Kosmopoulos v. Constitution
Insurance Co., [1987] 1 S.C.R. 2
Constitution Insurance Company of Canada,
Simcoe & Erie General Insurance Company, Providence Washington Insurance
Company, Security National Insurance Company, Upper Canada Insurance Company,
Canadian Home Assurance Company, The Contingency Insurance Company Limited Appellants Cross‑Respondents
(Defendants)
v.
Andreas Kosmopoulos and Kosmopoulos
Leather Goods Limited Respondents
Cross‑Appellants (Plaintiffs)
and
Aristides Roussakis and Art Roussakis
Insurance Agency Limited Cross‑Respondents
(Defendants)
indexed as:
kosmopoulos v. constitution insurance co.
File No.: 17911.
1985: November 1, 6; 1987: January 29.
Present: Beetz, McIntyre, Chouinard*
Lamer, Wilson, Le Dain and La Forest JJ.
*Chouinard J. took no part in the
judgment.
on appeal from the court of appeal for
ontario
Insurance ‑‑
Fire insurance ‑‑ Insurable interest ‑‑ Sole
shareholder holding insurance policy on company's assets ‑‑ Whether
or not insurable interest.
Company law ‑‑
Corporate personality ‑‑ Sole shareholder company ‑‑
Sole shareholder holding insurance policy on company's assets ‑‑
Whether or not insurable interest.
Respondent Kosmopoulos
incorporated his leather goods business and became sole shareholder and
director of the company. Virtually all documentation required in the business
continued to refer to the sole proprietorship and made no reference to the
company and the lease continued in respondent's name when the landlord's
approval to assign the lease was not obtained. The fire insurance policies
showed the insured as being the sole proprietorship even though the insurance agency
was well aware of the fact that the business was being carried on by the
incorporated company. A fire in the adjoining premises damaged the company's
assets and the rented premises. When the appellant companies refused payment on
proof of loss, the present action was commenced. At trial, Kosmopoulos was
found to have an insurable interest not only in the premises but also in the
assets of the company and was given judgment accordingly. The agency was found
liable for undertaking to see that some assets which were destroyed were
insured, and had there been a finding of no insurable interest in the company's
assets, would have been found liable for that loss as well. The Ontario Court
of Appeal dismissed the insurers' appeals and Kosmopoulos' cross‑appeal.
Held: The appeal and cross‑appeal should
be dismissed.
Per Beetz, Lamer, Wilson, Le Dain and La
Forest JJ.: The corporate veil should not be lifted here, even though it
theoretically could be lifted to do justice. Those who have chosen the benefits
of incorporation must bear the corresponding burdens, and if the veil is to be
lifted, it should only be done in the interests of third parties who would
otherwise suffer as a result of the choice. If the corporate veil were to be
lifted here, an indefensible distinction might emerge between companies with
one shareholder and those with more than one shareholder.
A bailment cannot exist if
the bailor still has possession and control of the items alleged to be bailed.
To assert that Mr. Kosmopoulos possessed and controlled the property in his
personal capacity would lift the veil and regard Mr. Kosmopoulos as separate
and distinct from the company rather than as its director and senior employee.
Mr. Kosmopoulos was a sole shareholder with neither a legal nor equitable
interest in the company's assets.
The definition restricting
insurable interest to legally enforceable rights is merely "a technical
objection...which has no real merit...as between the assured and the
insurer". The policies said to underlie this definition‑‑the
policy against wagering under guise of insurance, the policy favouring
limitation of indemnity, and the policy to prevent temptation to destroy
insured property‑‑do not appear to require a restrictive definition
and would be as well served by the factual expectancy test. Macaura
should no longer be followed. If an insured can demonstrate "some relation
to, or concern in the subject of insurance, which relation or concern by the
happening of the perils insured against may be so affected as to produce a
damage, detriment, or prejudice to the person insuring", that insured
should be held to have a sufficient interest. To "have a moral certainty
of advantage or benefit, but for those risks or dangers", or "to be
so circumstanced with respect to [the subject matter of the insurance] as to
have benefit from its existence, prejudice from its destruction" is to
have an insurable interest in it.
Per McIntyre J.: The Macaura rule
should not be accepted to compel a holding that a sole shareholder and sole
director of a company could not have an insurable interest in the assets of the
company. Modern company law now permits the creation of companies with one
shareholder. The identity then between the Company and that sole shareholder
and director is such that an insurable interest in the Company's assets may be
found in the sole shareholder.
Cases Cited
By Wilson J.
Not followed: Macaura v. Northern Assurance Co.,
[1925] A.C. 619; Guarantee Co. of North America v. Aqua‑Land
Exploration Ltd., [1966] S.C.R. 133, reversing (1964), 44 D.L.R. (2d) 645; Wandlyn
Motels Ltd. v. Commerce General Insurance Co., [1970] S.C.R. 992; Clark
v. Scottish Imperial Insurance Co. (1879), 4 S.C.R. 192; considered:
Lucena v. Craufurd (1806), 2 Bos. & Pul. (N.R.) 269, 127 E.R. 630; referred
to: American Indemnity Co. v. Southern Missionary College, 260
S.W.2d 269 (1953); Salomon v. Salomon & Co., [1897] A.C. 22; Associated
Portland Cement Manufacturers (1910), Ltd. v. Ashton, [1915] 2 K.B. 1; Patterson
v. Harris (1861), 1 B. & S. 336, 121 E.R. 740; Wilson v. Jones
(1867), L.R. 2 Ex. 139; Blascheck v. Bussell (1916), 33 T.L.R. 51; Stock
v. Inglis (1884), 12 Q.B.D. 564; Zimmerman v. St. Paul Fire & Marine
Insurance Co. (1968), 1 D.L.R. (3d) 277; Norwich Union Fire Insurance
Society Ltd. v. Traynor, [1972] N.Z.L.R. 504; Keefer v. Phoenix
Insurance Co. (1901), 31 S.C.R. 144; Van Cure v. Hartford Fire Insurance
Co., 253 A.2d 663 (1969); Pacific National Fire Insurance Co. v. Watts,
97 So.2d 797 (1957); Royal Insurance Co. v. Sisters of the Presentation,
430 F.2d 759 (1970).
By McIntyre J.
Referred to: Macaura v. Northern Assurance Co.,
[1925] A.C. 619; Lucena v. Craufurd (1806), 2 Bos. & Pul. (N.R.)
