In this post, the lawyers at our Vancouver estate law firm discuss a contest between two innocent parties, both of whom claimed an entitlement to the proceeds of a life insurance policy. Specifically, the main issue was whether an irrevocable beneficiary designation made pursuant the Insurance Act provides a reason at law for a second spouse to retain insurance proceeds in light of the first spouse’s claim to the money. Relying on the equitable doctrine of unjust enrichment, the disappointed first spouse in Moore v. Sweet, 2018 SCC 52, won out over the irrevocably designated second spouse. The Supreme Court of Canada concluded the provisions of the Insurance Act do not oust the common law or equitable rights that persons other than the designated beneficiary may have in policy proceeds.
Facts in Moore v. Sweet summarized by our Vancouver estate law team
Lawrence Moore purchased a life insurance policy in 1985, naming his then-wife Michelle as revocable beneficiary. The annual policy premium was paid out of the couple’s joint bank account until 2000, just after Michelle and Lawrence separated. Following their separation, Michelle and Lawrence entered into an oral agreement that Michelle would pay the premiums and be entitled to the proceeds of the policy on Lawrence’s death. Michelle paid all premiums on the policy until Lawrence’s death in 2013. By then, about $7,000 had been paid by Michelle since 2000. Michelle did not discover until after Lawrence’s death that he had changed the beneficiary designation on the policy in 2000, naming his new common-law wife Risa as the irrevocable beneficiary. When Lawrence passed away, the proceeds were payable to Risa, not Michelle, who had been paying the premiums out of her pocket for 13 years. Michelle brought a claim seeking to have the insurance proceeds impressed with a remedial constructive trust in her favour on the basis of the doctrine of unjust enrichment.
Vancouver estate law: Doctrine of unjust enrichment
In order to obtain a remedy on the basis of unjust enrichment, the plaintiff must establish three elements:
- An enrichment of or benefit to the defendant;
- A corresponding deprivation of the plaintiff; and
- The absence of a juristic reason – in law or justice – for the enrichment.
The Supreme Court of Canada found that Michelle had established the first two elements (an enrichment and a corresponding deprivation). To succeed in her claim for the insurance proceeds, Michelle was next required to establish the third element: that there was no justification in law or equity for the fact that Risa was enriched at her expense.
Absence of a juristic reason
At its core, the doctrine of unjust enrichment is fundamentally concerned with reversing transfers of benefits that occur without any legal or equitable basis. The third element of an unjust enrichment claim is that the benefit and corresponding detriment must have occurred without a juristic reason (i.e., that there is no reason in law or justice for the defendant’s retention of the benefit conferred by the plaintiff, making its retention “unjust” in the circumstances of the case). The third element is essentially concerned with the justification for the defendant’s retention of the benefit conferred on him or her at the plaintiff’s expense — or, to put it differently, with whether there is a juristic reason for the transaction that resulted in both the defendant’s enrichment and the plaintiff’s corresponding deprivation. If there is, then the defendant would be justified in keeping or retaining the benefit received at the plaintiff’s expense, and the plaintiff’s claim would fail accordingly.
Juristic reason analysis proceeds in two stages
The Court in Moore v. Sweet affirmed a two-stage approach to juristic reason. This two-stage approach was designed to strike a balance between the need for predictability and stability on the one hand, and the importance of applying the doctrine of unjust enrichment flexibly, and in a manner that reflects our evolving perception of justice, on the other:
- The first stage requires the plaintiff to demonstrate that the defendant’s retention of the benefit at the plaintiff’s expense cannot be justified on the basis of any of the “established” categories of juristic reasons: a contract, a disposition of law, a donative intent, or other valid common law, equitable or statutory obligations. If any of these categories applies, the analysis ends; the plaintiff’s claim must fail because the defendant would be justified in retaining the disputed benefit. For example, a plaintiff would be denied recovery in circumstances where he or she conferred a benefit on a defendant by way of gift, since there is nothing unjust about a defendant retaining a gift of money that was made to him or her by (and that resulted in the corresponding deprivation of) the plaintiff.
- If the plaintiff successfully demonstrates that none of the established categories of juristic reasons applies, then he or she has established a prima facie case and the analysis proceeds to the second stage. At this stage, the defendant has an opportunity to rebut the plaintiff’s prima facie case by showing that there is some residual reason to deny recovery. The burden of proof falls on the defendant to show why the enrichment should be retained. In determining whether this may be the case, the court should have regard to two considerations: the parties’ reasonable expectations and public policy.
Analysis of the first stage in Moore v. Sweet
In Moore v. Sweet, Risa took the position that the Insurance Act required the proceeds of the policy to be paid exclusively to her as the validly designated beneficiary, such that the applicable legislation constituted a juristic reason to deny the recovery sought by Michelle. Put differently, the test was framed as follows: is there any aspect of the statutory framework that justified the fact that Risa was enriched at Michelle’s expense? If so, Michelle’s claim would necessarily fail.
Accepting that contractual rights to claim policy proceeds can exist outside of the Insurance Act, the Court concluded that an irrevocable designation under the Insurance Act did not constitute a juristic reason for Michelle’s deprivation. This is because the applicable statutory provisions do not require, either expressly or implicitly, that a beneficiary keep the proceeds as against a plaintiff such as Michelle, in an unjust enrichment claim, who stands deprived of his or her prior contractual entitlement to claim such proceeds upon the insured’s death. By not ousting prior contractual or equitable rights that third parties may have in such proceeds, the Insurance Act allows an irrevocable beneficiary to take insurance money that may be subject to prior rights and therefore does not give such a beneficiary any absolute entitlement to that money.
Analysis of the second stage in Moore v. Sweet
The second stage of the juristic reason analysis gives the defendant an opportunity to rebut the plaintiff’s prima facie case by establishing that there is some residual reason to deny recovery. At this stage, various other considerations come into play, like the parties’ reasonable expectations and moral and policy-based arguments — including considerations relating to the way in which the parties organized their relationship. On the facts, it was clear that both parties expected to receive the proceeds of the life insurance policy. Pursuant to the agreement she made with Lawrence, Michelle had a contractual right to remain designated as beneficiary so long as she continued to pay the premiums and kept the policy alive for the duration of Lawrence’s life. Risa, by contrast, expected to receive the insurance money upon Lawrence’s death because she had been validly designated as irrevocable beneficiary.
The Court concluded that because Risa was designated after Lawrence and Michelle entered into their agreement, Risa’s expectation could not take precedence over Michelle’s prior contractual right to remain named as beneficiary, regardless of whether Risa knew that this was the case. Other residual considerations favoured Michelle, given that her contribution towards the payment of the premiums actually kept the insurance policy alive and made Risa’s entitlement to receive the proceeds upon Lawrence’s death possible. The Court also held that it would be bad policy to ignore the fact that Michelle was effectively tricked by Lawrence into paying the premiums of a policy for the benefit of some other person of his choosing.
In the result, Michelle had made out each of the requisite elements of the cause of action in unjust enrichment. Check back for next week’s post on the remedy awarded by the Court.
Bottom line on use of unjust enrichment in Vancouver estate law
If you believe you may be entitled to life insurance proceeds but were not named as the beneficiary, contact our Vancouver estate law firm at (604) 900-2538 to schedule a free initial consultation. It may be open to you to bring a claim rooted in the equitable doctrine of unjust enrichment.