Company law: property rights; shareholders rights in company property.
Facts: Macaura, the owner of some land on which timber was growing, formed a company. In return for all the fully paid shares in the company, he transferred ownership of the land and timber to the company. The company was formed to cut and mill the timber. Macaura had insured the timber in his own name with the National Assurance Co Ltd but did not transfer the insurance policy to the company. The timber was destroyed by fire and Macaura claimed compensation for the loss from the insurer. At the time, insurance law required that an insurance policy was only valid if the insurer had an ‘insurable interest’ in the property that had been damaged and destroyed. The insurer claimed that, because the land and timber was owned by the company, Macaura himself had no insurable interest, even though he owned all the shares on the company.
Issue: Did Macaura, as the owner of all the shares in the company, have an insurable interest in property owned by the company?
Decision: Macaura had no insurable interest in the Company’s property.
Reason: The assets of a company belong to the company itself, and not to its shareholders. Lord Wrenbury said [at 633] “…the corporator even if he holds all the shares is not the corporation… neither he nor any creditor of the company has any property legal or equitable in the assets of the corporation.”.
Note: Section 17 of the Insurance Contracts Act now provides that if an insured person suffers quantifiable pecuniary or economic loss because of damage to or destruction of insured property, the insurance is not invalid just because the insured person did not have a legal or beneficial interest in the property.