A Constructive Trust Claim on Life Insurance Proceeds
In the case of Moore v. Sweet, the appellant, Michelle Moore, and the owner of a life insurance policy, Lawrence Moore, were former spouses for twenty years. The two entered into an oral separation agreement, which stipulated that Ms. Moore would pay the premiums for a life insurance policy, and upon Mr. Lawrence’s death, she would be the sole beneficiary of the proceeds.
The appellant fulfilled her obligation under the agreement, paying all the premiums for the life insurance policy on Mr. Lawrence. Unbeknownst to the Applicant, Mr. Lawrence designated his new common law spouse, the Respondent, as the irrevocable beneficiary of the policy one year after making the agreement with the Applicant. Mr. Lawrence died several years later, and the proceeds of the policy were paid out to the Respondent. At the time of Mr. Lawrence’s death, the Applicant had paid over $30,000 in premiums.
The Applicant brought an application claiming entitlement to the proceeds. The application judge made an Order in favour of the Applicant, based on the finding that she had a constructive trust in the proceeds of the policy.
The Ontario Court of Appeal overturned this finding with a 2-1 decision. The court ordered that the $7,000 the Applicant had paid in premiums since being removed as the beneficiary ought to be returned to her. However, the remainder of the proceeds belonged to the Respondent. The Applicant appealed to the Supreme Court.
A cause of action on unjust enrichment has three elements:
- The defendant was enriched
- The plaintiff suffered a corresponding deprivation
- The defendant's enrichment and the plaintiff's corresponding deprivation occurred in the absence of a juristic reason
When determining the presence and degree of enrichment, and corresponding deprivation, the majority made it clear that "the measure of deprivation is not limited to the plaintiff's out of pocket expenditures or to the benefit taken directly from them. Rather, the concept of loss also captures a benefit that was never in the plaintiff's possession, but that the court finds would have accrued for their benefit had it not been received by the defendant instead.” This means that the extent of the Applicant's deprivation is not limited to the $7,000 she paid in premiums. She was in fact deprived the entirety of the insurance proceeds, a value of $250,000.
When it came to the third part of the test, the presence or absence of juristic reason, the Supreme Court Justices scrutinized s. 190 and 191 of the Insurance Act. Part V of the Insurance Act recognizes two types of beneficiary designations: those that are revocable and those that are irrevocable.
A revocable beneficiary designation is one that can be altered or revoked by the insured without the beneficiary's knowledge or consent. An irrevocable beneficiary designation, by contrast, can be altered or revoked only if the designated beneficiary consents.
When a valid irrevocable beneficiary designation is made, s. 191 of the Insurance Act makes it clear that the insurance money ceases to be subject to the control of the insured, is not subject to the claims of the insured's creditors, and does not form part of the insured's estate.
The greatest point of disagreement between the majority and the minority was about the absence of a juristic reason. The majority took the position that the Insurance Act provisions did not provide a juristic reason for the common law spouse's enrichment. The minority disagreed and found that the Insurance Act provisions should be given full effect and the common law spouse should be entitled to the proceeds because she was named as the irrevocable beneficiary.
In a 7-2 appeal, the Supreme Court of Canada found that the Respondent was enriched, and the Applicant was correspondently deprived, and that both the enrichment and deprivation occurred in the absence of a juristic reason. As such, a remedial constructive trust was imposed for the Applicant's benefit.
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