SCC decision 'classic example' of overlap between estates, family law
By AdvocateDaily.com Staff
The 7-2 majority decision by the nation’s top court ruled that the common-law partner of a deceased insurance policyholder was unjustly enriched when she was named its beneficiary because the dead man’s ex-wife had been paying the premiums for more than a decade.
The ruling overturned a majority decision by the Ontario Court of Appeal, which found that the deceased provided a “valid juristic reason” for his common-law wife to receive the $250,000 payout by designating her the irrevocable beneficiary under the policy.
“The Supreme Court really nailed it with this one,” says Joseph, managing partner of MacDonald & Partners LLP, who adds that the decision is a classic example of the overlap between estates and family law.
“This is one of those decisions that comes out every now and then that you can pull out and use as a solid, practical how-to guide for dealing with an unjust enrichment or constructive trust claim,” he says.
The case dates back to the end of the 20-year marriage between the successful appellant and the deceased in 1999. As part of an oral agreement made after their separation, the woman agreed to continue paying the premiums on his life insurance policy on the understanding that she would receive its proceeds when he died.
However, according to the decision, the deceased reneged on the agreement just nine months later, when he changed the beneficiary designation on the policy in favour of his common-law spouse, who was still living with him at the time of his death.
At the trial level, a Superior Court judge ruled in favour of the ex-wife, but a 2-1 majority of the province’s appeal court overturned that decision, finding that the irrevocable designation made under the Insurance Act, provided a “juristic reason” for the common-law spouse’s windfall, defeating the unjust enrichment claim.
But at the SCC, the majority sided with the ex-wife, concluding that the earlier agreement meant that the irrevocable designation was no longer the deceased’s to make.
Writing for the majority, Justice Suzanne Côté, found that the oral agreement was binding, and could not be automatically overridden by an irrevocable designation under the Insurance Act.
As a result, she concluded that all three elements of the test for unjust enrichment, which require the defendant to be enriched, the plaintiff to suffer a corresponding deprivation, and the absence of a juristic reason for the enrichment, were met.
“Because each of [the ex-wife’s] payments kept the policy alive, and given that [the common-law spouse’s] right as designated beneficiary necessarily deprived [the ex-wife] of her contractual entitlement to receive the entirety of the insurance proceeds, I would impose a constructive trust to the full extent of those proceeds in [the ex-wife’s] favour,” Côté added.
The dissenting judges said in their reasons that they would have disallowed the unjust enrichment claim on the basis that the deprivation and enrichment in this case did not correspond well enough to one another. They would instead have considered the ex-wife a creditor of the deceased’s estate with no claim on the policy proceeds.
Joseph, who was not involved in the matter and comments generally, says the dissent makes a compelling case, possibly enhanced by the sympathetic nature of the common-law spouse of the deceased, who is disabled and impecunious.
“It’s hard to think of unjust enrichment when you see her situation,” he says. “Both parties were innocents here, and were really taken advantage of by the deceased, which made for a really vigorous dissent.”
In addition, Joseph says the case is a must-read for family lawyers using standard separation agreements where life insurance is a factor, particularly since many use such policies to secure future support payments.
“There are a few cautionary tales in there. These insurance policy provisions are a minefield waiting to go off for family lawyers, and this is a reminder of the potential liability arising from them,” he says.