Trust Imposed on Insurance Policy

Trust Imposed on Insurance Policy - Disinherited

The Supreme Court of Canada in a landmark unjust enrichment case Moore v Sweet 2018 SCC 52  imposed a constructive trust on the proceeds of a life insurance policy in favour of the life insured’s former spouse.

The life insured and owner of the policy, had orally agreed with his former spouse that he would retain her as the beneficiary of his life insurance policy, if she paid the insurance premiums.

She did in fact pay the insurance premiums of $7000 after her separation from the deceased, but he broke his promise to her by appointing his new partner as the irrevocable beneficiary.

The policy paid out $250,000 and the deceased left an insolvent estate.

The plaintiff succeeded at trial, which was overturned on appeal, limiting her claim to the amount of the premiums that she paid, but succeeded in the Supreme Court of Canada, which imposed a trust in the proceeds of the insurance proceeds in favour of the first spouse who had made the payments.

To succeed in the claim of unjust enrichment, the plaintiff must prove:

  1. An enrichment;
  2. a corresponding deprivation;
  3. no juristic reason for the enrichment.

A simple example might be a gift, where one party is enriched, another party suffers a corresponding detriment, but the intention is to make a gift and that is a juristic reason entitling the person to keep ownership of the gift.

The Supreme Court of Canada approached the claim on the basis of the claimant having an equitable claim, as opposed to a purely contractual claim which would have limited or her damages to the amount of the premiums that she paid.

Instead the court awarded her the $250,000 insurance proceeds.

At paragraphs 39 – 40, the court set out the two questions raised on appeal:

  1. What is the proper measure of the deprivation, and in what sense does it correspond to the opposing parties gain;
  2. Does the Insurance act provided juristic reason for the second spouses enrichment, and if not, is there another basis for finding a juristic reason.

The majority answered the first question by finding that the measure of the deprivation was the full amount of the insurance proceeds. She had held up her end of the bargain by paying the premiums, and did not predecease the deceased. The change in beneficiary resulted in her being deprived of the very thing for which she paid – that is the right to claim the $250,000 in proceeds.

In answer to the second question, there was a difference of opinion amongst the judges as to whether it was necessary or not to show that there was some juristic reason for the fact that the defendant was enriched, and there was thus no need to demonstrate that the enrichment and the corresponding deprivation occurred without a juristic reason (at paragraph 62)

The court stated that while the Insurance act may provide for the beneficiary’s entitlement to payment of the proceeds, it did not specifically preclude the existence of rights outside it’s provisions. By not ousting prior contractual or contractual rights of 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.( At paragraph 73)

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