Oldfield v. Transamerica Life Insurance Co. of Canada, [2002]
1 S.C.R. 742, 2002 SCC 22
Transamerica Life Insurance Co. of Canada Appellant
v.
Maria Oldfield Respondent
Indexed as: Oldfield v. Transamerica Life
Insurance Co. of Canada
Neutral citation: 2002 SCC 22.
File No.: 28163.
2001: November 8; 2002: March 8.
Present: McLachlin C.J. and L’Heureux‑Dubé,
Gonthier, Iacobucci, Major, Bastarache, Binnie, Arbour and LeBel JJ.
on appeal from the court of appeal for ontario
Insurance law — Life insurance — Public policy —
Insurer refusing to pay proceeds of life insurance policy to beneficiary after
insured died accidentally while committing a crime — Whether beneficiary’s
claim barred — Whether public policy precludes recovery by innocent beneficiary
where death of insured was caused by his criminal acts.
When the respondent and her husband P separated, they
agreed that P would maintain sufficient life insurance coverage in lieu of
child and spousal support, and that the respondent would be named the
beneficiary until their two children became 18 years old. P died while
carrying 30 cocaine‑filled condoms in his stomach. One burst,
causing a heart attack. The respondent claimed the proceeds of P’s life
insurance policy. The appellant insurer refused to pay, saying her claim was
barred by the public policy principle that a person should not be allowed to
insure against his own criminal act. Ruling on a special case submitted by the
parties, the trial court concluded that no public policy or rule of contractual
interpretation barred the respondent’s claim. The Court of Appeal upheld that
decision.
Held: The
appeal should be dismissed.
Per McLachlin C.J.
and Gonthier, Iacobucci, Major, Bastarache, Binnie, Arbour and
LeBel JJ.: It is not against public policy to permit an
innocent beneficiary to obtain the proceeds of a life insurance policy where
the insured accidentally dies during the course of a criminal act. The public
policy rule at issue is that a criminal should not be permitted to profit from
crime. The rule extends to those who claim through the criminal’s estate. The
respondent has not asserted her right to the insurance proceeds as a successor
of the insured, however, but as an ordinary beneficiary, with the result that
her claim is not tainted by any illegality on the part of her husband.
Section 118 of the Ontario Insurance Act,
which states that “a contravention of any criminal or other law in force in
Ontario or elsewhere does not, by that fact alone, render unenforceable a claim
for indemnity under a contract of insurance”, and then provides an exception
with respect to life insurance, does not stand for the broader proposition that
a contravention of any criminal or other law renders life insurance contracts
unenforceable. The principle behind s. 195 of the Act, which permits a
beneficiary to enforce an insurance contract for his or her own benefit, but
provides that the insurer may set up any defence that it could have set up
against the insured, is that the third party can be in no better position than
the insured. Where the beneficiary is not otherwise barred by the public
policy rule, the concluding words of s. 195 would not extend that rule to
him or her.
It is consistent with justice that innocent
beneficiaries not be disentitled to insurance proceeds merely because an
insured accidentally dies while committing a criminal act. To deny recovery
would penalize the victim for the insured’s anti‑social behaviour. To
permit recovery in such circumstances will not create a new cottage industry
where insurance companies vie to insure criminal activities. If an insurance
contract purported to cover an illegal activity, the contract would be unlawful
and could not be enforced. By contrast, where the agreement is lawful on its
face but carried out in an illegal manner, exceptions to the public policy
apply. Public policy does not bar the respondent’s claim. It might be
appropriate to modify the public policy rule so as to permit an innocent person
who claims through the criminal’s estate to take insurance proceeds.
Per L’Heureux‑Dubé
J.: The forfeiture rule, which is based on the public policy that although
a wrongdoer cannot profit from his or her crime, neither should an insurance
company be allowed to abrogate its responsibilities under a contract by
invoking a rule of public policy, should be applied strictly and narrowly. Any
relaxation of the rule should be left to the legislature. While a crime may
prevent a person from benefiting from that crime, it cannot affect the rights
of innocent third persons, which is precisely the case in this appeal.
Competing public policies should be balanced to avoid injustices. Every time
coverage is precluded pursuant to the forfeiture rule, an innocent victim is
left uncompensated for his or her suffering and an otherwise enforceable
contractual obligation is extinguished without consideration. In that sense,
there is no reason to distinguish between named innocent beneficiaries and
innocent beneficiaries claiming from the wrongdoer’s estate.
Cases Cited
By Major J.
Approved: Stats
v. Mutual of Omaha Insurance Co. (1976), 14 O.R. (2d) 233, aff’d [1978] 2
S.C.R. 1153; considered: Brissette Estate v. Westbury Life
Insurance Co., [1992] 3 S.C.R. 87; distinguished: Home
Insurance Co. of New York v. Lindal, [1934] S.C.R. 33; Charlton v.
Fisher, [2001] E.W.J. No. 271 (QL); referred to: Cleaver
v. Mutual Reserve Fund Life Association, [1892] 1 Q.B. 147; Beresford v.
Royal Insurance Co., [1938] 2 All E.R. 602, aff’g [1937] 2 All E.R. 243; Demeter
v. Dominion Life Assurance Co. (1982), 35 O.R. (2d) 560; Kerslake v.
Gray, [1957] S.C.R. 516; Hardy v. Motor Insurers’ Bureau, [1964] 2
Q.B. 745; Moore v. Woolsey (1854), 4 El. & Bl. 241, 119 E.R. 93; Vandepitte
v. Preferred Accident Ins. Co., [1933] 1 D.L.R. 289; Post Office v.
Norwich Union Fire Insurance Society Ltd., [1967] 2 Q.B. 363; McCormick
v. National Motor and Accident Insurance Union, Ltd. (1934), 40 Com. Cas.
