Moore v Sweet: SCC Ruling May Place Insurers in Difficult Position

In today’s guest post, Danielle Mallozzi examines the Supreme Court of Canada’s 2018 decision on whether life insurance beneficiaries should be enriched at the expense of unknowning premium payers. 

In Moore v Sweet, 2018 SCC 25 (“Moore”), the Supreme Court of Canada (“SCC”) considered whether the appellant, Michelle Moore or the respondent, Risa Sweet was entitled to the $250,000 proceeds of a life insurance policy whose premiums were paid for by Moore. The lesson? Do not pay your ex-spouse’s life insurance premiums based on their word alone. You may end up in timely and costly litigation.

Two Women, One Life Insurance Policy

Michelle Moore and the owner of the policy, Lawrence Moore, were former spouses. They came to an oral agreement that Michelle would continue to pay the policy’s premiums despite their divorce and Lawrence would keep her as the policy’s only beneficiary, and she would be entitled to the proceeds upon his death. Shortly after, Lawrence made his new common law spouse, Risa Sweet, the irrevocable beneficiary of the policy despite Michelle being unaware and continuing to pay the monthly premiums. Upon Lawrence’s death, the proceeds were payable to Sweet and not Michelle. Michelle applied to the court claiming unjust enrichment and requesting that the life insurance proceeds be awarded to her in the form of a constructive trust.

For a claim in unjust enrichment to succeed the plaintiff must prove that:

1. The defendant was enriched
2. They suffered corresponding deprivation, and
3. The defendant’s enrichment and the plaintiff’s corresponding deprivation occurred in the absence of a juristic reason. (Moore, para 30)

If the plaintiff satisfies these criteria the defendant can still overcome the claim by proving there are residual reasons to deny the plaintiff’s recovery based on the parties’ reasonable expectations or public policy reasons.

Procedural History

Ontario Superior Court of Justice

At trial, Justice Wilton-Siegelruled that the life insurance proceeds should go to Michelle. He held that Michelle and Lawrence both had equitable interests in the proceeds of the policy from when it was taken out. Their oral agreement had resulted in an equitable assignment to Michelle of Lawrence’s equitable interest in the proceeds of the policy in return for her paying the premiums. He found that all elements of unjust enrichment were met and Sweet’s designation as an irrevocable beneficiary did not constitute a juristic reason that entitled her to retain the proceeds. Michelle had a constructive trust interest and would be unjustly deprived if the money went to Sweet.

Ontario Court of Appeal

The majority at the Court of Appeal overturned the lower court decision. They awarded the policy proceeds to Sweet but found Michelle Moore was entitled to be refunded the money she paid in premiums after she divorced Lawrence. Justice Blair wrote for the majority and held that the application judge erred in finding that Michelle and Lawrence’s oral agreement took the form of an equitable assignment to Michelle of Lawrence’s equitable interest in either the proceeds of the policy or the entire interest in the policy in exchange for the payment of future premiums. Justice Blair also stated it was procedurally unfair for Justice Wilton-Siegel to base his finding on the principle of equitable interest because Moore had not relied on that claim.

Justice Lauwers strongly dissented. He argued that the SCC in Soulos v Korkontzilas, 1997 2 SCR 217 did not confine the availability of remedial constructive trusts to instances of unjust enrichment and wrongful gains and that Soulos did not abolish the doctrine of good conscience.Though he stated that an irrevocable beneficiary designation may constitute a juristic reason for enrichment, the oral agreement between Michelle and Lawrence made it so this designation was no longer his to make. Consequently, Justice Lauwers concluded, it should not constitute a juristic reasoning in favor of enrichment in this case.

The Supreme Court of Canada

The Majority

The SCC did not uphold the ONCA’s ruling. Justice Côté, subsequently writing for the majority, held that

“Risa was enriched, Michelle was correspondingly deprived, and both the enrichment and the deprivation occurred in the absence of a juristic reason.”(Moore, para 3)

The majority ultimately concluded that an irrevocable beneficiary designation under the Insurance Act did not constitute a juristic reason. However, the majority arrived at this conclusion through a different chain of reasoning than Justice Lauwers of the Court of Appeal. The Majority stressed the presumption that legislation does not depart from prevailing law without expressing this intention with “irresistible clearness”, as previously held in Rawluk v Rawluk, 1990 SCR 70 (Moore, para 70). Therefore, because “no part of the Insurance Act operates with the necessary ‘irresistible clearness’ to preclude the existence of contractual or equitable rights in those insurance proceeds once they have been paid to the named beneficiary” (Moore, para 70), the statute requires payment to Risa, but not the right to keep the proceeds against Michelle.

