Nov 25, 2018

Law Versus Equity in Moore v Sweet

Moore v. Sweet, 2018 SCC 52 (CanLII)

The Supreme Court of Canada has affirmed the paramountcy of judge-made rules of equity over statute law in a difficult case. An ex-wife, Michelle Moore, and a new common law wife, Risa Sweet, both claimed the proceeds from the insurance policy on the life of the late Mr. Moore.

Michelle, the ex-wife, was originally the designated beneficiary on the insurance policy. For that reason, she continued to pay the premiums on the insurance policy after she divorced Moore, for 13 years until his death.

Unbeknownst to Michelle, Moore officially designated Risa as the irrevocable beneficiary of the policy. He was entitled to do so pursuant to the Insurance Act, RSO 1990, as the legal owner of the policy.

The Insurance Act purports to be able to create the status of irrevocable beneficiary. The majority at the SCC decided that the rules of equity enabled them to revoke that status from Risa.


Lower Courts

The issues in this case were not simple to adjudicate. At first instance, Wilton-Siegel J. awarded the life insurance proceeds to Michelle. His view was that she had a constructive trust interest and would be unjustly deprived if the money went to Risa.

The majority at the Court of Appeal reversed this decision, and awarded the proceeds to Risa (while refunding to Michelle the $7000 in premiums that she had paid to maintain the policy in the years after she divorced Moore).

The majority took what one might consider a “small e” view of equity, in the original sense of what is considered subjectively fair. They noted that Risa is disabled and of limited means. She had supported Moore for 13 years through ill-health and dependence on alcohol. Moreover, the original purpose of the insurance policy had been to provide for the Moore children, who were now adults. From this point of view, they appeared to believe that, far from being unjustly enriched, the $250,000 would be appropriate compensation for Risa for what she had done for Moore, and it was fitting that he had made her his beneficiary:

[64] … Mr. Moore was a man of limited means, living in the post-separation period on a disability pension, and suffering from the disabilities associated with his physical, mental and substance abuse issues. Ms. Sweet – who is herself disabled – took care of Mr. Moore and, for practical purposes, provided him with a home, a place to live, and a supportive family during the 13 years of their relationship.

[65] There is little, if any, evidence on the record as to Ms. Moore’s present financial needs. She continues to live in the former matrimonial home after Mr. Moore’s transfer of his one-half interest at the time of separation. Ms. Sweet would appear from the record to be in financial need. Indeed, her evidence is that she was made a beneficiary of the Policy because Mr. Moore wanted to ensure that she would be able to remain in the apartment home that she had occupied for 40 years by the time of his death.

[66] On these facts, it cannot be said that Ms. Sweet is no more than a volunteer who gave nothing in exchange for being named irrevocable beneficiary, or that she is simply the recipient of a windfall. She was a 13-year spouse with heavier than normal caregiving duties (both she and Mr. Moore were disabled in varying degrees) and was the person primarily responsible for the home that they lived in.[1]

By contrast, a strong dissent by Lauwers J.A., echoed by the majority at the SCC, took a more technical approach grounded in the jurisprudence of unjust enrichment at the Supreme Court.


The Supreme Court Finds that the Contract Supports Unjust Enrichment

The dissenting minority of two judges at the SCC echoed the view of the majority at the Court of Appeal. They held that Risa’s enrichment did not constitute a corresponding deprivation for Michelle.

The majority at the SCC felt that it was necessary to overlook the fact that Michelle had only paid $7000 in premiums and now stood to gain $250,000. Here, equity became the partner of the common law of contracts, to uphold Michelle’s expectation interest under her contract with Moore. Writing for the majority, Côté J. made it clear that in other cases the outcome might be different, but in this case the key to the decision was a finding that there was a contract between Michelle and Moore that she would receive the proceeds of the insurance policy in exchange for paying the premiums on it:

[46] ….With respect to the extent of Michelle’s deprivation, my view is that the quantification of her loss should not be limited to her out-of-pocket expenditures — that is, the $7,000 she paid in premiums between 2000 and 2013. Pursuant to her contractual obligation, she made those payments over the course of 13 years in exchange for the right to receive the policy proceeds from the Insurance Company upon Lawrence’s death. In breach of his contractual obligation, however, Lawrence instead transferred that right to Risa…. At the end of the day, therefore, what Michelle lost is not only the amount she paid in premiums. She stands deprived of the very thing for which she paid — that is, the right to claim the $250,000 in proceeds.