76; Amicable Society v. Bolland, [1824‑34] All E.R. Rep. 570
(1830); Bird v. John Hancock Mutual Life Insurance Co., 320 S.W.2d 955
(1959); In the Estate of Crippen, [1911‑13] All E.R. Rep. 207
(1911); Weeks v. New York Life Ins. Co., 122 S.E. 586 (1924); Saunders
v. Edwards, [1987] 1 W.L.R. 1116; Dunbar v. Plant, [1997] 4 All E.R.
289; Troja v. Troja (1994), 33 N.S.W.L.R. 269.
By L’Heureux‑Dubé J.
Referred to: Troja
v. Troja (1994), 33 N.S.W.L.R. 269; Brissette Estate v. Westbury Life
Insurance Co., [1992] 3 S.C.R. 87; Cleaver v. Mutual Reserve Fund Life
Association, [1892] 1 Q.B. 147; Standard Life Assurance Co. v. Trudeau (1900),
31 S.C.R. 376; Kosmopoulos v. Constitution Insurance Co., [1987] 1
S.C.R. 2.
Statutes and Regulations Cited
Forfeiture
Act 1982 (U.K.), 1982, c. 34, s. 2(2).
Insurance Act, R.S.O. 1990, c. I.8, ss. 118, 188(1), 195.
Narcotic Control Act, R.S.C. 1985, c. N‑1, s. 3(1), (2).
Third Parties (Rights against
Insurers) Act, 1930 (U.K.), 20 & 21 Geo.
5, c. 25.
Authors Cited
Brown, Craig. Insurance Law in
Canada, vol. 1, loose‑leaf ed. Scarborough, Ont.: Carswell,
1999 (updated 2001, release 2).
Chitty on Contracts, vol. 1, 28th ed. London: Sweet & Maxwell, 1999.
Lowry, John, and Philip Rawlings.
Insurance Law: Doctrines and Principles. Oxford: Hart Publishing,
1999.
MacGillivray on Insurance Law, 9th ed. by Nicholas Legh‑Jones. London: Sweet &
Maxwell, 1997.
Sutton, Kenneth. Insurance Law
in Australia, 3rd ed. Pyrmont, Australia: LBC Information Services, 1999.
Wuehler, Russell B.
“Rethinking Insurance’s Public Policy Exclusion: California’s Befuddled
Attempt to Apply an Undefined Rule and a Call for Reform” (2001), 49 U.C.L.A.
L. Rev. 651.
APPEAL from a judgment of the Ontario Court of Appeal
(2000), 49 O.R. (3d) 737, 135 O.A.C. 177, 21 C.C.L.I. (3d) 72, [2000] I.L.R. ¶
I‑3877, [2000] O.J. No. 2793 (QL), upholding a judgment of the Ontario
Court (General Division) (1998), 43 O.R. (3d) 114, 10 C.C.L.I. (3d) 123, [1999]
I.L.R. ¶ I‑3631, [1998] O.J. No. 5343 (QL). Appeal dismissed.
Paul J. Bates, Kirk F.
Stevens and Simon Clements, for the appellant.
Alfred M. Kwinter
and Ron Weinberger, for the respondent.
The judgment of McLachlin C.J. and Gonthier,
Iacobucci, Major, Bastarache, Binnie, Arbour and LeBel JJ. was delivered by
1
Major J. – Paul Oldfield
carried 30 cocaine-filled condoms in his stomach. One burst, causing his
death. His former spouse, Maria Oldfield, claimed the proceeds of Paul
Oldfield’s life insurance policy, in which she is named the beneficiary.
2
The insurance company resisted payment, submitting it would be against
public policy because it would be tantamount to permitting a criminal to
benefit from his or her own crime.
3
I conclude it is not against public policy to permit an innocent
beneficiary to obtain the proceeds of a life insurance policy, where the life
insured accidentally dies during the course of a criminal act.
I. Facts
4
Paul and Maria Oldfield separated in January 1995. They agreed
that Paul Oldfield would maintain sufficient life insurance coverage in lieu of
child and spousal support, and that Maria Oldfield would be named the
beneficiary until their two children became 18 years old.
5
In the present appeal, only one policy is at issue. In the policy,
Transamerica Life Insurance Company of Canada insured Paul Oldfield’s life for
$250,000. Maria Oldfield was named the beneficiary. The policy stated that
“[i]n 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.” The policy did not address whether proceeds were
payable when the insured died as a result of his own criminal act.
6
On April 27, 1996, Paul Oldfield died in Bolivia. He died
because one of 30 condoms of cocaine found in his stomach broke open,
causing a heart attack. The parties to the appeal agree that to ingest cocaine
in the manner Paul Oldfield did is contrary to Bolivian and Canadian law
(ss. 3(1) and 3(2) of the Narcotic Control Act, R.S.C. 1985,
c. N-1).
7
Maria Oldfield claimed the proceeds of the insurance policy.
Transamerica refused to pay, saying her claim was barred by the public policy
principle that a person should not be allowed to insure against his own
criminal act, regardless of who the ultimate beneficiary of the policy is,
innocent or not.
8
The parties submitted a special case to the court. Among other
questions, the parties asked whether there was “a public policy rule precluding
recovery by the innocent beneficiary where the death of the owner/life insured
was caused by his criminal acts”.
9
Both the Ontario trial and appeal courts concluded that no public policy
or rule of contractual interpretation barred Maria Oldfield’s
claim: see Oldfield v. Transamerica Life Insurance Co. of
Canada (1998), 43 O.R. (3d) 114 (Ont. Ct. (Gen. Div.)), per Ferguson
J., aff’d (2000), 49 O.R. (3d) 737 (C.A.), per Borins J.A. (Feldman J.A.
concurring).
