Court File and Parties

CITATION: Moore v. Sweet, 2015 ONSC 3914

COURT FILE NO.: 05-23/14

DATE: 20150617

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Michelle Constance Moore, Applicant

AND:

Risa Lorraine Sweet, Respondent

BEFORE: Mr. Justice H. J. Wilton-Siegel

COUNSEL: David Morgan Smith, for the Applicant Risa Lorraine Sweet, Self-Represented, Respondent

HEARD: February 4, 2015

ENDORSEMENT

[1] On this application, Michelle Constance Moore (the "Applicant") seeks the opinion of the Court regarding various issues pertaining to the entitlement to the proceeds of an insurance policy of her former husband Lawrence Anthony Moore (the "Deceased").

Background

[2] The Applicant and the Deceased were married in 1979. They had three children born in 1983, 1984 and 1988.

[3] The Deceased obtained a term life insurance policy in the principal amount of $250,000 that was issued on October 18, 1985 by a predecessor of RBC Life Insurance Company (the "Insurer") (the "Policy"). The Applicant was named as the beneficiary under the Policy.

[4] The annual premium for the Policy, which was $507.50, was paid from a joint account of the Applicant and the Deceased until 2000 and thereafter from an account of the Applicant. A total of $30,535.64 has been paid on account of premiums on the Policy.

[5] In December, 1999, the Applicant and the Deceased separated. In the summer of 2000, the Deceased commenced living with Risa Lorraine Sweet (the "Respondent"), the respondent in this application. The Deceased and the Respondent had met at the Donwood Institute, an addiction treatment centre, in the autumn of 1999. They co-habited until the Deceased's death.

[6] On September 21, 2000, the Deceased executed a change of beneficiary form in respect of the Respondent, who apparently was present at the time of execution, as she witnessed the Deceased's execution of the document. The Insurer recorded the change of beneficiary on September 25, 2000. The Deceased did not advise the Applicant of his actions in changing the beneficiary designation.

[7] The Deceased and the Applicant entered into a separation agreement dated May 1, 2002 (the "Separation Agreement"). The Separation Agreement provides, among other things, for a conveyance of the Deceased's one-half interest in the matrimonial home to the Applicant, a mutual waiver and release of claims for equalization of net family property, and a quantified child support obligation of the Deceased. The Separation Agreement is silent with respect to the Policy and does not contain a general release of any property claims by each party against the other, except with respect to net equalization property claims.

[8] The Applicant and the Deceased divorced on October 3, 2003.

[9] The Applicant was not aware that the Deceased had changed his beneficiary designation in favour of the Respondent until July 5, 2013, several weeks after the Deceased’s death, when she received correspondence from the Insurer.

[10] The proceeds of the Policy have been paid into Court by the Insurer pursuant to an order dated December 19, 2013 of Snowie J. pending a resolution of the competing claims of the Applicant and the Respondent to such proceeds.

Positions of the Parties

[11] The Respondent says that the beneficiary designation in her favour is valid and that there was no obligation on the Deceased to notify the Applicant of his actions in changing the designation in 2000.

[12] The Applicant does not deny the validity of the beneficiary designation. However, she asserts a claim of unjust enrichment against the Respondent with respect to the proceeds of the Policy. She submits that the Court should impose a constructive trust in her favour over the proceeds of the Policy.

Preliminary Matter

[13] Before addressing the issue on this application, it is necessary to address the Applicant's submission that there was an oral agreement between her and the Deceased made in 2000 to the effect that she would pay the premiums and be entitled to the proceeds of the Policy on his death. The Applicant submits that the agreement is a legally binding and enforceable contract. For the following reasons, I accept that there was such an agreement pursuant to which the Deceased agreed to an equitable assignment of his interest in the proceeds of the Policy to the Applicant in 2000 in exchange for her commitment to pay the premiums of the Policy.

Applicable Law

[14] The proceeds of a life insurance policy may be assigned by the insured to a third party, including a beneficiary: 1124980 Ontario Inc. v. Liberty Mutual Insurance Company, [2003] O.J. 1468 per Epstein J. (as she was then) at para. 45. The right to receive proceeds is a future legal chose in action, and hence a valid legal assignment of the proceeds of a life insurance policy must meet the four requirements set out in s. 53(1) of the Conveyancing Law and Property Act (the “CLPA”): see, for example, 1124980 Ontario Inc. at paras. 43-45.

