Oldfield v. Transamerica Life Insurance Company of Canada et al. [Indexed as: Oldfield v. Transamerica Life Insurance Co. of Canada]

49 O.R. (3d) 737

[2000] O.J. No. 2793

Docket No. C31402

Court of Apppeal for Ontario

Austin, Borins and Feldman JJ.A.

August 1, 2000

*An appeal from the following judgment of the Ontario Court of Appeal to the Supreme Court of Canada (McLachlin C.J., L'Heureux-Dubé, Gonthier, Iacobucci, Major, Bastarache, Binnie, Arbour and LeBell JJ.) was dismissed on March 8, 2002. S.C.C. File No. 28163. S.C.C Bulletin, 2002, p. 380. See 2002 49463 (ON SC), 59 O.R. (3d) 160 and 2002 SCC 22, [2002] S.C.J. No. 23 (2002 SCC 22).

Insurance -- Life insurance -- Insured obligated under terms of separation agreement to maintain life insurance coverage in lieu of child and spousal support -- Insured's wife named as beneficiary in life insurance policy issued by insurer -- Insurer agreeing to pay face amount of policy to beneficiary if insured died while policy was in force -- Insured dying accidentally as result of ingestion of cocaine while policy was in force -- Insurer contractually obliged to pay face amount of policy to insured's wife -- Insurer not entitled to relief from that obligation on basis of rule of public policy which disentitles insured to recover under insurance policy if to do so would allow him or any person claiming under him to benefit from his deliberate criminal conduct -- Insured not intending to cause his death -- Wife not implicated in insured's crime -- Wife asserting right to insurance proceeds as ordinary beneficiary and not as successor of insured.

The insured died of cardio-respiratory arrest due to cocaine intoxication resulting from the rupture of one of 30 bags of cocaine found in his stomach. At the time of his death, he was insured under a policy of life insurance issued by the defendant insurer which named his wife, the plaintiff, as beneficiary. The insured and the plaintiff were separated and, under the terms of a separation agreement, the insured was obligated to maintain life insurance coverage in lieu of child and spousal support. The defendant took the position that the plaintiff was precluded from receiving the life insurance proceeds on the ground that a person should not be allowed to insure against his or her own criminal act irrespective of the ultimate beneficiary of the insurance policy. The plaintiff brought an action for a declaration that she was entitled to the life insurance proceeds. The trial judge allowed the action, holding that the rule of public policy that the courts will not recognize a benefit accruing to a criminal from his or her crime did not bar the claim of the plaintiff as a named beneficiary in the life insurance policy issued by the defendant. The defendant appealed.

Held, the appeal should be dismissed.

Per Borins J.A. (Austin J.A. concurring): Under the insurance contract, the defendant agreed to pay the face amount of the policy to the plaintiff if the insured died while the policy was in force, "subject to the provisions" of the policy. The insured died while the policy was in force and there were no provisions in the policy which qualified in any manner the defendant's obligation to pay the face amount of the policy to the plaintiff. The insured died accidentally while committing the crime of being in possession of a narcotic. The plaintiff did nothing to assist the insured in the commission of the crime and did nothing that contributed to the death. The insured did not intend to kill himself in order that the plaintiff would receive the insurance proceeds. There was nothing ambiguous about the insurance contract. The defendant was contractually obligated to pay the plaintiff the face amount of the policy.

The defendant submitted that the court should relieve it from that contractual obligation and advanced two grounds in support of that submission. The first ground was that an insurance policy should be construed to preclude coverage arising from a loss caused by the criminal conduct of the owner of the policy. The second ground was said to be a rule of public policy which disentitles an insured to recover, or to be indemnified, under an insurance policy if to do so would allow the insured, or any person claiming under the insured, to benefit, directly or indirectly, from his or her own deliberate criminal conduct. The facts did not support the application of the first ground. The insured, by his criminal act, did not cause his own death. To construe the policy to give effect to the presumption that the defendant did not agree to insure the insured against a criminal act to bring about his own death, the intentional act of the insured would have to have been swallowing the narcotics for the purpose of taking his own life to make the insurance proceeds available for the plaintiff. The facts did not support that finding. The parties agreed that the death was accidental. The second ground was also not supported by the facts. Assuming that the insured's ingestion of the narcotic-filled condoms was a deliberate criminal act, neither he nor his estate had sought to benefit, directly or indirectly, from that criminal act. The plaintiff's claim arose because she was named in the policy as beneficiary pursuant to the insured's obligation to do so consequent to a provision of their separation agreement. She had not asserted her right to the insurance proceeds as a successor of the insured, but as an ordinary beneficiary, with the result that her claim was not tainted by any illegality on the part of the insured. Where a crime is committed by an insured, and the insured did not intend to cause his death through the commission of the crime, the beneficiary named in a policy insuring against accidental death, not being the estate of the insured, is not precluded from taking the insurance proceeds because the rule of public policy does not apply.

To apply the public policy rule in favour of the defendant and to deny the plaintiff recovery would be to penalize her for the insured's criminal activities. The public policy goal which the defendant had asked the court to apply was the enforcement of the criminal law. Penalizing the plaintiff was not going to achieve the public policy goal of the enforcement of the law pertaining to unlawful possession of drugs and narcotics.

Per Feldman J.A. (concurring; Austin J.A. concurring): The authorities relied on by the defendant did not establish a new rule of construction of life insurance contracts which implies a term that such contracts will not cover a loss occasioned by a criminal act of the insured where the act was not intended to cause the insured loss but accidentally did so. This case, therefore, fell to be decided on the issue of the application of the rule of public policy against criminals benefiting from their own crimes. For the reasons given by Borins J.A., that rule did not apply on the facts of this case to preclude recovery of the insurance proceeds by the plaintiff.

