By Erin Vanderveen, Student-at-Law at Stillman LLP
In the case of Moore v Sweet, 2018 SCC 52, the Supreme Court of Canada provides guidance on the law of unjust enrichment and constructive trusts where there is a dispute over life insurance proceeds after a breakdown of a marriage.
The Court considered whether the Plaintiff, Ms. Moore, was entitled to the life insurance proceeds of her ex-husband for which she was paying the policy premiums based on an oral agreement that her ex-husband would maintain her designation as the beneficiary. Subsequent to the breakdown of the marriage, and unbeknownst to Ms. Moore, her ex-husband designated his new common-law spouse, Ms. Sweet, as the irrevocable beneficiary. Upon his passing, a dispute arose between Ms. Moore and Ms. Sweet as to who is entitled to the $250,000 proceeds from his life insurance policy. The Majority of the Court held that Ms. Sweet was unjustly enriched and imposed a remedial constructive trust over the full amount of the life insurance proceeds.
The well-established test to show unjust enrichment are as follows:
1. The Defendant was enriched;
2. The Plaintiff suffered a corresponding deprivation; and
3. The absence of a juristic reason for the enrichment.
In this case, there was no dispute that the first element was met as Ms. Sweet had been enriched in the amount of $250,000, which she received as the designated irrevocable beneficiary of the deceased’s policy.
The second element was also found to be established because Ms. Moore was deprived of both the $7000.00 she paid for the premiums for the policy and the right to receive the insurance proceeds. This deprivation corresponds with Ms. Sweet’s enrichment because Ms. Moore’s payment of the premiums made the enrichment possible and Ms. Sweet received a benefit that otherwise would have gone to Ms. Moore.
The third element involves a two stage analysis. First, the courts consider whether the Defendant’s retention of the enrichment can be justified in law or equity based on the established categories of juristic reasons. As outlined in Garland v Consumers’ Gas Co, 2004 SCC 25 at para 44, the categories include contract, disposition of law, a donative intent, or valid common law, equitable or statutory obligations. If one of these categories exists, the test for unjust enrichment is not made out.
Ms. Sweet submitted that the Insurance Act required the proceeds of the policy to be paid exclusively to her as the validly designated beneficiary, which she argued was a disposition of law and a statutory obligation. However, the majority of the Court disagreed and held that no category of juristic reason applied.
The second stage of determining whether element three of the test for unjust enrichment is met, provides the Defendant with an opportunity to establish some other residual reason why the enrichment should be maintained. Here, both parties reasonably expected to receive the proceeds. However, without Ms. Moore’s contributions to the policy, there would be no proceeds. Therefore, the Court held that there was no juristic reason for Ms. Sweet to retain the $250,000 and the test for unjust enrichment was met.
Where a court finds that unjust enrichment has been established, a remedy can either be granted against the Defendant personally as a monetary obligation or against specific property. The default is to grant a remedy against the Defendant personally. However, the courts can order a constructive trust to a Plaintiff over specific property if it is established that a personal remedy would be inadequate and that there is a link between the Plaintiff’s contributions and the property. Normally money is not impressed with a constructive trust, but in this case, Ms. Moore established that the insurance proceeds, which were paid into court, were readily available property over which a constructive trust could be established and the premiums that she paid were causally connected to the policy.
If Ms. Moore had not paid the premiums of the life insurance policy, it is likely that the Court would not have granted her a constructive trust and she would have to try to collect a personal remedy against the estate. In this situation, the Court acknowledged that the estate did not have sufficient assets to satisfy a judgement, and therefore Ms. Moore would not be effectively compensated for her loss.
The decision in Moore v Sweet highlights the importance of obtaining legal advice with respect to estate planning, specifically where there is a breakdown of a marriage involved. Had Ms. Moore sought legal advice and required that she be designated as the irrevocable beneficiary to the insurance proceeds, the deceased could not have changed the beneficiary to his new partner and this issue would not have arisen. Should you require legal assistance with estate planning or if you are dealing with the breakdown of a relationship, please contact any of the lawyers at Stillman LLP and we would be happy to assist you.