269, 127 E.R. 630.
Statutes and Regulations Cited
Business
Corporations Act, 1982,
S.O. 1982, c. 4, s. 134(1)(b), 184, 186, 187, 188, 189, 244(b)(iii),
245, 247(1), (2).
California
Insurance Code, para.
281.
Insurance
Act, R.S.O. 1980, c. 218,
s. 125, stat. con. 1, stat. con. 2.
Life
Insurance Act, 14 Geo. 3,
c. 48.
Louisiana
Insurance Code, R.S.
22:614, para. 614(B).
Marine
Insurance Act, 19 Geo. 2,
c. 37.
New
York Insurance Law, art.
34, para. 3401.
Utah
Insurance Code, s. 31A‑21‑104(2)(b).
Wisconsin
Insurance Code, s.
631.07.
Authors Cited
Baer,
Marvin G. "Annotation" (1983), 1 C.C.L.I. 83.
Baer,
Marvin G. "Recent Developments in Canadian Law: Insurance Law"
(1985), 17 Ottawa Law Rev. 631.
Brown,
Craig and Julio Menezes. Insurance Law in Canada. Toronto: Carswells,
1982.
Campbell,
A. J. "Some Aspects of Insurable Interest" (1949), 27 Can. Bar
Rev. 1.
Colinvaux,
Raoul. The Law of Insurance, 5th ed. London: Sweet & Maxwell, 1984.
Couch,
George James. Cyclopedia of Insurance Law, vol. 3, 2nd ed. By Ronald A.
Anderson. Revised volume by Mark S. Rhodes. Rochester, N.Y.: Lawyers Co‑operative
Publishing Co., 1984.
Gower,
L. C. B. Modern Company Law, 4th ed. London: Stevens & Sons, 1979.
Harnett,
Bertram and John V. Thornton. "Insurable Interest in Property: A Socio‑Economic
Reevaluation of a Legal Concept", 48 Columbia Law Rev. 1162 (1948).
Hasson,
Reuben A. "Reform of the Law Relating to Insurable Interest in Property‑‑Some
Thoughts on Chadwick v. Gibraltar General Insurance" (1983‑84),
8 Can. Bus. L. J. 114.
Kahn‑Freund,
O. "Some Reflections on Company Law Reform" (1944), 7 M.L.R.
54.
Keeton,
Robert. Basic Text on Insurance Law. St. Paul, Minn.: West Publishing
Co., 1971.
McLeod,
Rod M. "Aqua‑Land Exploration Ltd. v. Guarantee Co. of North
America et al.: Insurable Interest in an Indemnity Policy" (1966), 24 U.
of T. Fac. Law Rev. 154.
Ninth
Decennial Digest, vol.
21. Part 1, American Digest System 1976‑81. "Insurance". St.
Paul, Minn.: West Publishing Co., 1983.
Sutton,
K. C. T. Insurance Law in Australia and New Zealand. Sydney: Law Book
Co., 1980.
Ziegel,
Jacob S. "Shareholder's Insurable Interest‑‑Another Attempt to
Scuttle the Macaura v. Northern Assurance Co. Doctrine: Kosmopoulos
v. Constitution Insurance Co." (1984), 62 Can. Bar Rev. 95.
APPEAL AND CROSS‑APPEAL
from a judgment of the Ontario Court of Appeal (1983), 149 D.L.R. (3d) 77, 42
O.R. (2d) 428, [1983] I.L.R. para. 1‑1660 dismissing the insurers' appeal
and Kosmopoulos' cross‑appeal (against the insurance agency) from a
judgment of R. E. Holland J., [1981] I.L.R. para. 1‑1449, in favour of
Kosmopoulos in an action on a fire insurance policy. Appeal and cross‑appeal
dismissed.
Ronald J. Rolls, Q.C., for the appellants.
W. P. Somers, Q.C., and Christine Mauro, for the
respondents.
V. R. P. Bersenas, for the cross‑respondents.
The judgment of Beetz,
Lamer, Wilson, Le Dain and La Forest JJ. was delivered by
1. Wilson
J.‑‑The issue in this appeal is whether a sole shareholder
of a corporation has an insurable interest in the assets of that corporation.
The traditional view is that a sole shareholder has neither the legal nor the
equitable interest in the corporate assets required for a valid insurance on
those assets: Macaura v. Northern Assurance Co., [1925] A.C. 619 (H.L.)
In examining the issue it will be necessary to consider first whether Macaura
would provide the insurers with a valid defence in this case and, if so,
whether Macaura is or should continue to be the law in Ontario.
1. The Facts
2. On February 7, 1972, the respondent,
Andreas Kosmopoulos, entered into a commercial lease for premises located in
the City of Toronto. From these premises he operated a business of
manufacturing and selling leather goods under the name of Spring Leather Goods.
This business was carried on as a sole proprietorship.
3. On the advice of his solicitor Mr.
Kosmopoulos incorporated Kosmopoulos Leather Goods Limited ("the
company") in order to protect his personal assets. Mr. Kosmopoulos was the
sole shareholder and director of the company. Even though the business was
thereafter technically carried on through the limited company, Mr. Kosmopoulos
always thought that he owned the store and its assets. Virtually all the
documentation required in the business, including bank accounts, sales tax
permits and hydro and telephone accounts, made no reference to the company but
rather to "Andreas Kosmopoulos carrying on business as Spring Leather
Goods" (or some similar phrase). Although Mr. Kosmopoulos' solicitor tried
to obtain the approval of the landlord to an assignment of the lease of the
premises from Mr. Kosmopoulos to the company, this approval was never obtained.
The lessee at all material times was Mr. Kosmopoulos and not the company.
4. Soon after Mr. Kosmopoulos started
conducting his business in the leased premises he contacted the respondent,
Aristides Roussakis, in order to obtain insurance for the contents of the
business premises. The respondents, Aristides Roussakis and Art Roussakis
Insurance Agency Limited ("the insurance agency"), obtained a fire
insurance policy with the General Accident Group for coverage from March 14,
1972 to March 14, 1975. Even though the insurance agency was well aware of the
fact that the business was being carried on by an incorporated company, the
insured was described on the policy as "Andreas Kosmopoulos O/A Spring
Leather Goods". This policy was renewed but expired before the date of the
loss and was replaced with subscription policies issued by Simcoe‑Bay
Group and Commercial Insurance Company. The appellant insurance companies are
subscribing companies to the two replacement policies. Both of the replacement
policies showed the insured as "Andreas Kosmopoulos O/A Spring Leather
Goods".
