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IAI Actuarial Core Principles · Business Management · Separate legal personality, directors' duties, shareholders and partnerships

Vikram Rao, a shareholder of Rao Engineering Ltd, owns a warehouse that the company uses. A fire destroys the stock, which belongs to the company, and Vikram claims on his personal insurance policy for the loss of value of his shares. Which reasoning best supports the likely outcome?

The stock is the company's own property, and a shareholder owns only shares, not the company's assets. Vikram therefore has no insurable interest in the specific stock merely through shareholding, which follows from separate legal personality.

  1. AThe stock is the company's property; a shareholder has no insurable interest in specific company assets merely by holding sharesCorrect
  2. BVikram owns the stock proportionally and can claim for it
  3. CThe stock belongs to the directors jointly, so only they can claim
  4. DVikram can claim because shareholders are agents of the company
  5. The stock belongs to nobody until the company is wound up

Explanation

Following Macaura v Northern Assurance, company assets belong to the company, not its shareholders, who own only shares. So a shareholder lacks an insurable interest in specific company property. The other options misstate ownership of company assets.

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