[15] In the present proceeding, there is no evidence that the Applicant and the Deceased had a written agreement or that the Insurer was given notice of the assignment. Accordingly, the alleged agreement did not satisfy the requirements of section 53(1) of the CLPA. However, the facts are capable of supporting an equitable assignment, which will bind a future legal chose in action if the subject-matter is capable of being ascertained and there is consideration for the assignment: Sanderson v. Halstead, 1968 170 (ON SC), [1968] 1 O.R. 749 at para. 18.

[16] An example of an assignment of the proceeds of an insurance policy in exchange for the payment of premiums is the Supreme Court of Canada’s decision in Caledonian Insurance Co. v. Montreal Trust Co., 1932 42 (SCC), [1932] S.C.R. 581. In that case, the Supreme Court held that this agreement:

constituted an implied undertaking on the part of the respondent to hold the policies for the benefit of the purchasers until such times as they were validly assigned to them. Such an undertaking is enforceable in a court of equity by the respondent as trustee of the purchasers. Burton v. Gore District Mutual Ins. Co. (1857) 14 U.C.R. 342, at 351.

The Applicant did not refer to the principle in Caledonian Insurance Co. in this proceeding. I would note, however, that this principle may provide an alternative basis for the conclusions reached in this Endorsement.

Analysis and Conclusions Regarding the Alleged Agreement

[17] On the fact of this case, I am of the opinion that the Applicant and the deceased each had an equitable interest in the proceeds of the Policy from the time that it was taken out. On this basis, the agreement in 2000 between the Deceased and the Applicant took the form of an equitable assignment to the Applicant of the Deceased’s equitable interest in the proceeds in return for the Applicant’s agreement to pay the premiums on the Policy. If I am in error in finding that the Applicant had an equitable interest in the proceeds of the Policy from 1985, with the result that the Deceased had the entire equitable interest in the proceeds until 2000, I am of the opinion that, in such circumstances, the Deceased assigned his entire equitable interest in the Policy to the Applicant in that year in return for a commitment on her part to pay the premiums on the Policy. I reach these conclusions for the following reasons.

[18] The evidence demonstrates that the Applicant and the Deceased jointly took out the Policy in 1985 to provide for the Applicant and their children in the event of the death of the Deceased. While the Deceased was shown on the Policy as the owner of the Policy, the Policy was paid for out of the joint account of the Applicant and the Deceased prior to their separation. On this basis, I conclude that each of the Applicant and the Deceased had an equitable interest in the proceeds of the Policy. As a practical matter, this equitable interest took the form of a right to determine the beneficiary of the Policy.

[19] The evidence also supports the finding that there was an agreement between the Applicant and the Deceased of the nature described above for the following reasons.

[20] First, there was a significant continuing purpose for the agreement at the time that the Applicant commenced paying the premiums. The purpose of the Policy was to provide for the children of the Applicant and the Deceased as well as the Applicant. The Deceased continued to have obligations to his children at the time of the agreement between these parties. The agreement allowed him to honour those obligations in the event of his death, notwithstanding his personal inability to pay the premiums or otherwise provide for them during his lifetime.

[21] Second, the Applicant commenced paying the premiums and continued to do so until the date of death of the Deceased. The Applicant would not have paid the premiums out of her own account if she had not obtained an equitable assignment of the proceeds of the Policy in her favour from the Deceased.

[22] Third, the Deceased had no assets in 2000 and was dependent upon disability benefit payments for his own living expenses. The Deceased was aware that the the Policy was being kept in force at the time that he signed the designation in favour of the Respondent. Otherwise, his execution of the change in designation of beneficiary form would have been meaningless. He also knew that this was as a result of the Applicant paying the premiums on the Policy. The Deceased could not reasonably have expected the Applicant to continue to pay the premiums on the Policy unless it was for the benefit of the Applicant and their children.

[23] Lastly, the Separation Agreement, which was executed later in 2002, was silent with respect to the Policy. There is no suggestion that this was an oversight. Both parties were aware of the existence of the Policy. The Separation Agreement dealt with the outstanding issues between the parties as of its date of execution. The most probable explanation for the silence is that the parties had already reached, and implemented, the agreement respecting the Policy described above and did not consider that it was necessary to deal with it in the Separation Agreement. On this basis, I consider that such silence further confirms the existence of an agreement respecting the Policy that was implemented by the Applicant and the Deceased in 2000.