5. On May 24, 1977 a fire broke out in
the adjoining premises and caused fire, water and smoke damage to the assets of
the company and to the rented premises. Mr. Kosmopoulos filed proofs of loss
under the replacement policies on December 6, 1977 but the appellant companies
refused payment and the present action was commenced.
2. The Courts Below
6. On October 29, 1981 R. E. Holland J.
of the Supreme Court of Ontario held that Mr. Kosmopoulos was the tenant of the
premises in which the business was carried on. Therefore, on established
authority, he had an insurable interest in the leasehold improvements and
damage to these totalled $1,699.26.
7. Holland J. also observed that on
established authority Mr. Kosmopoulos could not recover for the destruction of
the assets of the business because these were owned by the company which he had
incorporated. But he held that the source of that principle, Macaura v.
Northern Assurance Co., supra, could be distinguished because in
this case the company was a mere "fiction" which had nothing to do
with the risk that was underwritten. Mr. Kosmopoulos was therefore held to have
an insurable interest and judgment was given in his favour against the
appellant companies for the total amount of $68,726.26, plus interest.
8. Mr. Kosmopoulos also claimed against
the insurance agency. Holland J. found the agency liable for undertaking to see
that the patterns which were destroyed in the fire were insured. Judgment was
given in favour of Mr. Kosmopoulos for $2,500 which was the value of the
patterns. Had he found that Mr. Kosmopoulos had no insurable interest Holland
J. would have found the insurance agency fully liable for the loss because it
was put on inquiry to obtain the correct name of the insured and was negligent
in failing to do so.
9. On June 8, 1983 the Court of Appeal
of Ontario dismissed the insurers' appeals and Mr. Kosmopoulos' cross‑appeal
against the insurance agency. Zuber J.A., MacKinnon A.C.J.O. and Brooke J.A.
concurring, considered whether the Court of Appeal was bound to accept Macaura
as the law in Ontario in light of the decisions of this Court in Guarantee
Co. of North America v. Aqua‑Land Exploration Ltd., [1966] S.C.R.
133, and Wandlyn Motels Ltd. v. Commerce General Insurance Co., [1970]
S.C.R. 992. After examining these decisions, Zuber J.A. concluded:
... the Supreme Court of
Canada has accepted the rule in Macaura only to the extent that it
needed to do to decide the Aqua‑Land case, i.e., that one
shareholder of three had no insurable interest in the assets of the
corporation. Therefore, the issue of whether a sole shareholder has an
insurable interest in the assets of the corporation, in my view, remains open
in this province.
He then went on to point out that in the
days when both the federal and provincial legislation required a company to
have more than one shareholder the issue was of little significance. But now
that single shareholders and single directors are possible under both the
Canada and Ontario Business Corporations Acts it has assumed new importance. He
saw no reason to impose "the rigidity of the Macaura rule on this
recent development in company law". He then referred to American
Indemnity Co. v. Southern Missionary College, 260 S.W.2d 269 (Tenn. 1953)
in which a parent company was held to have an insurable interest in the assets
of its subsidiary and in particular the following passage from the judgment of
Neil C.J., at p. 272:
We think
the two corporations are separate entities, but their existence as such is a
mere fiction of the law. The subordinate corporation does the bidding of its
parent down to the minutest detail. The domination of the parent over its
offspring was so complete as to make them practically indistinguishable except
in name. There can be no other reasonable conclusion from the admitted facts
but that Mercentile Enterprises was an agency or instrumentality of the
complainant, and all property including the money burglarized was in reality
the property of the latter, subject of course to the claims of creditors of the
former.
In effect, Neil C.J. "lifted the
corporate veil" in order to find an insurable interest.
10. On November 21, 1983 this Court granted
the insurers leave to appeal and granted Mr. Kosmopoulos and Kosmopoulos
Leather Goods Limited leave to cross‑appeal.
3. The Issue
11. Counsel for the appellant insurance
companies submit that Mr. Kosmopoulos as sole shareholder had no legal or
equitable interest in the company's assets. They urge the Court to follow Macaura.
Counsel for the respondents argue that the corporate veil should be lifted and,
when this is done, it becomes clear that the company's property was, in law,
the property of Mr. Kosmopoulos. The Macaura case therefore provides no
defence of lack of insurable interest to the insurers. Alternatively, it is
submitted by the respondents that Mr. Kosmopoulos had an insurable interest as
bailee of the company's assets. Finally, the respondents urge that this Court
should no longer follow Macaura. I shall deal with the respondents'
submissions in order.
(a) "Lifting the Corporate Veil"
12. As a general rule a corporation is a
legal entity distinct from its shareholders: Salomon v. Salomon & Co.,
[1897] A.C. 22 (H.L.) The law on when a court may disregard this principle by
"lifting the corporate veil" and regarding the company as a mere
"agent" or "puppet" of its controlling shareholder or
parent corporation follows no consistent principle. The best that can be said
is that the "separate entities" principle is not enforced when it
would yield a result "too flagrantly opposed to justice, convenience or
the interests of the Revenue": L. C. B. Gower, Modern Company Law
(4th ed. 1979), at p. 112. I have no doubt that theoretically the veil could be
lifted in this case to do justice, as was done in American Indemnity Co. v.
Southern Missionary College, supra, cited by the Court of Appeal of
Ontario. But a number of factors lead me to think it would be unwise to do so.
13. There is a persuasive argument that
"those who have chosen the benefits of incorporation must bear the
corresponding burdens, so that if the veil is to be lifted at all that should
only be done in the interests of third parties who would otherwise suffer as a
result of that choice": Gower, supra, at p. 138. Mr. Kosmopoulos
was advised by a competent solicitor to incorporate his business in order to
protect his personal assets and there is nothing in the evidence to indicate
that his decision to secure the benefits of incorporation was not a genuine
one. Having chosen to receive the benefits of incorporation, he should not be
allowed to escape its burdens. He should not be permitted to "blow hot and
cold" at the same time.