II. Analysis
10
There are two issues in this appeal:
1. Is there a public policy rule
that renders a life insurance contract unenforceable where the insured dies
accidentally as a result of his or her own crime, regardless of who the
beneficiary is?
2. If there is such a public policy
rule, is the rule inapplicable because the insurance contract was obtained
pursuant to a bona fide contract for value?
(1) Generally
11
The public policy rule at issue is that a criminal should not be permitted
to profit from crime. Unless modified by statute, public policy operates
independently of the rules of contract. For example, courts will not permit a
husband who kills his spouse to obtain her life insurance proceeds, regardless
of the manner in which the life insurance contract was worded. As Ferguson J.
held in the court below, public policy “applies regardless of the policy
wording — it is imposed because of the courts’ view of social values”
(p. 119).
12
Generally, though, an insurer seeks the shelter of public policy rules
because they have failed to specifically provide for the contingency that gives
rise to the dispute. In the present appeal, the insurance policy did not
provide for the result that would occur if the insured died while committing a
criminal act. If the policy specifically excluded coverage, there would be no
need to resort to public policy.
13
The public policy rule that prevents criminals from profiting from crime
has existed for many years. In Cleaver v. Mutual Reserve Fund Life
Association, [1892] 1 Q.B. 147 (C.A.), Fry L.J. held that “no system
of jurisprudence can with reason include amongst the rights which it enforces
rights directly resulting to the person asserting them from the crime of that
person” (p. 156). The refrain was adopted in Beresford v. Royal
Insurance Co., [1938] 2 All E.R. 602 (H.L.), where Lord Atkin held that “a
man is not to be allowed to have recourse to a court of justice to claim a
benefit from his crime, whether under a contract or under a gift”
(p. 607).
14
Canadian courts have recognized the public policy rule. In Demeter
v. Dominion Life Assurance Co. (1982), 35 O.R. (2d) 560 (C.A.), MacKinnon
A.C.J.O. held that “[t]he 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” (p. 562). In Brissette Estate v. Westbury Life Insurance Co.,
[1992] 3 S.C.R. 87, Sopinka J. held 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).
15
The rule extends to those who claim through the criminal’s estate. In Cleaver,
Fry L.J. held that “the rule of public policy should be applied so as to
exclude from benefit the criminal and all claiming under her”
(p. 159 (emphasis added)). Technically, the reason why no distinction is
drawn between the criminal and his or her estate is that the estate’s claim is
equivalent to a claim brought by the criminal. In Beresford v. Royal
Insurance Co., [1937] 2 All E.R. 243 (C.A.), Lord Wright M.R. explained (at
p. 249):
. . .the plaintiff, as personal representative, stands in the
shoes of the assured ... . [T]he present claim is equivalent technically to a
claim brought by a murderer, or his representative or assigns, on a policy
effected by the murderer on the life of the murdered man. In that latter case,
it is, we think, clear that neither the murderer nor his estate nor his assigns
could take a benefit under the policy.
16
However, innocent beneficiaries are neither criminals nor claim through
the criminal’s estate. Because of that, the public policy rule is
inapplicable. Section 195 of Ontario’s Insurance Act, R.S.O. 1990, c.
I.8, states that “[a] beneficiary may enforce for the beneficiary’s own benefit
. . . the payment of insurance money made payable to him, her or it
in the contract . . . .” In Kerslake v. Gray, [1957] S.C.R.
516, the Court held that insurance money paid to an ordinary beneficiary does
not form part of the insured’s estate. In Borins J.A.’s words, Maria Oldfield
“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” (p. 748).
17
The distinction between a claim by a beneficiary as opposed to a claim
through the estate developed in decisions like Hardy v. Motor Insurers’
Bureau, [1964] 2 Q.B. 745 (C.A.), where Lord Diplock held (at p. 768):
[The insurance contract] is capable of giving rise to legally
enforceable rights if, apart from the [public policy] rule, the rights of the
assured are capable of becoming vested in a third party other than one who is
regarded in law as the successor of the assured . . . .
18
In Cleaver, Fry L.J. held (at p. 159):
I think that the rule of public policy should be applied so as to
exclude from benefit the criminal and all claiming under her, but not so as to
exclude alternative or independent rights.
19
A distinction between the criminal’s estate and innocent beneficiaries
was adopted in Stats v. Mutual of Omaha Insurance Co. (1976), 14 O.R.
(2d) 233 (C.A.), aff’d on other grounds [1978] 2 S.C.R. 1153. In that case, an
insured named her sister the beneficiary of an accident insurance policy. The
insured became grossly intoxicated, drove her car into a building, and was
killed. The insured’s sister sought to obtain the benefits of the insurance
policy. The insurance company resisted payment. It was argued that no one,
including an innocent beneficiary, should be permitted to profit from crime.
20
The Ontario Court of Appeal disagreed and ordered the insurance company
to pay the proceeds to the innocent beneficiary, concluding (at p. 243):
Since the insured personally or indirectly through
her estate did not and could not benefit from her crime, it follows that the
general rule of public policy would not be infringed by paying to the appellant
beneficiary the proceeds to which she is entitled under the policy.
21
Borins J.A. concluded Stats was applicable to Maria Oldfield’s
claim in this case. He held (at p. 749):
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.
22
I agree with Borins J.A.’s analysis.
(2) Brissette Estate v.
Westbury Life Insurance Co.
23
In Brissette, supra, Sopinka J. held that it is consistent
with public 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). Applied literally, it would prevent insurance proceeds from
being paid to any innocent beneficiary named in an insurance policy so long as
the insured event was occasioned while the insured committed a criminal act.
In this case, it would prevent Maria Oldfield’s claim.