APPEAL by the defendant from a judgment of Ferguson J. (1998), 1998 14722 (ON SC), 43 O.R. (3d) 114, [1999] I.L.R. 1-3631 (Gen. Div.) allowing the plaintiff's action for a declaration of entitlement to insurance proceeds.

Stats v. Mutual of Omaha Insurance Co. (1976), 1976 50 (ON CA), 14 O.R. (2d) 233, 73 D.L.R. (3d) 324, [1976] I.L.R. 1-816 (C.A.), affd 1978 38 (SCC), [1978] 2 S.C.R. 1153, apld Beresford v. Royal Insurance Co. Ltd., [1938] 2 All E.R. 602, [1938] A.C. 586, 107 L.J.K.B. 464, 158 L.T. 459, 54 T.L.R. 789, 82 Sol. Jo. 431 (H.L.); Brissette Estate v. Westbury Life Insurance Co., 1992 32 (SCC), [1992] 3 S.C.R. 87, 96 D.L.R. (4th) 609, 142 N.R. 104, [1992] I.L.R. 1-2888, 47 E.T.R. 109 (sub nom. Brissette Estate v. Crown Life Insurance Co.); Deckert v. Prudential Insurance Co., 1943 110 (ON CA), [1943] O.R. 448, [1943] 3 D.L.R. 747 (C.A.); Dunbar v. Plant, [1997] 4 All E.R. 289 (C.A.); Hardy v. Motor Insurers' Bureau, [1964] 2 Q.B. 745, [1964] 2 All E.R. 742, [1964] 3 W.L.R. 433, 108 Sol. Jo. 422 (C.A.); Schilling Estate v. Transamerica Life Insurance Co. of Canada (1997), 1997 26860 (ON CJ), 40 C.C.L.I. (2d) 237 (Ont. Gen. Div.), affd (1997), 1997 14514 (ON CA), 108 O.A.C. 306; Vijeyekumar v. State Farm Mutual Automobile Insurance Co. (1999), 1999 1640 (ON CA), 44 O.R. (3d) 545, 175 D.L.R. (4th) 154, [1999] I.L.R. 1-3726, 44 M.V.R. (3d) 280 (C.A.), affg (1998), 1998 14669 (ON SC), 38 O.R. (3d) 590, [1998] I.L.R. 1-3592, 37 M.V.R. (3d) 105 (Gen. Div.), consd Other cases referred to Cleaver v. Mutual Reserve Fund Life Association, [1892] 1 Q.B. 147, [1891-4] All E.R. Rep. 335 (C.A.); Demeter v. Dominion Life Assurance Co. (1982), 1982 1766 (ON CA), 35 O.R. (2d) 560, 132 D.L.R. (3d) 248, [1982] I.L.R. 1-1501, 11 E.T.R. 209 (C.A.); Gray v. Barr, [1971] 2 Q.B. 554, [1971] 2 All E.R. 949, [1971] 2 W.L.R. 1334, 115 Sol. Jo. 364 (C.A.); Irwin Estate v. Cumis Life Insurance Co. (1997), 1997 12190 (ON SC), 36 O.R. (3d) 634, 154 D.L.R. (4th) 177, [1998] I.L.R. 1-3501 (Gen. Div.); Kerslake v. Gray, 1957 13 (SCC), [1957] S.C.R. 516, 8 D.L.R. (2d) 705, [1957] I.L.R. 1-269 Statutes referred to Forfeitures Act 1982 (U.K.), s. 2 Insurance Act, R.S.O. 1990, c. I.8, s. 118 Narcotic Control Act, R.S.C. 1985, c. N-1 (rep. 1996, c. 19), s. 3(1), (2) Rules and regulations referred to Rules of Civil Procedure, R.R.O. 1990, Reg. 194, Rule 22 Authorities referred to Farnsworth, Contracts, 2nd ed. (1990), pp. 345-55 Legh-Jones et al., MacGillivray on Insurance Law, 9th ed. (1997), p. 330 Waddams, The Law of Contracts, 4th ed. (Toronto: Canada Law Book, 1999), pp. 399-410

Paul J. Bates, for appellant, Transamerica Life Insurance Company of Canada. Scott McLeod, for respondent.

[1] BORINS J.A. (AUSTIN J.A. concurring): -- This is an appeal by Transamerica Life Insurance Company of Canada ("Transamerica") from the judgment of Ferguson J., reported in (1998), 1998 14722 (ON SC), 43 O.R. (3d) 114, [1999] I.L.R. 1-3631, which held that the rule of public policy that the courts will not recognize a benefit accruing to a criminal from his or her crime did not bar the claim of the beneficiary named in a life insurance policy issued by Transamerica. For the reasons that follow, I would dismiss the appeal.

Background

[2] The respondent, Maria Oldfield, and Paul Oldfield were married on April 1, 1984. They are the parents of two children who are now 10 and 14 years of age. They were separated in January 1995 and were not subsequently divorced. Although there was no written separation agreement, the respondent and her husband had an oral agreement that he would maintain sufficient life insurance coverage to provide child and spousal support until the children reached the age of 18, with Mrs. Oldfield to be maintained as the beneficiary of the insurance proceeds.

[3] At the time of the Oldfields' separation, there were four policies of insurance in the total amount of $600,000 on the life of Paul Oldfield, with the respondent named as the beneficiary. One of the policies, in the amount of $250,000, was issued by the appellant, Transamerica. The other policies were issued by The Manufacturers Life Insurance Company, which did not participate in the appeal. The appeal concerns only the Transamerica policy.

[4] On December 4, 1993, Transamerica issued a policy, owned by Paul Oldfield, insuring his life for $250,000, and naming Mrs. Oldfield as beneficiary. The policy contained the following provisions:

Incontestability of the Policy -- In the absence of fraud this policy will be incontestable after it has been in force during the Insured's lifetime for 2 years from the date of issue, or the date of reinstatement or change, whichever is latest, except for non-payment of premiums.