Analysis and Conclusions Regarding the Applicant`s Claim of Unjust Enrichment

[24] I propose to address the issue on this motion by first considering the applicable legal principles and the case law relied upon by the parties and then setting out my analysis and conclusions.

Applicable Legal Principles

[25] The elements of a claim of unjust enrichment have been set out in Pettkus v. Becker, 1980 22 (SCC), [1980] 2 S.C.R. 834 as follows:

(a) an enrichment;

(b) a corresponding deprivation; and

(c) the absence of any juristic reason for the enrichment.

[26] With respect to the remedy of a constructive trust, in Kerr v. Baranow, 2011 SCC 10 at para. 50, Cromwell J. speaking for the Supreme Court stated:

The Court has recognized that, in some cases, when a monetary award is inappropriate or insufficient, a proprietary remedy may be required. Pettkus is responsible for an important remedial feature of the Canadian law of unjust enrichment: the development of the remedial constructive trust. Imposed without reference to intention to create a trust, the constructive trust is a broad and flexible equitable tool used to determine beneficial entitlement to property (Pettkus, at pp. 843-44 and 847-48). Where the plaintiff can demonstrate a link or causal connection between his or her contributions and the acquisition, preservation, maintenance or improvement of the disputed property, a share of the property proportionate to the unjust enrichment can be impressed with a constructive trust in his or her favour (Pettkus, at pp. 852-53; …

Although in the present case the distinction between a monetary remedy and a proprietary remedy is not meaningful, the concept of a “link or causal connection” remains an important requirement for the imposition of a constructive trust.

[27] The first two requirements of a claim for unjust enrichment are easily addressed in this case. The Respondent is enriched to the extent of the proceeds of the Policy. As mentioned, the Applicant does not deny that the Respondent has been validly designated the beneficiary under the Policy. The prior equitable assignment of the Deceased’s interest in the Policy does not invalidate the Deceased’s subsequent designation of the Respondent as a beneficiary. The Applicant has suffered a corresponding deprivation not only to the extent she paid the premiums but also, more fundamentally, to the extent the proceeds of the Policy were paid to the Respondent notwithstanding the prior equitable assignment of such proceeds to her.

[28] The remaining issue is whether there is an absence of any juristic reason for the enrichment.

Analysis of the Case Law Tendered by the Parties

[29] The onus of proving the absence of a juristic reason rests on the Applicant. She argues that a designation of a party as a beneficiary under an insurance policy is not, by itself, a juristic reason for the purposes of the law of unjust enrichment entitling that party to retain the proceeds of the policy upon receipt. The Respondent has not proposed any other juristic reason for the enrichment of the Respondent.

[30] The Respondent relies on two principal decisions.

[31] Sloan v. Witkin, 2011 ONSC 3747 is a case regarding standing. At issue was whether a person with an indirect interest in an estate may bring an application for the interpretation of the will. It does not address unjust enrichment or the juristic reason analysis, and is therefore of no assistance in the present circumstances.

[32] In Richardson Estate v. Mew, 2009 ONCA 403, the Court of Appeal upheld a trial court decision in favour of a named beneficiary who was the former spouse of the deceased. Under the terms of a separation agreement, the deceased was obligated to designate his former spouse as the beneficiary until 1995. No mention was made for the period after that date, which therefore would have permitted the deceased to change the beneficiary designation. He did not do so however, with the result that the former spouse remained the designated beneficiary at the date of the deceased's death. The deceased's second wife asserted a claim to the proceeds. The second wife's claim was based on an alleged promise to name her at a later date, which she says was never fulfilled due to inadvertence. She also submitted that, if she had known of the continuation of the designation of the former spouse, she would have exercised her authority under a power of attorney given by the deceased to change the designation in her favour.

[33] In respect of a claim of unjust enrichment, the trial judge rejected the argument that the existence of the power of attorney constituted exceptional circumstances justifying such claim on the ground that the exercise of the authority contemplated by the second wife would have been improper. In respect of an alternative claim for rectification of the relevant insurance policy, the trial judge stated that he was not satisfied that the deceased intended to name the second wife as a beneficiary and therefore rejected the argument that the second wife had not been designated due to inadvertence or mistake by the deceased. The Court of Appeal upheld each finding.

