A ruling by the Supreme Court of Canada offers clarity on the test for unjust enrichment, says Toronto estate litigator David M. Smith who acted for the successful appellant with partners Suzana Popovic-Montag and Ian Hull.

A 7-2 majority of the nation’s top court ruled that the common-law partner of a deceased insurance policyholder was unjustly enriched when she was named its beneficiary in the face of the payment of premiums by the ex-wife for more than a decade.

The decision overturned a majority decision by Ontario’s Court of Appeal, which found that the deceased irrevocable designation of his common-law spouse constituted a “valid juristic reason” for her receipt of the policy proceeds.

“It’s great news,” says Smith, partner with Hull & Hull LLP.

“Juristic reason was previously thought of as a black-letter concept, but this decision raises some questions about that idea, and the majority made clear that every case will turn on its facts,” Smith says. “There was a compelling equitable argument here, and the court said that on these facts, an equitable remedy should apply, which was that of a constructive trust due to unjust enrichment.”

The case dates back to the end of the 20-year marriage between Smith’s client and the deceased in 1999. As part of an oral agreement made after their separation, Smith’s client agreed to continue paying the premiums on his life insurance policy, on the understanding that she would receive the proceeds when he died.

However, according to the decision, the deceased reneged on the agreement just nine months later, when he changed the beneficiary designation on the policy in favour of his common-law spouse, who was still living with him at the time of his death.

Smith says that most laypersons hearing the facts tend to intuitively side with his client because of the apparent unfairness of denying her the ability to reap the rewards of an insurance policy she had paid for.;

However, he explains that provisions in Ontario’s Insurance Act, which are meant to protect beneficiaries from claims by creditors, provided a barrier to that result.

In addition, he says the situation was complicated by the sympathetic plight of the deceased’s common-law partner, who is disabled and impecunious.

At the trial level, a Superior Court judge ruled in favour of the ex-wife, but a 2-1 majority of the province’s appeal court overturned that decision, finding that the irrevocable designation made under the Insurance Act, provided a “juristic reason” for the common-law spouse’s windfall, defeating the unjust enrichment claim.

But at the Supreme Court, the majority agreed with Smith, Popovic-Montag and Hull, who argued that the earlier agreement with their client meant that the irrevocable designation was no longer the deceased’s to make.

Writing for the majority, Justice Suzanne Côté, found that the oral agreement was binding, and could not be automatically overridden by an irrevocable designation under the Insurance Act.

As a result, she concluded that an irrevocable beneficiary designation did not constitute a juristic reason in this case: “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.”

“Because each of [the ex-wife’s] payments kept the policy alive, and given that [the common-law spouse’s] right as designated beneficiary necessarily deprived [the ex-wife] of her contractual entitlement to receive the entirety of the insurance proceeds, I would impose a constructive trust to the full extent of those proceeds in [the ex-wife’s] favour,” Côté added.

The dissenting judges said in their reasons that they would have disallowed the unjust enrichment claim on the basis that the deprivation and enrichment in this case did not correspond well enough to one another. They would instead have considered Smith’s client a creditor of the deceased’s estate with no claim on the policy’s proceeds.

Some critics have complained that the decision will lead to more litigation over life insurance proceeds, but Smith isn’t so sure.

“The facts of this case were so unique and compelling, that only time will tell if the findings afford arguments that were not previously available to litigants,” he says.