If the Insured dies while this policy is in force during its term period, Transamerica Life Insurance Company of Canada will pay the face amount to the Beneficiary subject to the provisions of this policy.

Who Receives the Proceeds -- Any proceeds payable because of the death of the Insured will be paid to the Beneficiary. Unless changed as provided in this policy, the Beneficiary will be as designated in the application.

Proof of Death -- Any proceeds payable because of the death of the Insured will be paid when we receive due proof of the Insured's death.

[5] On April 27, 1996, Paul Oldfield died in Bolivia. The cause of death was cardio-respiratory arrest due to cocaine intoxication resulting from the release of cocaine due to the rupture of one of 30 bags or condoms of cocaine which were found in Mr. Oldfield's stomach. The Bolivian coroner, Dr. Satt, reported that Mr. Oldfield's death was accidental.

[6] The proximate cause of Mr. Oldfield's death was his own criminal action in ingesting narcotics and, more particularly, the rupture in his stomach of one of 30 bags or condoms which he had ingested. The action of Mr. Oldfield was contrary to public policy, the laws of Canada (s. 3(1) and (2) of the Narcotic Control Act, R.S.C. 1985, c. N-1) and the laws of Bolivia. Consequently, Transamerica took the position that the respondent was precluded from receiving the proceeds of the insurance on the life of Paul Oldfield on the ground that a person should not be allowed to insure against his or her own criminal act irrespective of the ultimate beneficiary of the insurance policy.

[7] All of the above facts were agreed to by the parties in a special case which they submitted to the court pursuant to Rule 22 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194. The special case contained, in part, the following questions of law for the opinion of the court:

1. Is there a principle of contractual interpretation or an element of public policy that provides that a person should not be allowed to insure against his or her own criminal act irrespective of the ultimate payee of the proceeds of the insurance policy?

2. Are the insuring provisions of each of the Policies to be construed to provide for payment of a death benefit, when the proximate cause of the death of the owner/life insured was his own criminal act, namely ingesting narcotics? For the purposes of this matter, the insuring agreements to be construed are as follows:

(iii) The Transamerica Policy which states:

If the Insured dies while this policy is in force during its term period, Transamerica Life Insurance Company of Canada will pay the face amount . . .

3. Is there a public policy rule precluding recovery by the innocent beneficiary where the death of the owner/life insured was caused by his criminal acts?

4. Is there a countervailing public policy rule obligating parents to financially support their children and spouses which takes precedence over the public policy expressed in question #3?

[8] Ferguson J. answered the first question and third question in the negative and the second question in the affirmative. He found it unnecessary to answer the fourth question.

Reasons of the Trial Judge

[9] Ferguson J. described the issue contained in the special case as follows at p. 116:

The issue here is whether the rule that the courts will not recognize a benefit accruing to a criminal from his or her crime bars the claim of an innocent beneficiary named in a life insurance policy when the life insured dies accidentally as the result of his own criminal act.

[10] The trial judge outlined the facts arising from the special case agreed to by the parties. The following facts are relevant in respect to the conclusion which I have reached:

-- Mr. Oldfield purchased the life insurance policy from Transamerica.

-- He named Mrs. Oldfield as the beneficiary.

-- Under the terms of the policy, Transamerica was contractually bound to pay Mrs. Oldfield the face amount of the policy, $250,000, if Mr. Oldfield died while the policy was in force.

-- Pursuant to an oral separation agreement entered into between Mr. and Mrs. Oldfield at a time when the Transamerica policy had been issued and was in force, Mr. Oldfield agreed to maintain sufficient life insurance coverage in lieu of child and spousal support and that Mrs. Oldfield would be maintained as the beneficiary of the policy until the children reached age 18.

-- Mr. Oldfield made no support payments.

-- Mr. Oldfield's criminal act of being in possession of a narcotic was the cause of his death, which occurred during the commission of this crime.

-- Mr. Oldfield's death was accidental. He did not intentionally kill himself to enable Mrs. Oldfield to obtain the insurance proceeds.

-- Although the policy was in force on the date of Mr. Oldfield's death, Transamerica refused to pay Mrs. Oldfield the amount for which Mr. Oldfield had insured his life on the ground that it was relieved from doing so by the rule of public policy which precludes a criminal from obtaining a benefit as a result of his or her crime.

[11] Because I have reached the conclusion that Transamerica must honour its contractual obligation to pay Mrs. Oldfield the insurance proceeds on the basis of reasons somewhat different than those of the trial judge, I do not propose an extensive review of his reasons. However, it is helpful to set out the following outline of his analysis.

[12] The trial judge stated that there are two "common law rules" which relieve an insurer from its contractual obligations. At p. 118, he described the first rule in these terms:

Unless it provides otherwise an insurance policy contains an implied term that the insurance will not be payable if the person buying the policy intentionally causes the insured loss to occur.

He referred to this rule as the rule against deliberately causing the insured loss, stating that it is a rule that applies to the interpretation of insurance policies, and not a rule of public policy. I would give, as an example of this rule, the case where an insurer, under a homeowner's policy, is relieved from indemnifying an insured for a loss intentionally caused by the insured, such as intentionally setting fire to his or her property, absent a term to the contrary in the insurance policy. The trial judge concluded that this rule did not apply to the circumstances of this appeal because Mr. Oldfield did not kill himself intentionally to enable Mrs. Oldfield to obtain the insurance proceeds payable on his death.

[13] As for the second rule, the trial judge described it in these terms on p. 118:

It is an absolute rule (unless modified by statute as in the case of contracts of indemnity) that the courts will not recognize a benefit accruing to a criminal from his or her crime and that rule extends to anyone representing the criminal's estate or claiming a share of the estate as a beneficiary under his or her will or on intestacy or as a creditor.

He referred to this rule as the rule against persons benefitting from their crimes. Ferguson J. stated that this is a rule of public policy, referring to Beresford v. Royal Insurance Co. Ltd., [1938] 2 All E.R. 602, [1938] A.C. 586 (H.L.) in which each of the two rules was discussed.