[34] This decision is distinguishable from the present circumstances in a number of important respects. First, as the trial judge noted, it fits squarely within a line of cases that hold that a designation of a former spouse for no consideration should be respected except in exceptional circumstances. The present case involves a designation of a new partner in circumstances where the former spouse and designee had assumed payment of the premiums. Second, the issue of an absence of a juridical reason was directed to two issues not present in the present proceedings – (1) the applicant’s contention that she could have used the power of attorney to designate herself the beneficiary, cancel the policy or cease making the premiums, which necessarily failed on the basis that such actions would have involved a breach of fiduciary duty, and (2) the effect of a general release in a separation agreement between the parties that specifically contemplated that the issue of life insurance benefits would remain open between the parties. In the absence of any circumstances supporting the applicant’s position, there was no basis for a finding of an absence of a juridical reason. Third, insofar as the existence of a deprivation is relevant, the Court of Appeal observed that, in Richardson, the only deprivation was a minimal premium payment.

[35] Given these real differences in the factual circumstances, I do not think that Richardson is a useful authority for present purposes and, in particular, is not authority for the proposition that a beneficiary designation is a juridical reason, by itself, for the purposes of an unjust enrichment claim where an owner of an insurance policy breaches an agreement respecting the proceeds of the policy that had been implemented by the assumption of premium payments by the counterparty.

[36] The Applicant also relies on two decisions.

[37] In Kang v. Kang et al, 2002 BCCA 696, the British Columbia Court of Appeal held that the trial judge did not err in rejecting the appellant’s claim for unjust enrichment. In doing so, the Court of Appeal did, however, proceed on the basis that a claim of unjust enrichment by a non-beneficiary could potentially defeat a designation. In that case, the deceased named his sister as the beneficiary under an insurance policy. After his death, the deceased's wife asserted, inter alia, a claim of unjust enrichment, alleging she had been promised the proceeds and believed she had been so designated based on advice from the deceased's life insurance agent. The appellant submitted that the proceeds were a “windfall without juristic reason”. The Court of Appeal noted, however, that the sister sponsored the deceased’s immigration to Canada and paid premiums on the policy for a period of time.

[38] The Court of Appeal’s reasoning in Kang with respect to the unjust enrichment aspect of its decision is, however, unclear. The wife's claim failed on the basis of an absence of evidence of detrimental reliance (which may have been a separate basis for the decision rather than a basis for a finding of a juristic reason) as well as an inability to demonstrate an intention of the deceased to designate her as the beneficiary given a number of considerations that would have justified the continuation of the designation of the sister even after the wife immigrated to Canada (which appears to have supported the finding of the existence of a juristic reason in the form of the deceased's intention). Accordingly, this decision is of limited value for present purposes.

[39] In Roberts v. Martindale, 1998 4561 (BC CA), [1998] B.C.J. No. 1509 the British Columbia Court of Appeal imposed a constructive trust on the deceased's former husband. The deceased had designated her former husband as a beneficiary under an insurance policy during their marriage. In a separation agreement, the former husband released all claims against the property and estate of the deceased. The deceased died approximately thirteen years after the separation agreement was executed. The deceased believed that she had done what was required to remove the former husband as the designated beneficiary and to designate her sister.

[40] The court held that the deceased's mistaken belief did not, by itself, give rise to a trust in favour of her sister. However, it upheld the sister’s claim on the basis that the former husband had released all claims he had against the deceased's property, which included the life insurance policy, so that his claim of entitlement to the proceeds was a breach of the separation agreement. On this basis, the court imposed a constructive trust on the proceeds of the life insurance policy in the hands of the former husband. It should be noted, however, that the Court of Appeal did not express its decision in terms of unjust enrichment and, in particular, did not expressly find an absence of a juristic reason for the former husband’s retention of the insurance proceeds.

[41] It should also be noted that the Court of Appeal in Richardson distinguished Roberts on the basis that the trial judge in Roberts made a clear finding that the deceased intended to change the beneficiary designation and that she believed she had, in fact, done so. According to the Court of Appeal in Richardson at para. 57, the court in Roberts imposed a constructive trust on the ground that it would have been a breach of the bargain made between the parties to permit the named beneficiary to take the proceeds. It is, therefore, not clear that Roberts is properly analysed as an unjust enrichment case.