14. I am mindful too of this Court's
decision in the Aqua‑Land Exploration Ltd. case, supra, in
which the Court did not "lift the veil" in order to find that one of
three shareholders in a corporation had an insurable interest in its asset. So
also in the Wandlyn Motels Ltd. case, supra, the Court refused to
regard a motel owned by a man who held all but two of the shares of the
insured, Wandlyn Motels Ltd., as the property of that corporation. If the
corporate veil were to be lifted in this case, then a very arbitrary and, in my
view, indefensible distinction might emerge between companies with more than
one shareholder and companies with only one shareholder: for a recent comment
on the arbitrary and technical distinctions that would be created by lifting
the corporate veil in this case, see Jacob S. Ziegel, ``Shareholder's Insurable
Interest‑‑Another Attempt to Scuttle the Macaura v.
Northern Assurance Co. Doctrine: Kosmopoulos v. Constitution
Insurance Co.'' (1984), 62 Can. Bar Rev. 95, at pp. 102‑03. In
addition, it is my view that if the application of a rule leads to harsh
justice, the proper course to follow is to examine the rule itself rather than
affirm it and attempt to ameliorate its ill effects on a case‑by‑case
basis.
15. For all these reasons, I would not lift
the corporate veil in this case. The company was a legal entity distinct from
Mr. Kosmopoulos. It, and not Mr. Kosmopoulos, legally owned the assets of the
business.
(b) Mr. Kosmopoulos as Bailee
16. It is submitted by counsel for the
respondents that Mr. Kosmopoulos was in possession and control of the stock and
merchandise of the corporation and was responsible for its safekeeping. This
was said to make Mr. Kosmopoulos a bailee of the assets for the corporation and
to give him an insurable interest. But there does not appear to be any evidence
of an express bailment. If Mr. Kosmopoulos possessed and controlled the
property of the corporation merely by virtue of his being director and senior
employee of the corporation, his possession and control would be that of the
corporation. Indeed, there is authority to the effect that a servant cannot,
except in exceptional circumstances, be a bailee of his master's goods: Associated
Portland Cement Manufacturers (1910), Ltd. v. Ashton, [1915] 2 K.B. 1. A
bailment cannot exist if the bailor still has possession and control of the
items alleged to be bailed. To assert that Mr. Kosmopoulos possessed and
controlled the property in his personal capacity would be to lift the veil and
regard Mr. Kosmopoulos as separate and distinct from the company rather than as
its director and senior employee. For the reasons I have given I would not lift
the corporate veil in this case. Accordingly, I find no merit in the bailment argument.
17. I would conclude, therefore, that Mr.
Kosmopoulos was a sole shareholder with neither a legal nor an equitable
interest in the assets of the company. If Macaura is presently the law
in Ontario and should continue to be the law in Ontario, then the defence of
lack of insurable interest must succeed. It is to that question that I now
turn.
(c) The Macaura Principle
18. A review of the Macaura
principle requires, I believe, some analysis of the background against which
the decision was made, an examination of the decision itself and of the way in
which it has been applied in Canada.
19. Over a century before the House of
Lords decided Macaura, it had considered the nature of an insurable
interest in Lucena v. Craufurd (1806), 2 Bos. & Pul. (N.R.) 269, 127
E.R. 630. In that case the Royal Commissioners had obtained policies of
insurance on several ships and their cargos. During a voyage from the United
Provinces several of the ships were lost at sea before reaching a British port.
The Royal Commissioners argued (in the first count) that an Act of Parliament,
which authorized them in time of war to take possession of ships and cargos
belonging to inhabitants of the United Provinces and detained in or brought to
British ports, gave them sufficient interest to insure the ships. It was also
alleged (in the second count) that the insurance was obtained for the benefit
of the Crown and that the Crown had an insurable interest. The House of Lords
ordered a new trial because of misdirection of the jury on the first count. At
the new trial there was a verdict for the plaintiffs on the second count and
this was sustained on appeal. Accordingly, the frequently cited opinions of
their Lordships on the nature of an insurable interest were not critical to the
ultimate disposition of the case. Nevertheless, these opinions form the substratum
of the subsequent debate over the nature of an insurable interest.
20. Lawrence J. expressed what is now
called by academic commentators the "factual expectancy test" at p.
643:
...interest does not
necessarily imply a right to the whole, or a part of a thing, nor necessarily
and exclusively that which may be the subject of privation, but the having some
relation to, or concern in the subject of the insurance, which relation or
concern by the happening of the perils insured against may be so affected as to
produce a damage, detriment, or prejudice to the person insuring; and where a
man is so circumstanced with respect to matters exposed to certain risks or
dangers, as to have a moral certainty of advantage or benefit, but for those
risks or dangers he may be said to be interested in the safety of the thing. To
be interested in the preservation of a thing, is to be so circumstanced with
respect to it as to have benefit from its existence, prejudice from its
destruction.
To Lawrence J. a moral certainty of profit
or loss was a sufficient interest.
21. Lord Eldon was somewhat nervous of the
"moral certainty" test for an insurable interest. He said at p. 650:
This is
not a case in which there is any averment of an interest in these commissioners
beneficial to themselves, and the question is, Whether the power, or faculty,
or right of concern and management which these commissioners might or might not
have had, which they would have had if the ships had come into port, and which
they might have ceased to have the moment after, be the subject of a legal
insurance? Since the 19 Geo. 2 it is clear that the insured must have an
interest, whatever we understand by that term. In order to distinguish that
intermediate thing between a strict right, or a right derived under a contract,
and a mere expectation or hope, which has been termed an insurable interest, it
has been said in many cases to be that which amounts to a moral certainty. I
have in vain endeavoured however to find a fit definition of that which is
between a certainty and an expectation; nor am I able to point out what is an
interest unless it be a right in the property, or a right derivable out of some
contract about the property, which in either case may be lost upon some
contingency affecting the possession or enjoyment of the party. In the 19 Geo.
2, as well as in every other statute and charter relating to insurance, the
objects of insurance are plainly described to be ships, cargoes, wares,
merchandize, or effects. One or two later statutes mention property; but as to
expectation of profits and some other species of interest which have been
insured in later times, there is nothing to show that they were considered as
insurable. I do not wish that certain decisions which have taken place since
the 19 Geo. 2 should be now disturbed, but considering the caution with which
the Legislature has provided against gambling by insurances upon fanciful
property, one should not wish to see the doctrines of those cases carried
further, unless they can be shown to be bottomed in principles less
exceptionable than they would be found to be upon closer investigation.