[14] With due respect to the trial judge, I have difficulty in understanding his analysis of this rule and his admittedly "complicated review of . . . the earlier cases" (p. 130), although there is no mistaking his reasons for his ultimate conclusion, which are reproduced below. Among the authorities which he discussed in addition to Beresford are Irwin Estate v. Cumis Life Insurance Co. (1997), 1997 12190 (ON SC), 36 O.R. (3d) 634, 154 D.L.R. (4th) 177 (Gen. Div.); Stats v. Mutual of Omaha Insurance Co. (1976), 1976 50 (ON CA), 14 O.R. (2d) 233, 73 D.L.R. (3d) 324 (C.A.), affirmed 1978 38 (SCC), [1978] 2 S.C.R. 1153; Brissette Estate v. Westbury Life Insurance Co., 1992 32 (SCC), [1992] 3 S.C.R. 87, 96 D.L.R. (4th) 609; Cleaver v. Mutual Reserve Fund Life Association, [1892] 1 Q.B. 147, [1891-4] All E.R. Rep. 335 (C.A.); Deckert v. Prudential Insurance Co. of America, 1943 110 (ON CA), [1943] O.R. 448, [1943] 3 D.L.R. 747 (C.A.); Demeter v. Dominion Life Assurance Co. (1982), 1982 1766 (ON CA), 35 O.R. (2d) 560, 132 D.L.R. (3d) 248 (C.A.); and Schilling Estate v. Transamerica Life Insurance Co. (1997), 1997 26860 (ON CJ), 40 C.C.L.I. (2d) 237 (Ont. Gen. Div.), affirmed by a brief endorsement of this court on December 12, 1997 [reported 1997 14514 (ON CA), 108 O.A.C. 306].

[15] Relying on the decision of this court in Stats, Ferguson J. concluded that the circumstances of this case did not bring it within the public policy rule that the courts will not recognize a benefit accruing to a criminal from his crime, nor to any person representing the criminal's estate or claiming a share of his estate as a beneficiary under his or her will. In doing so, he distinguished Schilling on its facts, as that case involved a claim by the children of the insured criminal, through his estate, of life insurance proceeds derived from the wrongdoing of the insured.

[16] As well, the trial judge at p. 131 referred to obiter dicta of Lord Atkin and Lord MacMillan in Beresford to the effect that the public policy rule might not affect the rights of third parties, such as a lender to whom an insurance policy has been assigned as security. He then returned to Stats, and at p. 132 of his reasons applied the following passage from Blair J.A.'s reasons in Stats at p. 240:

The criminal act does not vitiate the policy but merely prevents the enforcement of rights under the policy by the person guilty of the criminal act and those who claim through him "as representing his estate or claiming a share of his estate as a beneficiary under his will or on intestacy or as creditor": MacGillivray & Parkington on Insurance Law, 6th ed. (1975), p. 237, para. 576. Certainly, not all persons who might benefit from an insurance policy are barred, but only a limited group of persons whom the law regards as successors of the assured.

[17] Ferguson J. continued at p. 132:

There is a long line of English authority acknowledging that a person who claims on the ground of an interest acquired in good faith for value is not in the prohibited class and I do not think our appellate courts would reject that authority without expressly saying so. It is clear that Lord Atkin in Beresford thought the public policy had no application to such situations. The Court of Appeal in Stats came to the same conclusion although it did not review all the old cases (at p. 241).

[18] The trial judge then discussed two 19th century English cases which he believed created an exception to the public policy rule, and concluded as follows at p. 134:

My analysis is supported by the authors of MacGillivray & Parkington on Insurance Law at para. 480 and following although they suggest that the only interests to which the public policy rule does not apply are irrevocable interests such as those of an assignee or mortgagee: para. 483. I do not understand what they mean by "irrevocable" interests because an assignment or mortgage could be reversed. It seems to me that the exception applies to all bona fide interests acquired for value. For example, as noted in the quote from Beresford the court there recognized that a lender who owned the policy was exempted from the public policy. There are numerous cases where the courts have taken a liberal view of how one can acquire an interest which will not be affected by the public policy rule: Cook v. Black (1854), 1 Hare 390; Dufaur v. The Professional Life Assurance Company (1851), 25 Beav. 599; White v. British Empire Mutual Life Assurance Co. (1868), L.R. Eq. 394; City Bank v. Sovereign Life (1884), 50 L.T. 565.

In my view in the case before me the interest of the wife in the policies owned by the husband was one she was legally entitled to in consequence of a bona fide contract and is in the category which is excluded from the public policy rule.

[19] The trial judge gave the following reasons for his conclusion that Mrs. Oldfield was entitled to the insurance on her husband's life at pp. 134-35:

There are two categories of policy here: those owned by the life insured and those owned by the widow.

The issue with respect to the first category was decided in Stats. Stats established that the public policy rule does not apply to the claims under the policy owned by the criminal in our case. Apart from Stats the claims would not be barred in any event because they fall under the exception for persons with a bona fide interest obtained for valuable consideration.

The issue of whether the public policy ban applies to both categories can be considered by asking two questions put by Plaxton J. in Deckert, at p. 462: Would the enforcement of the policy against the insurer in the circumstances of this case be contrary or obnoxious to public policy? Is there any principle of public policy, settled by the decisions, applicable to this case? I agree with Philp J. in Irwin Estate who pointed out that in answering these questions one must focus on the claimant of the proceeds: at p. 641.

The enforcement of the claims in each category of policy here would not be contrary to public policy.

I return to the statement of the rule:

It is an absolute rule (unless modified by statute as in the case of contracts of indemnity) that the courts will not recognize a benefit accruing to a criminal from his or her crime and that rule extends to anyone representing the criminal's estate or claiming a share of the estate as a beneficiary under his or her will or on intestacy or as a creditor.

