Supreme Court of Canada Revokes an ‘Irrevocable’ Life Insurance Designation for Beneficiary

The Supreme Court of Canada extended the circumstances where an irrevocable beneficiary designation made in a life insurance policy can be challenged after the death of the policy holder. The facts underlying Moore v. Sweet, 2018 SCC 52 presented an interesting dilemma for the Court in a decision that will have implications in estate planning in the context of family law.

The case considered the question of who should benefit from the $250,000 proceeds of Mr. Moore’s life-insurance policy, his ex-wife, Ms. Moore, or the wife who survived him, Ms. Sweet. The proceeds were the only asset of Mr. Moore left behind on his death.

When they separated, Mr. Moore had promised Ms. Moore that she would receive the policy proceeds so long as she continued to pay the premiums. She did so. However, before he died, Mr. Moore made an irrevocable beneficiary designation of the same policy to Ms. Sweet.

The Court considered whether Ms. Moore could make out a claim of unjust enrichment against Ms. Sweet. To be successful in a claim for unjust enrichment, Ms. Moore had to demonstrate that Ms. Sweet had been enriched at Ms. Moore’s expense, and that there was no juristic reason for the enrichment.

The courts below arrived at different conclusions. The trial judge awarded the entire amount to Ms. Moore, on the basis that Ms. Sweet had been unjustly enriched. The court of appeal reversed that decision – it allowed Ms. Moore to collect the amount of premiums she had paid but the balance of the proceeds were awarded to Ms. Sweet.

The Supreme Court of Canada ruled in Ms. Moore’s favour. It found Ms. Sweet received the proceeds that Ms. Moore had contracted for and was otherwise entitled to receive, and so Ms. Sweet was enriched at the expense of Ms. Moore. The Court ordered that the entire proceeds of the policy be impressed with a constructive trust in favour of Ms. Moore and be paid out of the court for her benefit.

The case turned on whether the language of the Ontario Insurance Act (the “Act”)  which created the “irrevocable” aspect of the beneficiary designation in this context, constituted a juristic reason to allow Ms. Sweet to receive the disputed benefit.  In other words, should Ms. Sweet retain the proceeds (the outcome directly supported by the language of the Act) despite Ms. Moore’s prior contractual right to remain as beneficiary and receive the proceeds on Mr. Moore’s death.

The Court held that, despite its express language, the Act did not oust the contractual or equitable rights that a person other than a designated beneficiary may have in the proceeds of a policy. Ms. Sweet’s designation as an irrevocable beneficiary did not give her absolute entitlement to the proceeds against Ms. Moore’s claim for unjust enrichment.

The case both makes uncertain the “irrevocable” aspect of beneficiary designations, an estate planning tool often used in the family law context, as well as highlighting the tension between judge-made law and statute law.

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