In a Superior Court application filed this week, the government invokes the Civil Remedies Act to lay claim to $51,000 awarded to Ved Dhingra, who killed his wife Kamlesh six years ago.
Last month, Ontario's top court ruled the Toronto man could collect on the policy because he was found not criminally responsible due to a mental disorder for battering and stabbing his long-estranged spouse to death.
The court did say the province could use the civil-remedies route to grab the money, which the government is now doing.
The Civil Remedies Act, enacted in 2002, aims to compensate victims of crime and prevent criminals and others from profiting from wrongdoing.
"The $51,000 in Canadian currency, which is the payment from Mrs. Dhingra's life-insurance policy, is proceeds of unlawful activity," the province states in its new filing.
"The court shall, except where it would clearly not be in the interests of justice, make an order forfeiting the property if the court finds that the property is the proceeds of unlawful activity."
Dhingra's lawyer, Eric Wolfman, said he was "disappointed" the government would use the act to go after the life-insurance cash.
"This piece of legislation was never meant do that — it was meant to combat organized crime," Wolfman said Thursday.
"This is not a grow-op, this is not a biker club headquarters."
Even though the act specifically includes people found not criminally responsible because of a mental disorder, Wolfman said whether the policy money constitutes proceeds of a crime will be "hotly contested."
Among the ground-breaking questions to be decided is whether in fact a crime was even committed, he said.
The court can turn down the government's request if it decides it would not serve justice to grant it.
The case is scheduled to be heard in September. In the interim, the government is seeking to have funds frozen until the case is decided.
Dhingra suffered from a mental disorder for many years and was once found naked in the street. He took out the policy in 1998.
He was charged with second-degree murder in June 2006 after he hit his estranged wife several times on the head with a white marble religious statue at her home, then stabbed her 24 times in the neck and body. He also tried to kill himself.
Then 66 years old, he was found not criminally responsible in 2008 and later granted a conditional discharge. He was released from a mental institution in October 2010 and claimed the policy money.
Normally, common-law rules prevent criminals from cashing in on their crimes, but the appellate justices decided Dhingra could not be considered a criminal because of his mental state when he killed his wife.