The claimant wife is not a criminal claiming the benefit of her crime. She is not claiming as the representative of the criminal in any of the categories listed. The benefit is not accruing to the criminal but to the named beneficiary. The wife's claim is bona fide; she had no part in the crime and her interest arose before the crime: Stats, at p. 242.

[20] Ferguson J. concluded as follows at p. 135: "Judgment shall issue declaring that no common law rule of interpretation nor any rule of public policy bars any of the plaintiff's claims."

Analysis

[21] It is my view that this appeal can be decided on the basis of the interpretation of the insurance contract entered into between Mr. Oldfield and Transamerica, the facts to which the parties have agreed and the application to the facts of the decision of this court in Stats. However, I would be remiss were I not to acknowledge the assistance which I have received from the general discussion of the subject of the unenforceability of contracts on grounds of public policy in E.A. Farnsworth, Contracts, 2nd ed. (1990), at pp. 345-55 and S.M. Waddams, The Law of Contracts, 4th ed. (Toronto: Canada Law Book, 1999), at pp. 399-410, as well as the discussion of the public policy rule that precludes a criminal, and those claiming under him or her, from claiming any benefit by virtue of the crime committed contained in the reasons of Phillips L.J. in Dunbar v. Plant, [1997] 4 All E.R. 289 at p. 304 et seq. (C.A.).

[22] As I have stated, the facts on which the appeal is to be decided were agreed to by the parties and are stipulated in the special case which they submitted to the court. They were accepted by Ferguson J. at pp. 116-17 of his reasons for judgment. As for the significant facts, I begin with the insurance contract. Under the contract, Transamerica agreed to pay the face amount of the policy, $250,000, to Mrs. Oldfield if the insured, Mr. Oldfield, died while the policy was in force, "subject to the provisions" of the policy. Mr. Oldfield died while the policy was in force. There are no provisions in the policy which qualify in any manner Transamerica's obligation to pay $250,000 to Mrs. Oldfield. Mr. Oldfield died accidentally while committing the crime of being in possession of a narcotic. Mrs. Oldfield did nothing to assist her husband in the commission of the crime. She did nothing that contributed to the death. He had swallowed a number of condoms which contained the narcotic. There is no evidence that he did so with the intent to kill himself in order that Mrs. Oldfield would receive the insurance proceeds. Mr. Oldfield owned the insurance policy for some time prior to his death. As a term of a separation agreement between himself and Mrs. Oldfield, he agreed to keep the policy in good standing in lieu of paying support to Mrs. Oldfield and their two children. At the time of his death, Mr. Oldfield was in compliance with this term of the separation agreement.

[23] It is a fundamental principle of the interpretation of insurance contracts, where a contract is unambiguous, that a court should give effect to the clear language, reading the contract as a whole: Brissette Estate, supra, at p. 92. There is nothing ambiguous about the insurance contract. As Mr. Oldfield died while the policy was in force, Transamerica is contractually obligated to pay Mrs. Oldfield the face amount of the policy.

[24] It is in the context of these facts, to which the parties agreed and Ferguson J. accepted, and the fundamental principle of the interpretation of insurance contracts, that Transamerica submits the court should relieve it from its contractual obligation to pay Mrs. Oldfield $250,000. Counsel for Transamerica advanced two grounds in support of his submission.

[25] The first ground is said by counsel to be a rule of construction. It is submitted that contracts of insurance are construed as protecting the insured against misfortune, and not against the insured's own criminal misconduct. Thus, an insurance policy should be construed to preclude coverage arising from a loss caused by the criminal conduct of the owner of the policy. Reliance was placed on the following statement of Lord Atkin in Beresford at p. 604:

On ordinary principles of insurance law an assured cannot by his own deliberate act cause the event upon which the insurance money is payable. The insurers have not agreed to pay on that happening. The fire assured cannot recover if he intentionally burns down his house, nor the marine assured if he scuttles his ship, nor the life assured if he deliberately ends his own life. This is not the result of public policy, but of the correct construction of the contract.

As pointed out in N. Legh-Jones et al., MacGillivray on Insurance Law, 9th ed., (1997), at p. 330:

There is a presumption in the case of every insurance contract that the assured cannot by his own intentional act bring about the event upon which the insurance money is payable and then recover under the policy. That is not the result of any rule of public policy, but of a prima facie rule of construction of the contract, by which it is presumed that the insurers have not agreed to pay on that happening.

As Mr. Oldfield's death occurred as a result of his commission of the crime of being in possession of narcotics, counsel for Transamerica submitted that the policy should be construed to relieve Transamerica from its contractual obligation to pay Mrs. Oldfield.

[26] The second ground is said to be a rule of public policy which disentitles an insured to recover, or to be indemnified, under an insurance policy if to do so would allow the insured, or any person claiming under the insured, to benefit, directly or indirectly, from his or her own deliberate criminal conduct. Reliance is placed on this statement of MacKinnon A.C.J.O. in Demeter at p. 562:

The basic rule of public policy which is not disputed is that the courts will not recognize a benefit accruing to a criminal from his crime nor to anyone claiming through the criminal.

Transamerica's position is that to require it to pay $250,000 to Mrs. Oldfield, who is the wife of the insured, would be contrary to public policy.

[27] As for the appellant's first ground, it is my view that the facts do not support its application. Mr. Oldfield, by his criminal act, did not cause his own death. In the words of Lord Atkin in Beresford, he did not "cause the event upon which the insurance money is payable". To construe the policy to give effect to the presumption that Transamerica did not agree to insure Mr. Oldfield against a criminal act to bring about his own death, the intentional act of Mr. Oldfield would have to have been swallowing the narcotics for the purpose of taking his own life to make the insurance proceeds available for his wife. The agreed facts do not support this finding. The parties have agreed that his death was accidental. Although the appellant, in para. 12 of its factum, does not concede that the death is accidental, this is contrary to the facts stipulated in the special case and upon which Ferguson J. decided the application. This is not a case analogous to one of the "fire assured [who] cannot recover if he intentionally burns down his house". The insurer would have the court imply a term into the contract that the policy does not apply to the accidental death of the insured occurring in the course of the commission of a criminal offence. I would not give effect to this ground of appeal.