Because he required a legally enforceable
right of some kind in order to constitute an insurable interest, he said that,
if he had to pronounce on the first count, he would have held that the Act of
Parliament did not afford a sufficient legal basis for an insurable interest
since the Royal Commissioners acquired no legal rights over the ships until
they reached British ports. Besides emphasizing the difficulty of identifying
an "intermediate thing" between a legal right and a mere expectation
in the passage immediately supra, Lord Eldon elsewhere stressed the problem
of ascertaining the limit on who could insure. He said at pp. 651‑52:
If moral certainty be a
ground of insurable interest, there are hundreds, perhaps thousands, who would
be entitled to insure. First the dock company, then the dock‑master, then
the warehouse‑keeper, then the porter, then every other person who to a
moral certainty would have any thing to do with the property, and of course get
something by it.
Before turning to an examination of the
later cases which considered the divergent opinions expressed in Lucena v.
Craufurd, supra, it is appropriate at this point to assess the two
reasons cited by Lord Eldon in support of his position.
22. It is interesting that Lord Eldon
should have advanced in support of the restrictive definition of insurable
interest the virtue of certainty and pointed to the alleged lack of certainty
which would, in his view, result from a broader definition. Brown and Menezes, Insurance
Law in Canada (1982), at p. 84, suggest the very opposite:
After Macaura, it is
no longer possible to claim merely that one would be adversely affected by the
loss; the insured must assert that he owned an interest in the objects
destroyed. This provides the illusion of great certainty. Property law is among
the most technical and certain segments of the law. This certainty is totally
illusory because the new formulation makes no concessions either to the reasons
for which insurable interest is a component of insurance law or for commonplace
business transactions....Assuming that an insurable interest in
"things" must mean property, among the simple questions raised are
matters such as how does one own a direct interest in property which is not in
existence at the time of the contract? Can next season's crops or fluctuating
inventory be insured? Are warehousing and other bailee policies subject to the
law as set out in Macaura so as to limit the right to insure to the
bailee's liability to the bailor?
Lawrence J.'s view of insurable interest
avoids these problems and, in my view, provides a readily ascertainable
standard.
23. Lord Eldon's concern that a broader
definition of insurable interest would lead to too much insurance may also be
illusory. Insureds will still have to disclose all material circumstances (see
the Insurance Act, R.S.O. 1980, c. 218, s. 125, stat. con. 1) and
declare the nature of their interests (Insurance Act, supra, s.
125, stat. con. 2) to the insurer in order to enable it to judge the risk to be
taken. If the insurer cannot estimate the likelihood of the loss occurring
(because, for example, the information is in the hands of third parties) then
it does not have to write the policy. It can also protect itself by limiting
its liability or it can charge larger premiums. As is stated in a learned
article by Bertram Harnett and John V. Thornton, "Insurable Interest in
Property: A Socio‑Economic Reevaluation of a Legal Concept," 48 Columbia
Law Rev. 1162 (1948), at p. 1175, "an effective curb on excessive
insurance is the general ability of insurance carriers to decline risks, or
insert protective clauses". I recognize that a broadening of the
definition of insurable interest may increase the liability of the insurance
companies upon the occurrence of a single insured event owing to an increased
number of policies for the same risk. But insurance companies have always faced
the difficult task of calculating their total potential liability arising upon
the occurrence of an insured event in order to judge whether to make a
particular policy or class of policies and to calculate the appropriate premium
to be charged. It is not for this Court to substitute its judgment for the
sound business judgment and actuarial expertise of insurance companies by
holding that a certain class of policies should not be made because it will
result in "too much insurance".
24. I would have thought that a stronger
argument could be made that there is too little insurance. Why should the
porter in Lord Eldon's example not be able to obtain insurance against the
possibility of being temporarily out of work as a result of the sinking of the
ships? As far as the insurer is concerned, how would this insurance differ
from, say, health insurance covering loss of wages resulting from his own
disability? If anything, the moral hazard would seem to be lower in the case of
a porter's insurance on the possibility of loss resulting from the sinking of a
ship. A broadening of the concept of insurable interest would, it seems to me,
allow for the creation of more socially beneficial insurance policies than is
the case at present with no increase in risk to the insurer. I therefore find
both of Lord Eldon's reasons for adopting a restrictive approach to insurable
interest unpersuasive.
25. It seemed for a time as if Lord Eldon's
view was going to be abandoned and that of Lawrence J. upheld. In Patterson
v. Harris (1861), 1 B. & S. 336, 121 E.R. 740, and in Wilson v.
Jones (1867), L.R. 2 Ex. 139, courts allowed two shareholders of a company
established for the purpose of laying down a trans‑Atlantic submarine
cable to recover on an insurance policy once the cable had been destroyed even
although neither had a legally enforceable right in the cable. In Blascheck
v. Bussell (1916), 33 T.L.R. 51 (Eng. K.B.), there was no challenge to the
insurable interest of the plaintiff who had insured the health of an actor he
had engaged for a performance. That interest was a purely pecuniary, non‑legal
one concerned with the consequences of the actor's non‑performance on
account of injury. But the House of Lords in Macaura resolved the matter
in favour of Lord Eldon.
26. Macaura, owner of the Killymoon estate
in Northern Ireland, obtained five fire insurance policies in his own name on
timber situated on the estate. The timber was in fact owned by the Irish‑Canadian
Saw Mills Ltd., the sole shareholder of which was Macaura. Macaura was, as
well, the sole creditor of the company apart from a few small debts. The House
of Lords nevertheless held that Macaura had no insurable interest either as
creditor or shareholder in the timber which was subsequently destroyed by fire.
Lord Sumner stated at p. 630:
He owned almost all the
shares in the company, and the company owed him a good deal of money, but,
neither as creditor nor as shareholder, could he insure the company's assets.
The debt was not exposed to fire nor were the shares, and the fact that he was
virtually the company's only creditor, while the timber was its only asset,
seems to me to make no difference. He stood in no "legal or equitable
relation to" the timber at all. He had no "concern in" the
subject insured. His relation was to the company, not to its goods, and after
the fire he was directly prejudiced by the paucity of the company's assets, not
by the fire.
