Case name & citation: Macaura v Northern Assurance Co Ltd  AC 619
Court and jurisdiction: The House of Lords, England and Wales
Decided on: 03 April 1925
The bench of judges: Lord Sumner, Lord Wrenbury, Lord Phillimore, Lord Buckmaster
Area of law: Separate property
What is the case about?
Macaura v Northern Assurance Co Ltd (1925) is a UK company law case concerning the interest of shareholders in the property of a company.
It was held that the insured must have a legal or equitable relation to the object insured.
Facts of the case (Macaura v Northern Assurance Co Ltd)
The owner of a timber estate sold the timber to a company in exchange for stock in the company. As a result, he (Macaura) was the major shareholder of the timber company and was also its creditor to a large extent. He took out an insurance policy in his own name on the timber. After the timber was destroyed by fire, he filed a claim with the insurance company for the resulting loss.
But the insurance company refused to settle the claim.
Was the insurance company liable to indemnify the claimant for the loss of timber by fire?
Judgment of the Court in Macaura v Northern Assurance Co Ltd
Due to the fact that the timber was not insured under the company’s name, the insurance provider was found to be exempt from liability towards the claimant.
The timber belonged to the company, and therefore, only the company could obtain an insurance policy for it.
In this case, it is the company that possesses the insurable interest (and not the shareholder). Since the insured party had no insurable interest in the timber which was the property of the company, the Court ruled that he could not file an insurance claim when the timber was destroyed by fire.
Macaura’s claim was denied despite the fact that the loss of timber had a negative impact on his finances.
(To understand this judgment better, please go through the reasoning below.)
Governing principles behind the case
As a legal person, a company has the capacity to own property in its own name, as well as to enjoy and part with that ownership. Even though its shareholders are the ones who contribute its capital and assets, they are not the private and joint owners of the property that the company has.
No shareholder has any right to any item of property owned by the company, for he has no legal or equitable interest in the company’s property. If he purchases an insurance policy on the property that belongs to the company, he will not be able to make a claim against the insurer in the event that the property owned by the company is damaged or destroyed. As a consequence, a member does not have an insurable interest in the property of the company.
Takeaway from the case
Neither a shareholder nor a simple creditor of a company has any insurable interest in any particular asset of the company, despite the fact that both the shareholder and the creditor may experience financial hardship in the event that their company’s property is destroyed.
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