24
Feldman J.A. recognized at the Court of Appeal that Sopinka J. did not
hold that insurance contracts contain an implied term that criminal acts
committed by the insured automatically exclude coverage even where the act is
not committed with the intention of causing the insured loss. Likewise, he did
not hold that there is a public policy rule that forbids payment to all
beneficiaries, innocent or not, whenever the insured commits a criminal act.
In Brissette, the insurance contract named the surviving spouse as
beneficiary. The husband who murdered his wife committed a deliberate act
intended to cause the insured event. There was no question that the husband
was barred from receiving the proceeds; the Court had to decide whether the
contract could be interpreted so as to vest the proceeds in the estate of the
wife, or failing that, whether the device of a constructive trust could achieve
the same result. The Court answered both of these questions in the negative.
In contrast to Brissette, the insured in the present appeal did not
intend to cause the loss. Nor does Maria Oldfield, who was expressly
designated as beneficiary under the contract, need to resort to trust
principles in order to receive the proceeds.
25
In total, Sopinka J.’s decision in Brissette demonstrated that he
did not intend to displace the principle that innocent beneficiaries who do not
take through the criminal’s estate should not be affected by public policy. In
Brissette, Sopinka J. held that “[t]here is nothing unjust in refusing
to pay the proceeds of insurance to a beneficiary not designated by the
insurance contract when to do so would allow the insured to insure against
his own criminal act” (p. 95 (emphasis added)). Sopinka J. reinforced
this statement during his consideration of Cleaver, supra, in
which the insured took out an insurance policy on his own life with his wife as
beneficiary. The wife‑beneficiary then murdered the husband-insured. By
statute, the proceeds were declared payable to the estate of the insured, to be
held in trust for the beneficiary. Public policy prevented any payment from
being made to the felonious wife‑beneficiary but, in Sopinka J.’s words,
“[p]ublic policy was not allowed to abrogate a right that the estate had by
virtue of the statute” (p. 95). Applying this case to the facts in Brissette,
Sopinka J. held that “the result in Cleaver cannot be achieved in the
absence of a provision, statutory or in the contract, providing for
payment to the estate of the wife” (pp. 95‑96 (emphasis added)).
Because these passages appear after Sopinka J.’s earlier statement 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), it is clear
that the earlier statement was not intended to be an open-ended change to the
traditional public policy rule.
26
A universal rule that “a person should not be allowed to insure against
his or her own criminal act irrespective of the ultimate payee of the proceeds”
would have serious repercussions for bona fide creditors who provide
value to obtain an interest in life insurance. Creditors in numerous instances
such as a mortgage and other debt instruments will insist on obtaining an
assignment of an insurance policy or being the named beneficiary sufficient to
discharge the debt to protect their interest in the event of the debtor dying
insolvent.
27
If Sopinka J.’s statement was given the broad interpretation that
Transamerica seeks, bona fide creditors would be unable to obtain
insurance proceeds where an insured died while committing a criminal act. To
do so would run contrary to a long-standing principle that there is “no
illegality in a stipulation that, if the policy should afterwards be assigned
bona fide for a valuable consideration, or a lien upon it should
afterwards be acquired bona fide for valuable consideration, it might be
enforced for the benefit of others, whatever may be the means by which death is
occasioned . . . .” (Moore v. Woolsey (1854), 4 El. &
Bl. 241, 119 E.R. 93 (K.B.), at p. 98); see also Beresford (H.L.), supra,
at pp. 607‑8, per Lord Atkin, and at p. 611, per Lord
Macmillan; Stats, supra, at p. 240; Hardy, supra,
at p. 760, per Lord Denning M.R., and at p. 768, per Diplock
L.J. (“an assignee for value before the occurrence of the event would not be
prevented from enforcing the contract notwithstanding that the event was caused
by the anti-social act of the original assured”). The exception was not
mentioned or considered in Sopinka J.’s decision.
28
In Brissette, Sopinka J. did not intend to eliminate
long-established exceptions to the public policy rule. Brissette does
not bar a claim by an innocent beneficiary where the insured does not intend
the insured loss.
(3) Home Insurance Co. of New
York v. Lindal, [1934] S.C.R. 33
29
In Lindal, a passenger was injured when the intoxicated driver
crashed his car. The passenger obtained judgment against the driver. The
driver had insufficient assets to satisfy the judgment. Accordingly, the
passenger brought an action to obtain indemnity from the insurer under
s. 180 of Alberta’s Insurance Act, S.A. 1926, c. 31. As well, the
driver brought an action against the insurer to require it to indemnify him
against his liability to the passenger. The Court held that the insurance company
was not liable because it would be against public policy to indemnify the
insured.
30
Transamerica argues that Lindal stands for the general
proposition that where an insured contravenes any law, the insurance contract
is unenforceable regardless of the identity of the beneficiary or claimant. It
submits that it applies to Maria Oldfield’s claim so that her claim as
beneficiary is against public policy.
31
I agree with the Court of Appeal for Ontario’s decision in Stats
that Lindal is distinguishable. In short, Lindal had nothing to
do with innocent third party beneficiaries. For the insurance company to have
provided the indemnity asked for in Lindal would have given a benefit to
the criminal, namely, a discharge of the judgment the passenger had obtained
against him. The passenger’s claim against the insurer under s. 180 would have
forced her to “stand in the shoes” of the insured in order to recover. As I
have already stated, the public policy rule bars claims of those claiming through
the wrongdoer. By contrast, where an innocent beneficiary is named in the
insurance policy, no benefits accrue “to the insured or her estate as a result
of the criminal act” (Stats, supra, at p. 244).