Lord Buckmaster, supporting the decision
in Macaura, put his support on two grounds. First, like Lord Eldon in Lucena
v. Craufurd, supra, he could not understand "how a moral
certainty can be so defined as to render it an essential part of a definite legal
proposition" (p. 627). As I have already mentioned in the context of Lord
Eldon's difficulty in identifying an "intermediate thing" between a
legal right and a mere expectation, the Macaura definition, if anything,
is even more uncertain than Lawrence J.'s definition in Lucena v. Craufurd.
Second, he was of the view that major problems of valuation would arise (p.
627):
If he [the shareholder] were
at liberty to effect an insurance against loss by fire of any item of the
company's property, the extent of his insurable interest could only be measured
by determining the extent to which his share in the ultimate distribution would
be diminished by the loss of the asset‑‑a calculation almost
impossible to make. There is no means by which such an interest can be
definitely measured and no standard which can be fixed of the loss against
which the contract of insurance could be regarded as an indemnity.
The difficulty of measuring the loss
suffered by an individual shareholder should not, in my view, prevent a
broadening of the definition of insurable interest. Modern company statutes,
such as the Business Corporations Act, 1982, S.O. 1982, c. 4, s. 184 and
ss. 186‑189, require courts in certain circumstances to value shares. The
task is obviously not considered impossible. Indeed, the House of Lords knew
that it was feasible at the time Macaura was decided. In Wilson v.
Jones, supra, which the House distinguished but did not disapprove
in Macaura, the court allowed an insurance based on an interest in the
"adventure" of the corporation even although the insured did not own
the property involved in that adventure. One might be forgiven for thinking
that the interests of individual shareholders in the "adventure" of a
corporation are fully as difficult of computation as the interests of
individual shareholders in the assets of the corporation.
27. Quite apart from the fact that Lord
Buckmaster's rationale for a restrictive concept of insurable interest seems
somewhat less than convincing, the Macaura case is in itself a rather
odd case. The case originally went to arbitration on the question of fraud. The
arbitrator held that there was no fraud but that the insured had no insurable
interest. Professor Robert Keeton, Basic Text on Insurance Law (1971),
has noted that "it is difficult to reject the inference that, though not
proved, [the charges of fraud] influenced the court to reach a theory of
insurable interest that is nothing short of pernicious" (p. 117). See also
Brown and Menezes, supra, at p. 69. In my view, this inference, if
legitimate, further weakens the authority of Macaura as a precedent.
28. Another curious thing about Macaura
is that it has not been strictly applied in later cases. An attempt has been
made to offset the arbitrariness and harshness of the Macaura principle
by the use of a presumption of sorts. This presumption first appeared in the
pre‑Macaura case of Stock v. Inglis (1884), 12 Q.B.D. 564
(C.A.), where Brett M.R. stated at p. 571:
In my
opinion it is the duty of a Court always to lean in favour of an insurable
interest, if possible, for it seems to me that after underwriters have received
the premium, the objection that there was no insurable interest is often, as
nearly as possible, a technical objection, and one which has no real merit,
certainly not as between the assured and the insurer.
29. The existence of this presumption since
Macaura has been noted in a number of cases: see, for example, Zimmerman
v. St. Paul Fire & Marine Insurance Co. (1968), 1 D.L.R. (3d) 277
(Sask. C.A.), at p. 281, Aqua‑Land Exploration Ltd. v. Guarantee Co.
of North America (1964), 44 D.L.R. (2d) 645 (Ont. C.A.), per
Schroeder J.A., at p. 652, Norwich Union Fire Insurance Society Ltd. v.
Traynor, [1972] N.Z.L.R. 504 (C.A.), at p. 505. In view of the questionable
reasoning of Lord Eldon in Lucena v. Craufurd, and of their Lordships in
Macaura, and in view of the fact that the allegation of fraud may have
influenced the result in Macaura, the expressed reluctance in these
cases to follow it to the letter is hardly surprising. In addition, the Macaura
principle has not been extended to all types of insurance. Professor Marvin G.
Baer notes that the factual expectancy test has been used in Canada to define
insurable interest in the life and health insurance fields: see Baer
"Recent Developments in Canadian Law: Insurance Law" (1985), 17 Ottawa
Law Rev. 631, at p. 655, and the Insurance Act, supra, s. 156
(life insurance) and s. 258 (accident and sickness insurance).
30. Nevertheless, long ago this Court
without referring to Lucena v. Craufurd approved and adopted Lord
Eldon's view of the nature of an insurable interest. In Clark v. Scottish
Imperial Insurance Co. (1879), 4 S.C.R. 192, Ritchie C.J. held that
"any interest which would be recognized by a Court of Law or Equity is an
insurable interest" (p. 204). As well, this Court has recently referred to
Macaura in Aqua‑Land Exploration Ltd. and in Wandlyn
Motels Ltd. In neither case did the Court examine the case in any detail.
It appears to have been accepted without question. The following comment by
Harnett and Thornton, supra, at pp. 1162‑63, on the state of the
law in some American jurisdictions in 1948 may regrettably be applicable to the
state of the Anglo‑Canadian law on insurable interest during this
century:
The
requirement of insurable interest in property insurance, like most legal
abstractions, has developed over the centuries primarily through judicial
resolution of relatively isolated problems. Seldom have the courts examined the
entire picture in terms of meaningful underlying policies, and the myopic views
of older cases, canonized by precedent, often reflect themselves too brightly
in later years to the detriment of sound modern analysis.
It is to such an analysis that I now turn
in order to assess whether this line of authority should continue to be
followed in Ontario. I begin by examining whether the current law is consistent
with the policies underlying the requirement of insurable interest generally.
31. Three policies have been cited as
underlying the requirement of an insurable interest: see Harnett and Thornton, supra,
at pp. 1178‑83. They are (1) the policy against wagering under the guise
of insurance; (2) the policy favouring limitation of indemnity; and (3) the
policy to prevent temptation to destroy the insured property. Does the
implementation of these policies require the restrictive approach to insurable
interest reflected in Macaura?
(1) The Policy Against Wagering
32. The public policy against wagering has
a long history in English law. The first statutory expression of this policy
occurred in 1745 when the British Parliament enacted the Marine Insurance
Act, 19 Geo. 2, c. 37. This policy was extended to other types of insurance
by the Life Insurance Act (1774), 14 Geo. 3, c. 48. At least since the
enactment of these Acts English courts have consistently expressed concern that
such contracts might be used to effect wagers. They have been understandably
reluctant to enforce an insurance contract if it appeared to embody a wagering
transaction. However, I think it is probably easy to overestimate the risk of
insurance contracts being used in today's world to create a wagering
transaction. There seem to be many more convenient devices available to the
serious wagerer.
