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12 March 2019
Designated beneficiaries of a life insurance policy have traditionally had a high degree of certainty that they would be entitled to the policy proceeds on the death of the insured. This certainty has been jeopardised by the Supreme Court of Canada's recent decision in Moore v Sweet (2018 SCC 52).
Michelle Moore continued to pay the premiums of a life insurance policy on the death of her ex-husband, Lawrence Moore, after the couple had separated. This was in accordance with an oral agreement between Ms Moore and Mr Moore. In exchange, Ms Moore would be entitled to the policy proceeds on Mr Moore's death.
Mr Moore later designated his subsequent common-law spouse, Risa Sweet, as the irrevocable beneficiary of the policy, pursuant to Sections 190(1) and 191(1) of the Ontario Insurance Act.(1) Ms Moore had no knowledge of this.
Ms Moore kept her end of the oral agreement by paying the premiums until Mr Moore's death.
The Supreme Court of Canada considered whether Ms Moore's prior contractual claim to the policy proceeds precluded Ms Sweet's entitlement to the proceeds as the irrevocable beneficiary. In a 7:2 decision, the majority of the court held that Ms Moore was entitled to the policy proceeds. Otherwise, Ms Sweet would be unjustly enriched.
The three necessary elements of unjust enrichment were affirmed by the court – the plaintiff must show that:
Should Ms Sweet have taken the proceeds, she would clearly have been enriched. However, whether Ms Moore would have suffered a corresponding deprivation was more contentious given that the policy proceeds of C$250,000 had been significantly greater than Ms Moore's out-of-pocket deprivation in paying about C$7,000 in premiums since the couple's separation.
The key fact was the existence of the couple's oral agreement. Justice Côté, writing for the majority, emphasised that "[Ms Moore's] entitlement under the Oral Agreement is what makes it such that she was deprived of the full value of the insurance payout".(2)
In so holding, the majority of the court extended the concept of deprivation to include "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".(3)
With respect to the third element of unjust enrichment, the majority held that an irrevocable beneficiary designation made pursuant to the Insurance Act did not provide a juristic reason for the enrichment and corresponding deprivation. Nothing in the act provided "the necessary 'irresistible clearness' to preclude the existence of contractual or equitable rights" in insurance proceeds designated to an irrevocable beneficiary.(4)
In other words, the act does not clearly specify that a beneficiary designation under Sections 190(1) and 191(1) overrides prior contractual claims. Therefore, the majority of the court held that there was no sufficient reason to limit such prior claims and award the proceeds to the designated beneficiary.
The majority thus held that the appropriate remedy was the imposition of a constructive trust over the policy proceeds for Ms Moore's benefit.
Persons with a contractual or equitable right to life insurance proceeds may be entitled to such proceeds despite the existence of a designated beneficiary pursuant to a provincial Insurance Act. A beneficiary designation, including an irrevocable designation, is not determinative.
Unfortunately, this results in some uncertainty and risk for designated beneficiaries who expect to receive the proceeds on the insured's death.
In another sense, it is hard to imagine how the Supreme Court of Canada would have otherwise remedied the unfairness that would have resulted had the proceeds been awarded to Ms Sweet, the irrevocable beneficiary.
For further information on this topic please contact Robert Gilroy at Dentons Canada LLP by telephone (+1 416 863 4511) or email (firstname.lastname@example.org). The Dentons Canada LLP website can be accessed at www.dentons.com.
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