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SCC confirms Doctrine of Remedial Constructive Trust   

The Supreme Court of Canada has very recently ruled on a life insurance proceeds dispute between a former wife and a common law spouse. In Moore v. Sweet, 2018 SCC 52  http://canlii.ca/t/hw6vr  (decision released November 23, 2018), the deceased had purchased a term policy and named his first wife (Ms. Moore) as revocable beneficiary. From the outset Ms. Moore paid all of the premiums.

Upon separation they verbally agreed that Ms. Moore would continue to make the premium payments and the husband would not change the beneficiary designation. Although this agreement was not incorporated into a Separation Agreement or Court Order it was accepted as a valid and binding contract between the parties.

Unbeknownst to Ms. Moore, the husband subsequently changed the beneficiary designation to a new common law spouse (Ms. Sweet). When he died the estate had no significant assets.

There is no indication that there was any support obligations between the parties. This was not a Succession Law Reform Act case and therefore there were no “claw back” considerations.

Two weeks after the death Ms. Moore learned of the change in the beneficiary designation and immediately commenced a court application for advice and directions concerning entitlement to the proceeds. She succeeded in obtaining an order declaring that the proceeds were held in trust for her based on the equitable doctrine of constructive trust. The Court of Appeal reversed and in a 7-2 majority the SCC ruled in favour of the first wife, Ms. Moore.

A constructive trust is understood primarily as an equitable remedy that may be imposed at a court’s discretion. A proper equitable basis, such as a successful claim in unjust enrichment, must first be found to exist. A plaintiff will succeed on the cause of action in unjust enrichment if he or she can show three elements: (1) that the defendant was enriched; (2) that the plaintiff suffered a corresponding deprivation; and (3) that the defendant’s enrichment and the plaintiff’s corresponding deprivation occurred in the absence of a juristic reason”. [1]

In our office we have seen similar situations. Clearly the person paying the premiums should have his or her position protected by way of policy ownership and prior approval rights regarding beneficiary designation changes.

This decision has broad application to property disputes between common law spouses in Ontario. Under Part I of the Ontario Family Law Act the equalization of property regime only applies to married spouses.

[1] Moore v. Sweet (headnote) https://scc-csc.lexum.com/scc-csc/scc-csc/en/item/17388/index.do

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