33. If wagering should be a major concern
in the context of insurance contracts, the current definition of insurable
interest is not an ideal mechanism to combat this ill. The insurer alone can
raise the defence of lack of insurable interest; no public watchdog can raise
it. The insurer is free not to invoke the defence in a particular case or it
can invoke it for reasons completely extraneous to and perhaps inconsistent
with those underlying the definition: see Keeton, supra, at p. 117.
34. The Macaura principle, in my
view, is an imperfect tool to further the public policy against wagering. By
focussing merely on the type of interest held by an insured the current
definition gives rise to the possibility that an insured with the
"correct" type of interest, but no pecuniary interest, will be able
to receive a pure enrichment unrelated to any pecuniary loss whatsoever. Such
an insured is, in effect, receiving a "gambling windfall". But this
same approach excludes insureds with a pecuniary interest, but not the type of
interest required by Macaura. Such insureds purchase insurance policies
to indemnify themselves against a real possibility of pecuniary loss, not to
gain the possibility of an enrichment from the occurrence of an event that is
of no concern to them. This is illustrated by the finding of no insurable
interest in the Aqua‑Land case. Brown and Menezes, supra,
have shown that the public policy against wagering could not have justified
that result. They state at p. 71:
A corporation that has
advanced $30,000 to designers of a marine drilling rig are [sic] not
affronting any social anti‑gambling norms by insuring the rig. If there
is a "gamble" involved, it is in backing technological development ‑‑
a highly regarded activity.
It is only where "the insured has no
valuable relationship to the property or where the insurance is in excess of
the insured's interest ... [that] the evils of wagering in part reappear":
see Harnett and Thornton, supra, at p. 1181. Harnett and Thornton
conclude at p. 1181:
While
some form of valuable relationship to the occurrence is necessary to avoid the
wagering aspect, the policy against wagering is satisfied by any valuable
relationship which equals the pecuniary value of the insurance, regardless of
the legal nature of that relationship.
I agree with their conclusion and find,
therefore, that the restrictive definition of insurable interest set out in Macaura
is not required for the implementation of the policy against wagering.
(2) Indemnification for Loss
35. The public policy restricting the
insured to full indemnity for his loss is not consistent with the restrictive
definition of insurable interest set out in Macaura. Indeed, an extension
of that definition may better implement the principles of indemnity. At
present, insureds such as Mr. Kosmopoulos who have suffered genuine pecuniary
loss cannot obtain indemnification because of the restrictive definition. The Macaura
case itself shows how the indemnity principle is poorly implemented by the
current definition of insurable interest. Had Macaura named the corporation as
the insured, or had he taken a lien on the timber to secure the debt, he would
have been held to have had an adequate interest. But without these formal steps
Macaura's interest satisfied the principle of indemnity.
36. Another case which illustrates the
inadequacy of the current definition of insurable interest in furthering the
indemnity principle is Zimmerman v. St. Paul Fire & Marine Insurance Co.,
supra. In that case the insured (together with another person) owned all
the shares in a company which owned a building. The insurance on the building
was in the shareholder's name. Consistent with authority it was held that the
shareholder had no insurable interest in the building even although the company
had long since ceased active business and had been struck off the register of
companies for non‑payment of fees. Had the building been transferred to
the two shareholders the insured would have prevailed and, as Wood J.A. noted
(at p. 279), this was "but a matter of conforming to certain procedural
formalities". The only effect of the Macaura definition of
insurable interest in such a case is to "trap the unwary person whose
interest truly satisfies the principle of indemnity rather than to advance that
principle": Keeton, supra, at p. 117.
(3) Destruction of the Subject
Matter
37. It has also been said that if the
insured has no interest at all in the subject matter of the insurance, he is
likely to destroy the subject matter in order to obtain the insurance monies.
Thus, the requirement of an insurable interest is said to be designed to
minimize the incentive to destroy the insured property. But it is clear that
the restrictive definition of insurable interest does not necessarily have this
result. Frequently an insured with a legal or equitable interest in the subject
matter of the insurance has intimate access to it and is in a position to
destroy it without detection. If Lawrence J.'s definition of insurable interest
in Lucena v. Craufurd were adopted, this moral hazard would not be
increased. Indeed, the moral hazard may well be decreased because the subject
matter of the insurance is not usually in the possession or control of those
included within Lawrence J.'s definition of insurable interest, i.e. those with
a pecuniary interest only. It seems to me, therefore, that the objective of
minimizing the insured's incentive to destroy the insured property cannot be
seriously advanced in support of the Macaura principle.
38. It is no doubt true that if in fact the
proceeds of insurance could be paid to a sole shareholder free of the
corporation's creditors, the sole shareholder would have a greater incentive to
destroy the business assets than if the proceeds were paid into the insolvent
corporation subject to the claims of its creditors. But it seems to me that the
greater incentive stems from Salomon v. Salomon & Co., supra,
which allows a single shareholder corporation to be treated as a different
legal entity from the single shareholder. The unhappy consequences of that case
for corporate creditors are well‑known. Indeed, one commentator has
described the Salomon decision as "calamitous": see O. Kahn‑Freund,
"Some Reflections on Company Law Reform" (1944), 7 M.L.R. 54. Salomon
nevertheless is now part of our law and, while broadening the definition of
insurable interest may permit one more unhappy consequence of the Salomon
principle, it would also remove another. For it is the notion of separate
corporate personality which has prevented Mr. Kosmopoulos and others in his
position from having the kind of insurable interest required by Macaura.
In my view, this is quite a price to pay for the supposed disincentive to
wilful destruction of the insured property. I would accept the view expressed
by Brown and Menezes, supra, at p. 74 to the effect that:
...insurance concepts cannot
on their own prevent deliberate causing of loss. The primary burden for
discouraging anti‑social activity lies with the criminal justice system.
Insurance principles cannot eliminate arson or murder any more than banking
legislation can eliminate armed robbery.