The majority also held that Risa did not meet the burden of rebutting Michelle’s unjust enrichment case because Risa’s expectation came after the oral agreement between Michelle and Lawrence and thus cannot take precedence over Michelle’s prior rights. It would be bad policy to ignore that Michelle was tricked by her ex-husband to pay the premiums for Risa’s benefit when her payments kept the policy alive and made Risa’s entitlement to receive the proceeds possible. The appeal was thus dismissed, and Michelle was awarded the $250,000 policy proceeds in the form of a constructive trust.

The Dissent

In their joint dissent, Justices Gascon and Rowe echoed the Ontario Court of Appeal’s majority decision. They held that Risa’s enrichment did not result from the corresponding deprivation of Michelle and that this failure to establish unjust enrichment meant there was no basis to impose a constructive trust. They acknowledged Michelle’s contractual rights to the proceeds but held that the correlative deprivation between Michelle’s failed contractual expectations and Risa’s enrichment did not establish a proprietary or equitable interest in the proceeds. Michelle was a revocable beneficiary under the policy and therefore had no right to contest her ex-husband’s change of beneficiary, except by suing his estate for breach of contract.

The dissent found Michelle’s deprivation (being unable to enforce her contractual rights) did not correspond with Risa’s entitlement to the insurance proceeds (the enrichment). They acknowledged that both parties were innocent, but also that the Insurance Act provides a juristic reason for any enrichment that Risa could have received by being an irrevocable beneficiary. Consequently, they held that Michelle had a breach of contract claim and did not have any right to the proceeds since life insurance proceeds are an entitlement of the policy’s designated beneficiary, regardless of who pays the premiums.

The dissent further concluded that “the policy considerations at the second stage of the juristic reason analysis would nevertheless favor the denial of restitution to Michelle” (Moore, para 139). The Insurance Act, RSO 1990 is drafted in such a way to facilitate the quick payment of life insurance proceeds and immunize beneficiaries from any claims from the insured’s creditors. However, this does not mean that the act provides a juristic reason negating an unjust enrichment claim. The Act provides for a beneficiary’s entitlement to the payment of proceeds but it does not preclude the existence of rights outside its provisions (Shannon v Shannon,  50 OR (2d) 456, p 461)

Although some may find the dissent’s policy considerations convincing, the majority’s decision has left the option open for the Legislature to provide the “irresistible clearness” in the Insurance Act to dismiss a clam in unjust enrichment and contract- a favorable compromise between policy and equity. Furthermore, the purpose of equity is to fill the gaps left by the common law that results in an injustice. Michelle was misled to pay the premiums when the insurance proceeds would go to Risa. Allowing Lisa to retain these premiums would be unfair. It was accepted that Michelle would have stopped paying the premiums had she known she was no longer the beneficiary, and the policy would have expired without her payments. The dissent favored form and policy at the expense of fairness. Though their reasoning is convincing, they fail to remember equity’s purpose within the law and that an unjust enrichment claim will not succeed where a statute dismisses these claims or the connection between enrichment and deprivation is merely casual.

Concluding Thoughts

The uncertainty within the law over when a constructive trust is an appropriate remedy for a successful unjust enrichment claim has now been clarified by the SCC. The default remedy for this claim is the personal remedy of a debt or monetary obligation, not a constructive trust. However, where a plaintiff establishes that the default remedy is inadequate and that there is a link between their contributions and the disputed property, then a remedial constructive trust will be granted.

Insurers may now find themselves in a difficult position when a non-beneficiary challenges a beneficiary’s entitlement through litigation. However, a non-beneficiary will still have the onus of proving that the beneficiary was enriched at their corresponding deprivation, which may prove difficult. The connection between enrichment and deprivation must identify the plaintiff as the proper person to seek restitution; a mere belief that an insured should have named a plaintiff as beneficiary is not enough. Insurers may want to pay the proceeds into the court to protect itself from potential delay claims by the designated beneficiary.

It has been debated whether the SCC’s decision in this case has made it more difficult to plan transfers of property. Nevertheless, the legislature has the option to dismiss unjust enrichment claims with the clearness required by explicitly precluding recovery in the statute. It will be interesting to see if the legislature responds to this ruling by providing the ‘irresistible clearness’ in the Insurance Act necessary to dismiss future unjust enrichment claims against policy beneficiaries.