payable to Risa and not to Michelle.”

At issue in the appeal was entitlement to the proceeds of a $250,000 term life insurance policy obtained by Lawrence Moore in 1985. At the time it was issued, Michelle and Lawrence Moore were married with three children, and Michelle was named Lawrence’s beneficiary. In 2000 Lawrence moved in with the respondent, Risa Sweet, with whom he lived until his death in 2013; he also designated Sweet as his irrevocable beneficiary under the policy.

Lawrence and Michelle divorced in 2003; however, from 2000 until Lawrence’s death, Michelle paid the premium from her own bank account, unaware of the change in designation until after Lawrence’s death, when the proceeds of the policy were paid into court by the insurer pending the resolution of the competing claims by Michelle and Risa.

Michelle claimed unjust enrichment and asked the court to impose a constructive trust — a remedial tool imposed by a court to benefit a party that has been wrongfully deprived of her or his rights due to unjust enrichment or breach of fiduciary duty — in her favour over the proceeds of the policy. She argued that she and Lawrence had agreed that if she paid the premiums, she would be entitled to receive the benefit of the policy as a way for Lawrence to support their children.

The Ontario Superior Court of Justice granted the application, but a majority of the Court of Appeal for Ontario allowed the appeal, holding that while the appellant was entitled to be repaid her premiums, the respondent was to receive the balance of the proceeds.

The Supreme Court found that the oral agreement that Michelle and Lawrence Moore had was binding, and that although the Insurance Act sets out how beneficiaries are named it does not stipulate that naming a new beneficiary will automatically override the rights of other individuals from previous agreements.

The majority held that each of the three elements in causes of action for unjust enrichment had been met; namely, that i) the defendant was enriched; ii) the plaintiff suffered a corresponding deprivation; and iii) that these each occurred in the absence of a juristic reason (that is, a legal explanation for the enrichment of one party at the detriment of another).

“Because each of Michelle’s payments kept the policy alive, and given that Risa’s right as designated beneficiary necessarily deprived Michelle of her contractual entitlement to receive the entirety of the insurance proceeds, I would impose a constructive trust to the full extent of those proceeds in Michelle’s favour,” Justice Cote wrote.

“We’re very pleased to see that this remedy of constructive trust has been so enhanced,”  Suzana Popovic-Montag, managing partner at Hull & Hull LLP in Toronto who acted on behalf of the appellant, told Legal Feeds. “The courts really did recognize that … an oral agreement could be a binding contract,” a principle which has also been upheld by common law courts for years, she said.

“It’s a very, very important decision. Not many of these cases ever get to the Supreme Court of Canada,” and although the facts of the case were very specific, Popovic-Montag says, “within the area of remedial constructive trust, they brought certainty to that area of law” and provided guidance as to how the Insurance Act should be interpreted.

In dissenting reasons, Justices Clément Gascon and Justice Malcolm Rowe acknowledged that but for Michelle Moore’s payments the policy would have lapsed, and but for Lawrence’s breach of contract with Michelle she would have been the policy’s beneficiary at the time of his death. However, they found, these facts were not enough to establish that the deprivation and the enrichment were corresponding. As Michelle’s rights were contractual in nature, the dissenting justices found, she was a creditor of her former husband’s estate and by the provisions of the Insurance Act therefore had no claim to the proceeds of the policy.

Today’s decision “makes ‘unjust enrichment’ more complicated rather than less,” Jeremy Opolsky, a civil litigator at Torys LLP in Toronto who acted pro bono for the respondent, told Legal Feeds. “Our reading of the majority’s decision is that it removes some of the clarity in parties being able to rely on a statute” — in this case the Insurance Act — “as a basis for a juristic reason and therefore as an answer to a claim of unjust enrichment. …

Justices Gascon and Rowe noted that “[t]he legislature’s choice for intended beneficiaries to receive the proceeds is rooted in the sound policy considerations underpinning that choice,” i.e., that “[e]state distributions are subject to frequent disputes, leading to lengthy and expensive litigation” which can cause insurance proceeds in litigation to be tied up for years, as they were in this case. 

Today’s decision has “potential to create further litigation surrounding life insurance claims” where there are disappointed beneficiaries, says Opolsky. “It opens up a greater, broader avenue for claims of unjust enrichment, even when a statute may indicate where money should flow.”