Life insurance designations and unjust enrichment


The Supreme Court of Canada recently released a decision highlighting the law relating to unjust enrichment and constructive trusts in the context of a dispute over the proceeds of an insurance policy. In Moore v. Sweet, the majority of the SCC imposed a remedial constructive trust on the proceeds of a life insurance policy in favour of the deceased’s former spouse on the basis of unjust enrichment. Unjust enrichment can be described as receiving a benefit to the detriment of another without legal justification. The court’s decision highlights the importance of proper estate planning, especially in circumstances where there has been a marriage breakdown.

In Moore v. Sweet, the deceased’s common-law spouse (Sweet) was designated as the irrevocable beneficiary under the deceased’s life insurance policy. The deceased’s former spouse (Moore) was originally designated as the beneficiary on that policy and, pursuant to an oral agreement with the deceased when they separated, Moore continued to pay the insurance premiums on the policy up until the deceased’s death, with the expectation she would receive the insurance proceeds as the designated beneficiary.

After the deceased passed away, Moore brought an application seeking entitlement to the proceeds. The trial court ruled in her favour, entitling her to the full amount on the basis of unjust enrichment. Sweet appealed this decision.

The Court of Appeal allowed the appeal and concluded that Moore’s unjust enrichment claim had to fail because the irrevocable beneficiary designation provisions of the Ontario Insurance Act provide a juristic reason justifying Sweet receiving the insurance proceeds. However, the court awarded Moore the sum of $7,000 (with interest), which was the amount of premiums that she paid following her separation from the deceased. Moore was subsequently granted leave to appeal to the Supreme Court of Canada.

The court noted that to succeed in a claim of unjust enrichment, Moore needed to prove that Sweet was enriched, that Moore suffered a corresponding deprivation, and that there was no juristic reason for Sweet’s enrichment. With respect to the first element, the parties did not dispute that Sweet was enriched to the full extent of the insurance proceeds by virtue of her right to receive them as the designated irrevocable beneficiary of the deceased’s policy.

Madam Justice Côté, writing for the majority of the court, noted that the second element should focus on what Moore actually lost and on whether that loss corresponded to Sweet’s enrichment, such that the latter was enriched at the expense of the former. The court held that the extent of Moore’s deprivation was not limited to the $7,000 she paid in premiums as she was also deprived of the right to receive the entirety of the insurance proceeds. The court further found that it was clear Sweet’s enrichment came at Moore’s expense. Not only did Moore’s payment of the premiums make Sweet’s enrichment possible, but Sweet received the benefit that otherwise would have accrued to Moore.

As to the third element, Justice Côté stated that the juristic reason analysis should proceed in two stages. The first stage required Moore to demonstrate that Sweet’s retention of the benefit at the Moore’s expense could not be justified on the basis of any of the established categories of juristic reasons, such as disposition of law or statutory obligations. 

In this case, a beneficiary designation made pursuant to ss. 190(1) and 191(1) of the Insurance Act did not provide a juristic reason for Sweet’s enrichment at Moore’s expense. The court held that 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.

Justice Côté also noted that, at the second stage, the onus was on Sweet to establish some residual reason why the enrichment should be retained. Considerations, such as the parties’ reasonable expectations and moral and policy-based arguments, came into play. While it was clear that both parties expected to receive the proceeds of the life insurance policy,  the court found that the residual considerations favoured Moore, given that her contribution towards the payment of the premiums kept the policy in force and made Sweet’s entitlement to receive the proceeds upon the deceased’s death possible.

Justice Côté noted that a personal remedy (essentially a debt or monetary obligation) is the default remedy in a case of unjust enrichment. However, a proprietary remedy in the form of a constructive trust could be granted if Moore could establish that a personal remedy would be inadequate and that there existed a link between her contributions and the insurance proceeds. Considering all of the circumstances, the court was satisfied that granting a constructive trust was appropriate because the insurance proceeds were readily available to be impressed with such a trust, having been paid into court.

It appears that, if Moore had not been paying the premiums for the policy, the court would not have been able to make a finding of unjust enrichment and impress the proceeds with a constructive trust in her favour. In that case, she would have had only a claim against the deceased’s estate for breach of contract, without any potential equitable remedy with respect to the actual insurance proceeds.

Since the estate of the deceased did not have sufficient assets to satisfy a judgment in favour of Moore, a constructive trust of the proceeds themselves (which did not form part of the estate because of the beneficiary designation) was the only way that Moore could be compensated.  It should be noted that in Manitoba, insurance proceeds that are payable to a designated beneficiary are generally not available to creditors of an estate.

Where there is an agreement between spouses or partners that one will be the designated beneficiary on a life insurance policy insuring the life of the other, the beneficiary should be irrevocably designated to prevent a situation such as the one that arose in Moore v. Sweet. Although the SCC ultimately found in favour of Moore, an irrevocable designation in her favour would have prevented the deceased from changing the designation to Sweet. 

This decision illustrates the need for proper legal advice and documentation with respect to an agreement between separating or divorcing spouses, as well as the importance of proper estate planning where there is a prior spouse or partner to whom the testator may have contractual obligations.