[28] Nor would I give effect to the second ground of appeal, which is also not supported by the facts. The insurance policy being in good standing at the time of Mr. Oldfield's death and the insurer being required to pay the insurance proceeds to Mrs. Oldfield, the insurer would have the court relieve it of its contractual obligation on the ground that it is contrary to public policy to allow Mrs. Oldfield to benefit from her husband's criminal act of being in possession of a narcotic.

[29] Assuming that Mr. Oldfield's ingestion of the narcotic- filled condoms was a deliberate criminal act, neither he, because he is dead, nor his estate, has sought to benefit, directly or indirectly, from his criminal act. Mrs. Oldfield's claim arose because she was named in the policy as beneficiary pursuant to Mr. Oldfield's obligation to do so consequent to a provision of their separation agreement. She has not asserted her right to the insurance proceeds as a successor of the insured, but as an ordinary beneficiary, with the result that her claim is not tainted by any illegality on the part of her husband. Insurance monies payable to an ordinary beneficiary do not form part of the estate of the insured: Kerslake v. Gray, 1957 13 (SCC), [1957] S.C.R. 516 at p. 518, 8 D.L.R. (2d) 705.

[30] In my view, the circumstances of this case come within the decision in Stats where this court held that where a crime is committed by the insured, and the insured did not intend to cause her death through the commission of the crime, the beneficiary named in a policy insuring against accidental death, not being the estate of the insured, was not precluded from taking the insurance proceeds because the rule of public policy did not apply.

[31] In Stats a group accident policy provided for the payment of $25,000 to a named beneficiary where the death of the insured resulted from "accidental bodily injuries . . . while driving . . . any private passenger automobile". The insured died as a result of driving her car into a building while her ability to drive was impaired by alcohol. This court held that the insured's death was "accidental" within the meaning of the insurance policy and that the beneficiary's claim was not barred by the public policy rule. The insured appealed to the Supreme Court of Canada only in respect to the interpretation of the insurance policy. Therefore, in dismissing the appeal, the Supreme Court was not required to decide the public policy issue: Stats v. Mutual of Omaha Insurance Co., supra.

[32] Reference should be made also to Vijeyekumar v. State Farm Mutual Automobile Insurance Co. (1998), 1998 14669 (ON SC), 38 O.R. (3d) 590, [1998] I.L.R. 1-3592 (Gen. Div.), in which one of the issues was whether the rule of public policy relieved an insurer from paying death benefits to the insured's widow and daughter under his automobile insurance policy in circumstances where he was found dead of carbon monoxide poisoning while sitting in his car, with its engine running, in a closed garage. Molloy J. applied Stats in concluding that the public policy rule did not apply. In doing so, at pp. 628-29, she observed, as in this appeal, that the claim under the policy was not made through the insured's estate, that the claimants were not implicated in the insured's act of suicide and that there was no evidence that the insured's act of suicide was undertaken for the purpose of generating insurance proceeds for his widow and daughter. An appeal to this court by the insurer, but not in respect to the public policy issue, was dismissed: (1999), 1999 1640 (ON CA), 44 O.R. (3d) 545, 175 D.L.R. (4th) 154, leave to appeal to the Supreme Court of Canada was refused May 3, 2000.

[33] In my view, to apply the public policy rule in favour of Transamerica and to deny Mrs. Oldfield recovery would be to penalize her for Mr. Oldfield's criminal activities. The public policy goal which the insurer has asked the court to apply is the enforcement of the criminal law. Penalizing Mrs. Oldfield is not going to achieve the public policy goal of the enforcement of the law pertaining to unlawful possession of drugs and narcotics. Mr. Oldfield will not be deterred from committing further drug offences as he is dead. As I have indicated, Mrs. Oldfield neither slew her benefactor, nor was she implicated in his death, nor did he kill himself to generate the insurance proceeds for his widow.

[34] In Gray v. Barr, [1971] 2 Q.B. 554 at p. 582, [1971] 2 All E.R. 949 (C.A.), which concerned the public policy rule in the context of an indemnity policy, Salmon L.J. pointed out: "Public policy is not static." In Dunbar, at p. 304, Phillips L.J. considered it important to observe that the public policy rule is not absolute, and went on to demonstrate this from his review of the development and evolution of the rule. I see no reason to conclude that the rule should be regarded differently in Canada. I have found nothing in the reasons of Sopinka J. in Brissette Estate to suggest that it is different in Canada. Brissette Estate was not decided on the application of any rule of public policy, but on the interpretation of the insurance contract.

[35] To the extent that this court may be considered to have held in Schilling that the rule of public policy is absolute when, in a brief written endorsement, it agreed with the reasons of the trial judge, it is my view that Schilling is distinguishable on its facts. In Schilling, the crime of the insured precluded his children from recovering the insurance proceeds through his estate. The insured had named his wife as beneficiary and provided that, if she predeceased him, his estate would become the beneficiary. He murdered his wife and killed himself, with the result that his estate became the beneficiary. Even though his children were free from any connection with the crime, public policy precluded their recovery of the insurance proceeds through the insured's estate because they were derived from the crime of the insured. As well, as a member of the panel that decided Schilling, I would note that Dunbar was not brought to the attention of the court.