[47] To be clear, therefore, Michelle’s entitlement under the Oral Agreement is what makes it such that she was deprived of the full value of the insurance payout. In other cases where the plaintiff has some general belief that the insured ought to have named him or her as the designated beneficiary, but otherwise has no legal or equitable right to be treated as the proper recipient of the insurance money, it will likely be impossible to find either that the right to receive that insurance money was ever held by the plaintiff or that it would have accrued to him or her. In such cases, the properly designated beneficiary is not enriched at the expense of a plaintiff who had no claim to the insurance money in the first place — the result being that the plaintiff will not have suffered a corresponding deprivation to the full extent of the insurance proceeds… [underlining added]

Relying on the contract, the majority therefore was able to conclude that Michelle would suffer a deprivation corresponding to Risa’s enrichment.


The Beneficiary Designation Under the Insurance Act did not Create a Juristic Reason to Prevent the Ex-Wife’s Claim

The additional requirement to create a constructive trust for Michelle is to find that there was no juristic reason for Risa’s enrichment. This is where the majority’s reasoning takes an unexpected twist.

If Moore was the owner of the insurance policy, the Insurance Act explicitly allowed him to designate Risa as his beneficiary. However, the majority held that, having ceded his right by contract, equity prevents him from being considered an owner who has the right to designate a new beneficiary. The Insurance Act did not consider this possibility, and therefore its strong language about beneficiary designations did not constitute a juristic reason to give the proceeds to the designated beneficiary, Risa. The legislative drafters would have to wake up very early in the morning and think of all the possibilities if they want to preclude the power of a court of equity:

[70] At issue in this case, however, is whether a designation made pursuant to ss. 190(1) and 191(1) of the Insurance Act provides any reason in law or justice for Risa to retain the disputed benefit notwithstanding Michelle’s prior contractual right to remain named as beneficiary and therefore to receive the policy proceeds. In other words, does the statute preclude recovery for a plaintiff, like Michelle, who stands deprived of the benefit of the insurance policy in circumstances such as these? In my view, it does not. Nothing in the Insurance Act can be read as ousting the common law or equitable rights that persons other than the designated beneficiary may have in policy proceeds. As this Court explained in Rawluk v. Rawluk, … the “legislature is presumed not to depart from prevailing law ‘without expressing its intentions to do so with irresistible clearness’” .… By contrast, while the Insurance Act provides the mechanism by which beneficiaries can be designated and therefore become statutorily entitled to receive policy proceeds, no part of the Insurance Act operates with the necessary “irresistible clearness” to preclude the existence of contractual or equitable rights in those insurance proceeds once they have been paid to the named beneficiary.


Looking to the Future


It could be argued that the SCC has increased uncertainty in this area. The option of making an irrevocable beneficiary designation is an important characteristic of life insurance policies in many countries. The mechanism exists in order to give certainty, and the creation of an irrevocable beneficiary designation is often included as a term of a separation agreement.

If somebody wanted security in an agreement about a beneficiary designation, the status of irrevocable beneficiary provided under the Insurance Act would in the past have been thought to provide perfect security. That is not the case any longer, as the SCC has undermined that status. There are numerous ex-spouses who have been designated as irrevocable beneficiaries. It appears that they are now at risk, e.g., if it turns out that the person making that designation had made a prior promise to somebody else.

The dissenting minority at the SCC provided strong arguments that the Insurance Act should have been viewed as a sufficient juristic reason, and cited various pieces of evidence regarding legislative intent.

It will be interesting to see if the Legislature will take the step of amending the Insurance Act to restore the term "irrevocable beneficiary" to meaning what it says. An analogous situation arose in a 2012 decision of the Court of Appeal, concerning a conflict between a deceased man’s first wife and common law wife over his pension. The general view was that the court’s disposition in that case had been unfair and contrary to legislative intent.[2] The Pension Benefits Act, RSO 1990, was subsequently amended in 2014 to prevent this type of outcome in future cases.


[1] Moore v. Sweet, 2017 ONCA 182

[2] Carrigan v. Carrigan Estate, 2012 ONCA 736.