(4) Section 118 of Ontario’s Insurance
Act
32
Transamerica relied on s. 118 of Ontario’s Insurance Act,
which states:
118. Unless the contract
otherwise provides, a contravention of any criminal or other law in force in
Ontario or elsewhere does not, by that fact alone, render unenforceable a claim
for indemnity under a contract of insurance except where the contravention is
committed by the insured, or by another person with the consent of the insured,
with intent to bring about loss or damage, but in the case of a contract of
life insurance this section applies only to disability insurance undertaken as
part of the contract.
33
Unless the contract otherwise provides, s. 118 of the Insurance
Act requires the insured to contravene a law and intend to bring
about loss or damage for a claim for indemnity to be unenforceable. The
exception does not apply to life insurance except for disability insurance
undertaken as part of the contract.
34
Transamerica argues that s. 118 modifies the public policy rule as
it applies to indemnity insurance but does not modify public policy as it
applies to life insurance contracts. To explain the state of the public policy
rule as it existed prior to s. 118 of the Insurance Act, Transamerica
referred to this Court’s decision in Lindal, supra. Section 118
was first enacted in 1948 and was thought by some to be a legislative response
to the Lindal decision. Transamerica argued that insofar as life
insurance contracts are concerned, the public policy principles stated in Lindal
continue unabated.
35
As shown above, the first answer to this submission is that Lindal
is distinguishable and provides no assistance to Transamerica. Moreover,
s. 118 simply addresses the effect that public policy is to have on
indemnity contracts. Although s. 118 states that “a contravention of any
criminal or other law in force in Ontario or elsewhere does not, by that fact
alone, render unenforceable a claim for indemnity under a contract of insurance
. . .”, it does not stand for the broader proposition that a
contravention of any criminal or other law renders life insurance contracts
unenforceable. Simply put, s. 118 addresses how public policy does not
affect indemnity insurance. It does not address how public policy affects life
insurance.
36
If “a contravention of any criminal or other law in force in Ontario or
elsewhere” alone rendered life insurance contracts unenforceable, as
Transamerica urges, the public policy rule would be significantly broadened.
Section 118 is not limited to criminal acts. It includes the
contravention of any law in force in Ontario or elsewhere. Therefore, if
jaywalking was the proximate cause of the life insured’s death, the public
policy rule submitted by Transamerica’s interpretation of s. 118 would
prevent the proceeds from being paid to the insured’s family. It is for that
reason that the public policy rule is limited to acts that are “sufficiently
anti‑social to justify the court’s refusing to enforce that right” (Hardy,
supra, at p. 767).
(5) Section 195 of Ontario’s Insurance
Act
37
Section 195 of Ontario’s Insurance Act states:
195. A beneficiary may enforce for the
beneficiary’s own benefit, and a trustee appointed pursuant to section 193
may enforce as trustee, the payment of insurance money made payable to him, her
or it in the contract or by a declaration and in accordance with the provisions
thereof, but the insurer may set up any defence that it could have set up
against the insured or the insured’s personal representative.
38
Section 195 permits a beneficiary to enforce an insurance contract
for his or her own benefit. The provision was added to permit a beneficiary to
escape the consequences of the doctrine of privity of contract, which
Transamerica argued would otherwise only permit the insured to enforce the
insurance contract (Vandepitte v. Preferred Accident Ins. Co., [1933] 1
D.L.R. 289 (P.C.)).
39
Section 195 states that where a beneficiary seeks to enforce the
insurance contract, “the insurer may set up any defence that it could have set
up against the insured or the insured’s personal representative”.
40
In the present appeal, Transamerica argued that s. 195 permits the
insurer to refuse coverage to the beneficiary for the same reasons it would
refuse coverage to the insured. Because there is a public policy rule that
prevents a criminal from benefiting from his crime, which would have prevented
Paul Oldfield from recovering the insurance proceeds, Transamerica sought to
set up that defence against Maria Oldfield, the beneficiary.
41
The principle behind s. 195 is that “[t]he third party can be in no
better position than the assured” (MacGillivray on Insurance Law
(9th ed. 1997), at p. 784). As Harman L.J. held, the third
party cannot “pick out the plums and leave the duff behind” (Post Office v.
Norwich Union Fire Insurance Society Ltd., [1967] 2 Q.B. 363 (C.A.), at
p. 376).
42
A similar statutory provision to s. 195 exists in England. As described
by the Court of Appeal there, the Third Parties (Rights against Insurers)
Act, 1930 (U.K.), 20 & 21 Geo. 5, c. 25, provides that
“the third party simply stands in the shoes of the assured” (Charlton v.
Fisher, [2001] E.W.J. No. 271 (QL) (C.A.), at para. 92). In McCormick
v. National Motor and Accident Insurance Union, Ltd. (1934), 40 Com.
Cas. 76, the Court of Appeal held that a third party suing under the 1930
Act would be subject to any defence available to the insurer as against the
insured, such as misrepresentation. Scrutton L.J. held, at p. 82:
Now, what is transferred? The rights under the contract. You cannot
take the rights under the contract separate from defences under the contract.
43
In Charlton, Rix L.J. considered whether the insurance company
could only rely on defences “which arise from terms of the contract itself, or
from general principles of contract law such as those dealing with repudiation,
avoidance and so forth” (para. 93), or whether it could equally rely on
public policy defences that are independent from contract. He concluded that
public policy defences applied to assignees with a merely derivative claim (at
para. 94):
. . . an assignee with a merely derivative claim stands in
the guilty person’s shoes for the purpose not only of an ordinary contractual
defence, but also of the ex turpi causa defence which is personal to the
guilty party: and that is so despite the innocence of the assignee himself.
44
Likewise, Laws L.J. held (at para. 27):
. . . I agree . . . that this appeal should be
allowed on the footing that any recourse by the claimant to the second
defendant insurers . . . would require her (strictly, by force of the
Third Parties (Rights against Insurers) Act 1930) to stand in the shoes
of the first defendant insured; but that cannot avail her, since public policy
deprives the first defendant of any claim under the policy of insurance to be
indemnified against a liability arising from his own intentional criminal act.
