Supreme Court decision on life insurance guided by fairness

By Staff

A recent Supreme Court of Canada ruling shows how judges are guided in their decision-making by a sense of fairness, says Toronto family lawyer Ken H. Nathens.

A 7-2 majority of the nation’s top court concluded that the common-law partner of a deceased insurance policyholder was unjustly enriched when she was named its beneficiary, even though 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 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, as provided for in the province’s Insurance Act.

“In my view, the court went out of its way to assist the former wife by using the equitable remedy of a constructive trust to get around the provisions of the Insurance Act,” Nathens, partner with Nathens, Siegel Barristers LLP, tells “The decision shows a sense of fairness, and the whole concept of equity is to fill in gaps in statutory law.”

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, with the understanding that she would receive the 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 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 Supreme Court, the majority sided with the ex-wife, concluding that the earlier agreement meant the irrevocable designation was no longer the deceased’s to make.

Writing for the majority, Justice Suzanne Côté found 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.

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