This is an important decision for everyone who comes across equitable relief in their practice.
In March 2017 a divided panel of the Ontario Court of Appeal in Moore v. Sweet overturned a finding of unjust enrichment on the ground there was a “juristic reason” for the enrichment. The decision was appealed. On 23 November 2018 the Supreme Court of Canada, splitting 6-2, applying precisely the same legal test, found there was there was no “juristic reason” for the enrichment, and restored the unjust enrichment remedy awarded at first instance.
The facts of the case are simple.
During their marriage Michelle Moore and her husband Lawrence bought a life insurance policy on his life which designated Ms Moore as revocable beneficiary. They later separated. They agreed orally that Ms Moore would pay the policy premiums and in exchange Mr Moore would maintain Ms Moore as beneficiary. Despite this agreement shortly after their separation, unbeknownst to Ms Moore, Mr Moore changed the beneficiary designation in favour of Risa Sweet, his common law spouse with whom he lived until his death 13 years later. Mr Moore validly designated Ms Sweet as irrevocable beneficiary of the policy pursuant to the provisions of Ontario’s Insurance Act R.S.O 1990 c. I.8. Unaware of this, Ms Moore continued to pay the premiums totalling about $7,000 under the policy for the next 13 years. At the time of death Mr Moore lacked assets making any claim against his estate pointless. The judge at first instance held Ms Sweet had been unjustly enriched at Ms Moore’s expense and imposed a trust in favour of Ms Moore over the $250,000 policy proceeds which had been paid into Court.
At all three levels the courts agreed on the elements to be established for a successful unjust enrichment claim – enrichment, corresponding deprivation, and absence of juristic reason. But that’s where agreement ended.
The majority of the ONCA went no further than finding the irrevocable designation provisions of the Act provided a juristic reason justifying the receipt by Ms Sweet of the insurance proceeds. Applying the analysis in the Supreme Court of Canada’s 2004 decision Garland v. Consumers’ Gas Co., the ONCA held those provisions of the Act impose a regime over the insurance policy and its proceeds that gives rights and protection to the insurer and the beneficiary.
Also relying on Garland the majority of the SCC came to precisely the opposite conclusion. It held the irrevocable designation provisions of the Act do not oust the common law or equitable rights persons other than designated beneficiaries may have in insurance policies. The Act does not preclude claims for unjust enrichment against designated beneficiaries, or the imposition of a constructive trust over proceeds. It is presumed the legislature does not depart from prevailing law if it does not clearly express its intention to do so.
On this issue the SCC minority, siding with the ONCA, stressed the purpose of the comprehensive scheme of irrevocable beneficiary designation in the Act is to insulate the designated beneficiary from the claims of all of the deceased’s creditors. It does not carve out a special class of creditor. The legislative scheme is deliberately indifferent to the source of the premium payments. It constituted a juristic reason for Ms Sweet to receive the proceeds.
The second stage of the Garland test affords the defendant an opportunity to establish some other, residual reason why the enrichment should be retained. These may include the parties’ reasonable expectations, and moral or policy-based arguments. The SCC divided starkly on this issue as well.
The majority held residual reasons favoured Ms Moore because it was her payment of the premiums that made Ms Sweet’s entitlement to receive the proceeds possible. The minority concluded policy considerations weighed against Ms Moore’s claim. Irrevocable beneficiary designations were created to ensure that life insurance proceeds could be disbursed free from claims against an estate, giving certainty to insured, insurer and beneficiary alike so litigation does not tie up funds that the deceased intended to support loved ones for a significant period of time.
Corresponding enrichment and deprivation
The SCC even divided on whether Ms Sweet’s enrichment corresponded to Ms Moore’s deprivation.
The majority found Ms Sweet was enriched by virtue of her right to receive the insurance proceeds and her enrichment was at the expense of Ms Moore, because the proceeds otherwise would have accrued to Ms Moore. The dissent accepted that absent the payments of premiums by Ms Moore the policy would have lapsed, and that but for Mr Moore’s breach of contract Ms Moore would have been the beneficiary, but, it reasoned, this was not sufficient to establish that the deprivation and enrichment were corresponding. Ms Sweet’s benefit – a statutory entitlement to proceeds – is different from Ms Moore’s deprivation – the inability to enforce contractual rights. They must be “zero-sum”. Had Mr Moore’s estate been solvent and able to pay damages to Ms Moore for breach of contract, Ms Sweet would have retained the insurance proceeds. Ms Sweet’s enrichment therefore could not be said to be dependant on Ms Moore’s deprivation.