Accordingly he possesses no rights under the policy capable of enuring to the
benefit of the claimant.
45
Charlton is distinguishable. The Court of Appeal concluded that
the insured intentionally caused the loss when he deliberately rammed his car
into the claimant’s car. The court stated that “an insured cannot recover
under his motor policy, even if it would otherwise cover the risk, where he
claims in respect of a liability which he has incurred as a result of his
deliberate and wilful criminal act of intentional damage or injury”
(para. 81). Moreover, because the incident did not occur on a road, the
Court of Appeal was dealing with a “merely derivative claim” (para. 94)
under the Third Parties (Rights against Insurers) Act, 1930.
Both Rix L.J. and Laws L.J. made it clear that a party with an independent and
direct right of action is not required to stand in the shoes of the criminal
insured party. It follows that the 1930 Act does not operate to transfer the
public policy defence to the innocent third party in such a case.
46
The intentional taking of one’s own life used to be treated as a barrier
to recovery in most cases. In Ontario, that question is now dealt with in
s. 188(1) of the Insurance Act. It is not necessary to say any
more about this academic issue, as both courts below concluded that the
insured’s death was accidental.
47
I agree with Blair J.A.’s decision in Stats, where he explained
the distinction between defences that the insurer can set up against a
beneficiary and defences it cannot (at p. 245):
. . . these concluding words [of s. 195] should not be
stretched to encompass aspects beyond this their clearly evident purpose. They
are intended to preserve defences which might be prejudiced if the
beneficiary were not bound by the policy conditions; they cannot be taken to extend
the scope of defences which have no connection with the policy conditions
and to which the beneficiary would not be subject even if she were bound by the
policy conditions. The rule of public policy is applied by the Courts quite
apart from the requirements laid down as conditions in the insurance contract
and the two should not be confused. Therefore, where the beneficiary, as in
this case, is not otherwise barred by the public policy rule, the concluding
words of [s. 195] would not extend that rule to her. [Emphasis in
original.]
(6) Rationale for the Public
Policy Rule
48
Two reasons have been advanced to support the public policy rule. One
is that to enforce certain illegal contracts would “take away one of those
restraints operating on the minds of men against the commission of crimes,
namely, the interest we have in the welfare and prosperity of our connections”
(Amicable Society v. Bolland, [1824‑34] All E.R. Rep. 570
(1830) (H.L.) (“Fauntleroy’s Case”), at p. 572).
49
In the present appeal, Transamerica seized the rationale of the first
reason, and argued that to permit an innocent beneficiary to obtain insurance
proceeds obtained through the commission of crime would encourage criminals to
commit crimes. The argument goes that the criminal would enjoy a certain peace
of mind if he or she knew that innocent beneficiaries would be protected and
with that peace of mind, the criminal would be encouraged or would be more
likely to commit crimes. Conversely, Transamerica argued that if a criminal
knows that an innocent beneficiary will obtain no insurance proceeds where the
criminal dies while committing a criminal act, crime might be discouraged.
50
Over time, courts have criticized the idea that a less than strict
application of public policy would encourage crime. In Hardy, supra,
Diplock L.J. held (at p. 770):
It seems to me to be slightly unrealistic to suggest that a person who
is not deterred by the risk of a possible sentence of life imprisonment from
using a vehicle with intent to commit grievous bodily harm would be deterred by
the fear that his civil liability to his victim would not be discharged by his
insurers. I do not myself feel that by dismissing this appeal we shall add
significantly to the statistics of crime.
51
American courts too have criticized the rationale:
The possibility that an affirmance of the judgment
will promote evil or cause any considerable number of insureds to commit
depredations on the public because of the comforting reassurance that their
beneficiaries will collect the insurance if they are killed in the commission
of crime is remote, speculative and theoretical. Both the public and the
insurer have “a guaranty against increasing the risk insured, by that love of
life which nature has implanted in every creature.”
(Bird v. John Hancock Mutual Life Insurance Co., 320 S.W.2d 955
(Mo. Ct. App. 1959), at p. 958)
52
The second reason for the public policy rule simply recognizes that a
court will not permit injustice. In Cleaver, Fry L.J. explained that
“no system of jurisprudence can with reason include amongst the rights which it
enforces rights directly resulting to the person asserting them from the crime
of that person” (p. 156). Similarly, in In the Estate of Crippen,
[1911-13] All E.R. Rep. 207 (1911), Evans P. held that “[t]he human mind
revolts at the very idea that any other doctrine could be possible in our
system of jurisprudence” (p. 209).
53
It is consistent with justice that innocent beneficiaries not be
disentitled to insurance proceeds merely because an insured accidentally dies
while committing a criminal act. Many decisions have recognized the
long-standing principle (see e.g. Cleaver, at pp. 159-60). To deny
recovery would penalize the victim for the insured’s anti-social behaviour (C.
Brown, Insurance Law in Canada (loose-leaf ed.), vol. 1, at
pp. 8-28 to 8-29).
(7) Exceptions to the Public
Policy Rule Will Not Encourage Crime
54
To permit an innocent beneficiary to be entitled to insurance proceeds
where an insured accidentally dies while committing a criminal act will not
create a new cottage industry, where insurance companies vie to insure criminal
activities. If an insurance contract purported to cover an illegal activity,
the contract would be unlawful and could not be enforced. There is a
distinction between a contract that is illegal ab initio and a contract
that is lawful in its inception but where the loss has arisen out of unlawful
conduct (K. Sutton, Insurance Law in Australia (3rd ed. 1999), at
p. 1016):
The cases fall into two main categories: first, situations where the
policy indemnifies the assured against the kind of loss he or she has suffered
but such loss has, in the particular circumstances of the case, arisen out of
conduct by the assured which is unlawful; and secondly, situations where the
contract of insurance is itself illegal as infringing some common law or
statutory provision. In the first category the contract is not itself unlawful
but the claim based upon it may be, while in the second type of case it is the
insurance contract itself which is called in question.
