Macaura v. Northern Assurance Co

It is the leading authority for the proposition that a shareholder — even a sole shareholder — has no insurable interest in the assets of his company. It is the case to cite whenever a question turns on the difference between economic interest and legal or equitable interest, and it is examined in this course alongside the fire-insurance rule that interest must exist both when the policy is effected and when the loss occurs.

M owned an estate carrying standing timber. He effected a policy of fire insurance on the timber. He then sold the estate to a company in which he was the sole shareholder — a one-man company. The policy was not transferred; it remained in his own name.

While the policy was still current, the timber was destroyed by fire. M sued the insurer on the policy.

Did M have an insurable interest in the timber at the time of the loss?

No, and the claim failed on two connected grounds.

First, the timber had become the property of the company. A company is a legal person distinct from its members, and its property is its own. M, as shareholder, had a right to a share in the company's profits and in its surplus on a winding up; he had no legal or equitable interest in any particular asset the company owned.

Second, and consequentially, M had no insurable interest at the time of loss. In a fire policy the interest must exist both at the date of the insurance and at the date of the loss; in marine insurance s. 8(1) of the Marine Insurance Act 1963 requires it at the time of the loss.

The commercial reality was that M felt the whole of the loss: he owned all the shares, so the destruction of the timber reduced the value of his holding by the full amount. The law nevertheless refused the claim, because insurable interest is tested by legal or equitable relation to the subject-matter, not by who in fact feels poorer. That is a deliberate choice: it keeps a bright line between an insurance and a wager, and it is why insurable interest is a doctrine at all.

Collingridge v. Royal Exchange Assurance. C's house was to be acquired by a Municipal Board, but the conveyance had not been executed when fire destroyed the house. It was held that at the time of loss the property was still C's, and he was entitled to the claim — even though he was about to be paid for it anyway.

Read together, the two cases state one proposition: what matters is legal or equitable interest at the moment of loss, not the commercial reality of who will feel the loss. Macaura is the case where economic loss was not enough; Collingridge is the case where legal title was enough although there was no real economic loss.

Distinguish the two regimes. In marine insurance s. 6 of the Marine Insurance Act 1963 makes a policy without interest a wagering contract and therefore void. In fire and other non-statutory insurances the position is the common-law one: the policy is unenforceable rather than void from the beginning. State which regime you are in before you state the consequence.