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ACCA Applied Skills · Corporate and Business Law (Global) · Corporations and legal personality

Delta Co's only factory is destroyed by fire. Ravi owns all of Delta Co's shares and also personally bought the factory building, which he leases to Delta Co. The insurance policy on the building was taken out by Delta Co in its own name. The insurer refuses to pay Delta Co's claim. Applying the rules on separate personality, what is the likely position?

Delta Co's claim is likely to fail. The building belongs to Ravi, not the company, and Ravi is not the insured party. Separate legal personality means a shareholder's control or ownership of shares gives no interest in the property itself.

  1. ADelta Co has no insurable interest in the building as the property belongs to Ravi, and Ravi cannot claim under Delta Co's policyCorrect
  2. BDelta Co can claim because Ravi owns all its shares and so effectively owns the building
  3. CRavi can claim under the policy because he controls the company

Explanation

Following Macaura v Northern Assurance, a shareholder has no insurable interest in company assets, and a company has no interest in property owned by someone else. Here the building belongs to Ravi, so Delta Co lacks the interest, and Ravi is not the policyholder. Treating Ravi as owner of the company's property ignores separate personality.

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