[36] In reviewing the evolution of the public policy rule in Dunbar, Phillips L.J. referred to the reasons of Diplock L.J. in Hardy v. Motor Insurers' Bureau, [1964] 2 Q.B. 745, [1964] 2 All E.R. 742 (C.A.), which considered the application of the rule in deciding whether there was valid third party liability coverage for the benefit of a person injured by the criminal conduct of the insured driver. At p. 307 Phillips L.J. quoted a passage from Diplock L.J.'s reasons which I consider to have application to the circumstances of this appeal:

The rule of law on which the major premise is based, ex turpi causa non oritur actio, is concerned not specifically with the lawfulness of contracts but generally with the enforcement of rights by the courts, whether or not such rights arise under contract. All that the rule means is that the courts will not enforce a right which would otherwise be enforceable if the right arises out of an act committed by the person asserting the right (or by someone who is regarded in law as his successor) which is regarded by the court as sufficiently anti-social to justify the court's refusing to enforce that right . . . The court's refusal to assert a right, even against the person who has committed the anti- social act, will depend not only on the nature of the anti-social act but also on the nature of the right asserted. The court has to weigh the gravity of the anti-social act and the extent to which it will be encouraged by enforcing the right sought to be asserted against the social harm which will be caused i f the right is not enforced.

(Emphasis added)

[37] In England, legislation has intervened to temper the rigours of the public policy rule, known in that country as the forfeiture rule, in respect to the crime of murder. The Forfeitures Act 1982 (U.K.) recognized the existence of the rule. The Act does not consider the rule to be absolute and, in s. 2, gives the court a discretion to make an order modifying the effect of the rule where, as s. 2(2) provides, "the justice of the case requires the effect of the rule to be so modified." Phillips L.J., however, was convinced that had there not been legislative intervention, the same result would have been achieved by the judiciary. In my view, the conclusion of Phillips L.J. at p. 310 applies to the circumstances of this case:

The rule is a judge-made rule to give effect to what was perceived as public policy at the time of its formulation. I believe that, but for the intervention of the legislature, the judges would themselves have modified the rule. Furthermore, it seems to me that the only logical way of modifying the rule would have been to have declined to apply it where the facts of the crime involved such a low degree of culpability, or such a high degree of mitigation, that the sanction of forfeiture, far from giving effect to the public interest, would have been contrary to it. Alternative suggestions that the rule should be restricted to cases of deliberate killing, or deliberate violence leading to death, do not cater for cases of diminished responsibility or provocation, where the mitigating features may be such as to render it particularly harsh to apply the forfeiture rule.

[38] Were I of the view that the facts of this case attracted the application of the rule of public policy, there are a number of reasons why it would be harsh to apply it. I have already referred to some of them in respect to the consequences of relieving Transamerica from its contractual obligation to pay the insurance moneys to Mrs. Oldfield. Another consideration is whether the culpability of Mr. Oldfield's criminal conduct was such as to justify the application of the public policy rule. From the agreed facts we know little about the circumstances attending to Mr. Oldfield being in possession of the narcotics. It is known that his stomach contained 30 condoms of cocaine and that he had puncture marks on his arms and wrists, from which it can be inferred he was a drug user. In addition, the assets with which this appeal is concerned were not derived from a criminal transgression engaged in by Mr. Oldfield for the purpose of their acquisition for the benefit of Mrs. Oldfield. As I have stated, they der ived from his accidental death while he was in possession of an unknown quantity of narcotics. The assets are the fruits of the insurance taken out by Mr. Oldfield, as the separation agreement obliged him to do, for the benefit of his widow and children. It is my opinion that to relieve against the application of the public policy rule and to bind the insurer to the terms of the insurance contract, in the circumstances of this appeal, would cause no serious damage to the fabric of society.

[39] In reaching this conclusion, I have commenced the balancing process suggested by Diplock L.J. in the passage from his reasons in Hardy, quoted earlier. To complete the balancing it is necessary to consider the social harm if the public policy rule were to be applied to relieve Transamerica from paying the insurance proceeds to Mrs. Oldfield. The social harm would be significant as it would deny the fulfillment of the public policy goal of enforcing separation agreements and support obligations. What is at issue, in reality, is the balancing of two rules of public policy. In my view, the policy of enforcing separation agreements and support obligations should prevail over the policy requiring the imposition of a sanction where a person seeks to benefit from his or her anti- social acts.

[40] Lest it is not clear, I feel obliged to indicate that I have not attempted to lay down a general rule. It would be unwise to do so. It is wiser, as I have endeavoured to do, to confine my decision to the facts of this case.

[41] Finally, based on my view of the proper disposition of this appeal, it is unnecessary to consider whether Mrs. Oldfield's entitlement to the insurance proceeds is dependant on whether the policy had been assigned to her to secure Mr. Oldfield's obligations under the separation agreement.

[42] For all of the above reasons, I would dismiss the appeal with costs.

[43] FELDMAN J.A. (concurring): -- I have had the benefit of reading the reasons of Borins J.A. and I concur in the result reached by my colleague. I also concur in his reasons with one variation.

[44] The appellant raises two bases upon which it says that it is relieved from paying the benefit under the policy:

(1) The rule of interpretation: The appellant submits that as a matter of contractual interpretation, a life insurance policy cannot be construed to cover losses caused, whether deliberately or accidentally, by the criminal acts of the policyholder. [See Note 1 at end of document]

(2) The public policy rule: Even if the contract does cover such a loss, as a matter of public policy, the contract is not enforceable because the law will not assist a criminal to benefit from his own crime.

[45] The appellant's first submission does not relate to the undisputed rule of interpretation of insurance policies that there is an implied term that the insurance will not be payable where the owner of the policy deliberately causes the insured event to occur. That rule is not the one relied on by the appellant and is irrelevant in this case, first, because Mr. Oldfield did not deliberately cause his own death and, second, because if he had, the insurance policy in this case is one that "otherwise provides" for coverage in the event of suicide by the insured after one year.

[46] Borins J.A. dealt with the appellant's rule of contractual interpretation argument on the basis that the appellant was limiting its submission of no intended contractual coverage to a criminal act intended by the insured to bring about his own death, and therefore the insured loss. On that characterization, he found that because the death of the insured was an accidental result of his criminal act of possession of narcotics, the facts of the case would not support the application of such a rule of construction.