55
The distinction is further explained by reference to an example similar to
the conduct at issue in this appeal (Sutton, supra, at p. 1043):
At common law the contract may clearly be unlawful, as in the case of
insurance while in transit of an illegal consignment of drugs or cover against
loss of profits if the operation of an illegal casino is disrupted by police
action, and in such a case neither party has any cause of action under the
contract. It would not lie in the mouth of either insurer or assured to allege
that he was unaware of the illegality of the transaction. Where, however, the
agreement is lawful on its face but is carried out in an illegal manner, the
intentions of the parties are paramount, and a party who has not participated
in the unlawful performance and whose intention is perfectly innocent may be
able to enforce the contract. Even a guilty party may be able to rely on the
contract where the illegal act is held to be incidental to the main purpose of
the contract.
56
Another textbook states that “[a] contract of insurance is illegal if it
constitutes a contract to commit an illegal act or to reward someone for doing
so, as if, for instance, the insurers undertook to indemnify the assured
against the consequences of crimes which they knew he intended to commit
. . .” (MacGillivray on Insurance Law, supra, at
p. 320).
57
Chitty on Contracts (28th ed. 1999), vol. 1, states, at
p. 839:
Illegality may affect a contract in a number of ways but it is
traditional to distinguish between (1) illegality as to formation and (2)
illegality as to performance. Broadly speaking the first refers to the
situation where the contract itself is illegal at the time it is formed,
whereas the latter involves a contract which on its face is legal but which is
performed in a manner which is illegal. In this latter situation it is
possible for either both or only one of the parties to intend illegal
performance. Where a contract is illegal as formed, or it is intended that it
should be performed in a legally prohibited manner, the courts will not enforce
the contract, or provide any other remedies arising out of the contract.
58
In the United States, some courts have concluded there is a world
of difference between an insurance contract that explicitly insures crime and
one that does not. In Weeks v. New York Life Ins. Co., 122 S.E. 586
(1924), the Supreme Court of South Carolina held that the position that
“because an express contract to insure against death by legal execution would
contravene public policy, an ordinary life policy which does not except death
from such a cause should be declared unenforceable on grounds of public policy,
is . . . clearly untenable” (p. 588). Where an insured “takes
out an ordinary life insurance policy, to be matured by death from any cause,
no basis in reason or experience exists for assuming that the insured had any
intent at the time of making the contract to accelerate the maturity of the
policy” by committing a crime (p. 588).
59
If an insured and the insurer agreed to insure against the risk of death
while carrying cocaine bags in the insured’s stomach, the contract could not be
enforced by anyone, innocent beneficiary or not. By contrast, where the
agreement is lawful on its face but carried out in an illegal manner,
exceptions to the public policy apply. After all, public policy “does not make
the policy void, it merely makes it unenforceable by the criminal” (J. Lowry
and P. Rawlings, Insurance Law: Doctrines and Principles (1999), at
p. 168).
(8) Is There a Need to Reform the
Public Policy Rule?
60
For the purposes of the present appeal, it is sufficient to conclude
that an innocent beneficiary named in an insurance policy should not be
disentitled to insurance proceeds where the insured dies while committing a
criminal act and does not intend the loss. Public policy does not bar Maria
Oldfield’s claim.
61
Nevertheless, the distinction between an innocent beneficiary and those
who claim through the criminal’s estate should be considered. Public policy
has consistently refused to permit the criminal or those who claim through the
criminal to obtain insurance proceeds. Those who claim through the criminal
are denied, while innocent beneficiaries named in the policy are not. Ferguson
J. noted and I agree that the distinction seems arbitrary. As he held, “it is
difficult to explain why a criminal can benefit his family by naming them as
beneficiaries in an insurance policy but not by naming them in his will”
(p. 128). That there is an arbitrary distinction suggests the need to
loosen the public policy rule rather than restrict it.
62
The public policy rule has gradually been modified. A trickle of reform
occurred in Hardy, supra. In Hardy, Diplock L.J. proposed
a public policy test that would balance the public policy interests at stake.
He held (at pp. 767‑68):
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 if the right is not enforced.
63
In Saunders v. Edwards, [1987] 1 W.L.R. 1116 (C.A.), Bingham L.J.
expressed a similar balancing test (at p. 1134):
. . . it is unacceptable that the court should, on the first
indication of unlawfulness affecting any aspect of a transaction, draw up its
skirts and refuse all assistance to the plaintiff, no matter how serious his
loss nor how disproportionate his loss to the unlawfulness of his conduct.
64
In England, the public policy rule has been modified by the Forfeiture
Act 1982 (U.K.), 1982, c. 34. Under the Act, the court can modify the
public policy rule, “having regard to the conduct of the offender and of the
deceased”, “to such other circumstances as appear to the court to be material”
and to “the justice of the case” (s. 2(2)).
65
Although the rule was modified by statute, Phillips L.J. held that “the
judges would themselves have modified the rule” if the legislature had not done
so (Dunbar v. Plant, [1997] 4 All E.R. 289 (C.A.), at p. 310). He
added 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” (p. 310).
66
Other courts have declined to modify the public policy rule, holding
that it is up to the legislature to do so (Troja v. Troja (1994), 33
N.S.W.L.R. 269 (C.A.)).
