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Supreme Court provides guidance on unjust enrichment claims

A recent Supreme Court of Canada case clarifies the law of unjust enrichment, Toronto-area family lawyer Reesa Heft tells

A 7-2 majority of the nation’s top court found 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 Ontario’s 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.

“I was more surprised by the Court of Appeal decision because I think there was always a strong unjust enrichment argument to be made here,” says Heft, founder and principal of Heft 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 on 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 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.

However, at the Supreme Court, 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.

“Just because he was the owner of the policy didn’t mean he had the ability to make beneficiary designation changes because of the long-term nature of the marriage and the oral agreement he made with his first wife,” Heft says. “The Insurance Act talks about a regime of revocable and irrevocable beneficiaries, but that doesn’t rule out the possibility of unjust enrichment.”

Still, she acknowledges the decision may cause some discomfort to people who have been named as irrevocable life insurance beneficiaries, including many former spouses who use such policies to secure support payments as part of separation agreements.

“They were all feeling pretty comfortable, but now the door has been opened to potentially usurp that comfort,” Heft says.

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 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. 

Heft says the case was made more difficult because of the sympathetic nature of the common-law spouse of the deceased, who is disabled and impecunious, adding that the appeal court majority and Supreme Court minority may have been somewhat swayed by that fact in their decision-making.

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