[42] I do not find that any of the authorities relied upon by the parties are useful for present purposes. Of greater relevance is the more general principle that the test for a juristic reason requires a flexible contextual approach in the particular circumstances of each case: see Kerr v. Baranow at para. 44 where Cromwell J. stated that “[o]verall, the test for juristic reason is flexible, and the relevant factors to consider will depend on the situation before the court…” Juristic reasons to deny recovery may include, but are not limited to a donative intent, a contract, and a disposition of a law. Further, consideration may also be given to the autonomy of the parties, including factors such as the “the legitimate expectation of the parties, the right of parties to order their affairs by contract”: see Kerr, supra at para. 41. Accordingly, while the designation of a beneficiary may be a juristic reason in some cases, the issue for the Court is whether the designation of the Respondent is a juristic reason in the particular circumstances of this case.

[43] On the basis of the foregoing, I conclude that a court is not precluded from imposing a constructive trust on proceeds of an insurance policy paid to a named beneficiary based on the principle of unjust enrichment merely because the deceased policyholder executed a designation in favour of the named beneficiary.

Analysis and Conclusions

[44] This application arises because the deceased made two incompatible promises before his death. Shortly after commencing his co-habitation with the Respondent, the deceased designated her as the beneficiary under the Policy. However, the Deceased had already assigned his entitlement to the proceeds of the Policy to the Applicant by way of an equitable assignment. Each of the Applicant and the Respondent has a claim to the proceeds of the Policy based on a different relationship to the Deceased. Each of the parties trusted the Deceased, who betrayed that trust by acting duplicitously.

[45] I have considerable sympathy for the Respondent. She lived with the Deceased for approximately thirteen years. She has lost the person closest to her and can use the proceeds of the Policy.

[46] Nevertheless, I think that the Applicant has established that the Deceased's designation of the Respondent as the beneficiary under the Policy does not constitute a juristic reason entitling the Respondent to retain the proceeds of the Policy in the particular circumstances of this case.

[47] As discussed above, the test for a juristic reason is flexible and involves discretion and questions of fairness. The evidence establishes that the Deceased entered into an oral agreement with the Applicant in 2000 to ensure that the premiums payable in respect of the Policy would be paid and the proceeds would be available to support his former spouse and children on his death. The legal effect of the agreement was an equitable assignment of the Deceased's interest in the Policy.

[48] The change of designation was made in breach of that agreement. The change of designation, and the Respondent's later receipt of the proceeds of the Policy, would not have been possible but for the Applicant’s performance of her obligations under the agreement. The agreement entailed an equitable assignment of the proceeds of the Policy in consideration of the Applicant's assumption of an obligation to continue the payment of the premiums required to keep the Policy alive. Equity should enforce the agreement that the Deceased made assigning his interest in the Policy in the absence of any other agreement between the Respondent and the Deceased and in the absence of any evidence that the Respondent gave any consideration for the Deceased’s change of designation in her favour.

[49] In addition, it is not clear that the Respondent could reasonably have expected to be entitled to the proceeds. While there is no evidence that the Respondent knew that the Applicant was paying the premiums on the Policy, she was aware that the Deceased was not in a position to do so. She says that she believed that the Deceased’s brother was paying the premiums, but there is nothing in the record regarding the brother’s motivation or intentions that would make the Respondent’s belief in such action reasonable.

[50] As a further matter, the Applicant has established a clear “link or causal connection” between her contributions and the proceeds of the Policy that continued for the entire duration of the Policy. In these circumstances, given the fact that the Policy was paid out in accordance with its terms in one lump sum upon the occurrence of an event over the timing of which the Applicant had no control, I think that the Applicant has established an entitlement to the entirety of the proceeds of the Policy.

[51] Based on the foregoing, I find that the Applicant has established an absence of a juristic reason for the Respondent’s retention of the proceeds of the Policy. Accordingly, I also find that the Respondent was unjustly enriched at the expense of the Applicant.

Conclusion

[52] Based on the foregoing, it is ordered that the Respondent holds the proceeds of the Policy in trust for the Applicant. If the parties are unable to agree on the costs of this application, they will have thirty days from the date of this Endorsement to provide written costs submissions not exceeding five pages in length.

Wilton-Siegel J.

Date: June 17, 2015