67
It might be appropriate to modify the public policy rule so as to permit
an innocent person who claims through the criminal’s estate to take insurance
proceeds. Indeed, in Hardy, Diplock L.J. thought that the public policy
rule could be modified to permit the criminal to take insurance proceeds,
depending on “the nature of the anti‑social act” and “the nature of the
right asserted” (p. 768). Under England’s Forfeiture Act 1982,
courts can modify the effect of the forfeiture rule even where a person who has
unlawfully killed another seeks to acquire a benefit in consequence of the
killing. I leave the question to be decided either by the legislature or in
another case where the issue arises.
III. Conclusion
68
In conclusion, public policy does not apply to bar a claim by an
innocent beneficiary named in an insurance policy merely because the insured
dies while committing a crime. Maria Oldfield’s claim is not barred by public
policy or by any rule of contractual interpretation. In that light, I need not
consider whether public policy rules are inapplicable because the insurance
contract was obtained pursuant to a bona fide contract for value.
69
The appeal is dismissed with costs.
The following are the reasons delivered by
70
L’Heureux-Dubé J. — The
question in this case is whether an insurer is obliged to pay the innocent
beneficiary of an insurance policy issued to someone who died unintentionally
while committing a criminal act where the insurance contract did not contain an
exception for such criminal act. The whole issue turns around the forfeiture
rule, its rationale and the policy concerns it raises.
71
I have had the benefit of reading my colleague Major J.’s reasons and I
agree with the result he reaches. My concern relates to his analysis and
application of the forfeiture rule.
72
The purpose of the forfeiture rule was best summarized by Kirby P., now
of the High Court of Australia, dissenting, but not on this point, in Troja
v. Troja (1994), 33 N.S.W.L.R. 269 (C.A.), at p. 286:
The forfeiture rule is, in reality, an application
to what would otherwise be the operation of law of the equitable principles
which deny persons from gaining benefits from their own morally culpable
conduct. To prevent that happening, a court of equity is authorised to
impose a constructive trust to prevent the perpetrator’s gain. The trust will
be imposed by the court to achieve a just result and to prevent the unjust
enrichment of the wrongdoer. [Emphasis added.]
73
Absent the forfeiture rule or specific exclusions in the insurance
contract, the insurer would have to abide by the insurance contract and simply
pay the designated beneficiary the amount stipulated in the insurance policy
for which the insured paid the premiums. As put by R. B. Wuehler in “Rethinking
Insurance’s Public Policy Exclusion: California’s Befuddled Attempt to Apply an
Undefined Rule and a Call for Reform” (2001), 49 U.C.L.A. L. Rev. 651,
at pp. 652‑53:
More succinctly, insurance is merely a contract for indemnity from
loss. The risk of loss shifts from one party to a party that is more capable
of managing that risk because of its ability to distribute the risk among
similarly situated persons. With few limitations, agreeing parties are free to
contract for the transfer of any risk they choose.
74
The forfeiture rule is based on the public policy that “although a
wrongdoer cannot profit from his or her crime, neither should an insurance
company be allowed to abrogate its responsibilities under a contract by
invoking a rule of public policy” (Cory J., dissenting but not on this point,
in Brissette Estate v. Westbury Life Insurance Co., [1992] 3 S.C.R. 87,
at p. 107, citing Cleaver v. Mutual Reserve Fund Life Association,
[1892] 1 Q.B. 147 (C.A.). See also Standard Life Assurance Co. v. Trudeau
(1900), 31 S.C.R. 376).
75
This is why the forfeiture rule should be applied strictly and narrowly.
Any relaxation of the rule should be left to the legislature which sets public
policy, as was done in England. While a crime may prevent a person from
benefiting from that crime, it cannot affect the rights of innocent third
persons, which is precisely the case in this appeal.
76
Competing public policies must be balanced to ensure that no injustice
will result from a blindfold application of a public policy rule. As
Wilson J. indicated in Kosmopoulos v. Constitution Insurance Co.,
[1987] 1 S.C.R. 2, at p. 12, if the application of a rule leads to harsh
justice, the proper course to follow is to examine the rule itself rather than
affirm it and attempt to ameliorate its ill effects on a case‑by‑case
basis.
77
I am in agreement with Borins J.A. in this case ((2000), 49 O.R. (3d)
737) that what is at issue here is the balancing of two rules of public
policy. However, it is not so much a question of which public policy prevails
but rather ensuring that the objectives of competing public policies be
conciliated and that a just result ensues, as Borins J.A. states (at p. 750):
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.
And at pp. 749-50, he applied this reasoning to the facts of this
case in the following terms:
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.
78
Wuehler, supra, puts it this way, at p. 654:
Certainly there is some merit to the position that
wrongdoers should not be indemnified by insurance carriers, but instead should
be punished for their wrongdoing. On the other hand, however, every time
coverage is precluded pursuant to this theory, an innocent victim is left
uncompensated for his or her suffering and an otherwise enforceable contractual
obligation is extinguished without consideration. As these two interests
collide, the dispositive question that surfaces is, what level of misconduct
constitutes a significant enough violation of public policy to render an
insurance agreement void because it overcomes the competing public policy
considerations that favor extending coverage?
79
In that sense, there is no reason to distinguish between named beneficiaries
and beneficiaries claiming from the wrongdoer’s estate.
80
A policy which would enable a person to benefit from his own wrongdoing
should not be addressed through the relaxation of the forfeiture rule: it is
conceptually contradictory to relax the rule to permit wrongdoers to benefit
from their own unlawful act since the rule’s purpose is precisely to deny
persons from gaining benefits from their own wrongdoing. As for the
application of the forfeiture rule, the best approach, in my view, is to balance
competing policies to avoid injustices, such as here, where the beneficiary is
innocent.
81
I would dismiss the appeal.
Appeal dismissed with costs.
Solicitors for the appellant: Lerner & Associates,
Toronto.
Solicitors for the respondent: Singer, Kwinter, Toronto.