[47] My understanding of the appellant's submission, however, was that there is a rule of interpretation that is not limited to criminal acts by the insured deliberately intended by him to bring about his own death and therefore cause the insured loss to occur. This broader rule would include criminal acts by the insured which, although not intended to cause death, did have that consequence, as in this case. As a result, I believe that we are required to directly address the legal issue whether there exists such a rule of contractual interpretation.

[48] The significance of the issue is that if there is a rule of contractual interpretation which applies in this case to preclude recovery of the insurance proceeds by the respondent, then the public policy considerations in favour of her recovery would not be reached.

[49] In my view, the motions judge was correct in rejecting the argument of the appellant that such a rule of contractual interpretation exists at common law. I agree with the motions judge that the case law referred to by the appellant for that proposition does not so hold. Rather the cases relied on, including Beresford v. Royal Insurance Co. Ltd., [1938] 2 All E.R. 602 (H.L.); Deckert v. Prudential Insurance Co., 1943 110 (ON CA), [1943] O.R. 448 (C.A.); Brissette Estate v. Westbury Life Insurance Co., 1992 32 (SCC), [1992] 3 S.C.R. 87, 96 D.L.R. (4th) 609 and Schilling Estate v. Transamerica Life Insurance Co. (1997), 1997 26860 (ON CJ), 40 C.C.L.I. (2d) 237 (Ont. Gen. Div.), affirmed (1997), 1997 14514 (ON CA), 108 O.A.C. 306, all turn on the application of the rule of public policy against allowing a criminal to benefit by his crime (the second basis raised by the appellant), and do not add a rule of contractual interpretation which deals with losses which may be accidentally caused by criminal acts by the insured.

[50] The appellant's submission with respect to Beresford and Deckert is that those decisions do not foreclose the rule of contractual interpretation for which the appellant contends. The appellant then relies on Brissette Estate and Schilling Estate as the cases which hold that the rule of contractual interpretation exists.

[51] The appellant relies heavily on one statement made by Sopinka J. in his decision in Brissette Estate, supra. In that case a husband and wife had purchased a policy naming the survivor as the beneficiary. The husband murdered the wife. The husband eventually renounced his rights as beneficiary under the policy in favour of the wife's estate which claimed the proceeds of the policy. The case was argued on two issues: could the contract be interpreted to require payment to the victim's estate; and, if not, could the court achieve that result through a constructive trust. On the first issue the court held that the contract provided for payment to the survivor, not to the estate of the life insured. However, public policy -- not an implied term of the contract -- prevented the money being paid to the felonious husband. Sopinka J. then turned to the issue of whether a constructive trust could be imposed on the proceeds of the policy in order to achieve payment to the estate of the victim. He approached the issue by asking whether the application of the public policy against allowing a criminal to benefit from his crime worked an injustice in that case, and concluded that it did not, as the victim had no interest in the proceeds of the policy on her life but only on her husband's life.

[52] Sopinka J. then observed: "The rationale of the policy which denies recovery to the felonious beneficiary is that a person should not profit from his or her own criminal act. It is consistent with this policy that a person should not be allowed to insure against his or her own criminal act irrespective of the ultimate payee of the proceeds" (p. 94) (emphasis added). The appellant relies on the latter statement to support its submission that the Supreme Court has recognized a rule of construction of life insurance policies that implies a term which excludes coverage for a criminal act of the policy owner, even if the act was not committed with the intention of causing the insured loss. That submission is, in my view, without merit.

[53] Sopinka J. does not say that he is stating a rule of construction of insurance policies. Rather, his statement merely discusses the logic of extending the rule of public policy to apply to the situation where the wrongdoer (who was not only a beneficiary but also an insured) would not himself benefit from his criminal conduct, but sought to assign the benefit of the insurance policy to an innocent beneficiary. In any event, because the facts of the case involved a deliberate act intended by the felonious beneficiary to cause the loss, it is clear, in my view, that Sopinka J. was not formulating a new rule of interpretation or extending the established rule regarding deliberate acts to criminal conduct which was not done for the purposes of causing the insured loss.

[54] In Schilling Estate, supra, Lederman J. referred to the above statement by Sopinka J. as a "principle of contract interpretation" (p. 239). His decision was approved by this court in a brief endorsement. In Schilling Estate, the policy insured the husband's life with the wife as beneficiary unless she predeceased the husband, in which event, his estate became the beneficiary. Although the circumstances of his death are somewhat unclear, the decision states that the husband murdered his wife and in the course of so doing or shortly thereafter, he died by reason of his criminal acts. Although his own death, the insured event, may not have been deliberate, the murder of his wife, which caused his estate to become the beneficiary of his insurance, was deliberate criminal conduct calculated to ensure that his estate benefited under the policy. Again I am satisfied that the principle of contract interpretation to which Lederman J. was referring is the well-established rule of construction regarding conduct by an insured, criminal and otherwise, which is done deliberately for the purpose of causing the insured loss.

Conclusion

[55] The authorities referred to by the appellant do not establish a new rule of construction of life insurance contracts which implies a term that such contracts will not cover a loss occasioned by a criminal act of the insured where the act was not intended to cause the insured loss but accidentally did so.

[56] This case, therefore, falls to be decided on the issue of the application of the rule of public policy against criminals benefiting from their own crimes. For the reasons given by Borins J.A., that rule does not apply on the facts of this case to preclude recovery of the insurance proceeds by the respondent.

Appeal dismissed.

Notes

Note 1: By s. 118 of the Insurance Act, R.S.O. 1990, c. I.8, there is no effect of criminal conduct on other types of insurance (unless specifically provided in the policy), unless the criminal conduct was also deliberate conduct by the insured calculated to bring about the insured loss. The section does not, however, apply to life insurance.