39. The preceding discussion has proceeded
on the assumption that corporations would not insure their own assets and that
shareholders would receive the proceeds of insurance taken out in their own
names free of corporate creditors. But the circumstances in which this would
occur if the definition of insurable interest were extended would be rare
indeed. There exist a number of remedial devices by which courts can make the
insurance proceeds held by shareholders available to the corporation in
appropriate cases. Courts may be willing to imply a trust of the insurance
proceeds received by an insured shareholder in favour of the corporation when
it appears to implement the shareholder's actual intention that the corporation
not suffer loss as a result of the destruction of corporate property. An
implied trust may also be available when a shareholder has insured for an
amount in excess of full indemnity for his own loss. Normally a shareholder is
only entitled to full indemnity but where there is an intention on the part of
the shareholder to insure both his own pecuniary interest and the corporation's
interest, the shareholder is entitled to receive full indemnity for his own
pecuniary loss and the excess is held on trust for the corporation: Keefer
v. Phoenix Insurance Co. (1901), 31 S.C.R. 144. If a number of shareholders
similarly insure with such an intention, the corporation may be fully
indemnified, in which case none of the shareholders will have suffered a
pecuniary loss and all of the insurance proceeds will be held for the
corporation. If it is not possible to imply a trust for the corporation, the
court may consider it appropriate to lift the corporate veil and impose a
constructive trust in favour of the corporation. I have already noted that
while in the case of a single shareholder corporation courts are unlikely to lift
the corporate veil for the benefit of that single shareholder, they may be
willing to lift the corporate veil "in the interests of third parties who
would otherwise suffer as a result of that choice": Gower, supra,
at p. 138. In addition, where a controlling shareholder insures corporate
assets in his or her own name and by using that control does not arrange for
insurance to be taken out by the corporation on its assets, that conduct on the
shareholder's part may constitute an act "oppressive or unfairly
prejudicial" to the interests of creditors and result in liability under
s. 247(2) of the Ontario Business Corporations Act, 1982. A creditor
may, by order of the court, be able to bring such an action: see ss. 244(b)(iii)
and 247(1). The directors of the corporation themselves may be liable to the
corporation through a derivative action under s. 245 for breach of the duty of
care under s. 134(1)(b) or even under the oppression section (s. 247)
itself. In light of these considerations, I simply cannot imagine that a
corporation would not insure the assets of the corporation in its own name.
Once the corporation has insurance on its assets, its shareholders would not
suffer an injury to their pecuniary interests if some corporate property were
damaged or destroyed because the corporation would be indemnified by the
insurer. In such a situation the shareholders would be unable to recover under
their policies and would accordingly have no incentive to destroy the corporate
property. There is therefore, in my view, little merit to the submission that a
broadening of the definition of insurable interest will increase the temptation
of shareholders to destroy the corporate property.
40. In summary, it seems to me that the
policies underlying the requirement of an insurable interest do not support the
restrictive definition: if anything, they support a broader definition than
that set out in Macaura.
41. While Macaura continues as the
law in the United Kingdom (see R. Colinvaux, The Law of Insurance (5th
ed. 1984), at pp. 40‑42) and in Australia and New Zealand (see K. C. T.
Sutton, Insurance Law in Australia and New Zealand (1980), at pp. 213‑21),
many jurisdictions in the United States have abandoned the restrictive
definition of insurable interest in favour of the "factual expectancy
test": see, for example, Van Cure v. Hartford Fire Insurance Co.,
253 A.2d 663 (Penn. 1969), Pacific National Fire Insurance Co. v. Watts,
97 So.2d 797 (Ala. 1957), Royal Insurance Co. v. Sisters of the Presentation,
430 F.2d 759 (9th Cir. 1970) (where, even although the insured had a legal
interest, recovery was denied because there was no factual expectancy of loss),
and see generally, G. Couch, Cyclopedia of Insurance Law (2nd ed., by R.
Anderson, 1960), vol. 3, at pp. 36‑51 and cases cited in Ninth
Decennial Digest, vol. 21, "Insurance", paras. 114, 115(1) and
115(2), pp. 30‑32. The State of New York has now embodied the factual
expectancy test in a statute. Paragraph 3401 of the New York Insurance Law,
art. 34, defines "insurable interest" as including "any lawful
or substantial economic interest in the safety or preservation of property from
loss, destruction or pecuniary damage". Many other states have adopted the
"any lawful or substantial economic interest" formulation: see, for
example, California Insurance Code, para. 281, Louisiana Insurance
Code, R.S. 22:614, para. 614B, Utah Insurance Code, s. 31A‑21‑104(2)(b)
and see also the Wisconsin Insurance Code, s. 631.07 which has done away
with the requirement of an insurable interest for the validity of an insurance
policy. No material has been referred to us by counsel to show that these
developments in the United States have led to insoluble problems of
calculation, difficulties in ascertaining insurable interests, wagering, over‑insurance
or wilful destruction of property. Indeed, the commentators both in the United
States and Canada seem to be uniformly in favour of the adoption of the factual
expectancy test for insurable interest and the rejection of the test set out by
the House of Lords in Macaura: see, for example, Marvin G. Baer,
"Annotation" (1983), 1 C.C.L.I. 83; Brown and Menezes, supra,
at pp. 81‑84; A. J. Campbell, "Some Aspects of Insurable
Interest" (1949), 27 Can. Bar Rev. 1, at pp. 22‑23; Harnett
and Thornton, supra; R. A. Hasson, "Reform of the Law Relating to
Insurable Interest in Property‑‑Some Thoughts on Chadwick v.
Gibraltar General Insurance", (1983‑84), 8 Can. Bus. L. J.
114; Keeton, supra, at pp. 112‑19; R. M. McLeod, "Aqua‑Land
Exploration Ltd. v. Guarantee Co. of North America et al.: Insurable
Interest in an Indemnity Policy" (1966), 24 U. of T. Fac. Law Rev.
154, at pp. 159‑60; and Ziegel, supra.
42. In my view, there is little to commend
the restrictive definition of insurable interest. As Brett M.R. has noted over
a century ago in Stock v. Inglis, supra, it is merely "a
technical objection ... which has no real merit ... as between the assured and
the insurer". The reasons advanced in its favour are not persuasive and
the policies alleged to underlie it do not appear to require it. They would be
just as well served by the factual expectancy test. I think Macaura
should no longer be followed. Instead, if an insured can demonstrate, in
Lawrence J.'s words, "some relation to, or concern in the subject of the
insurance, which relation or concern by the happening of the perils insured
against may be so affected as to produce a damage, detriment, or prejudice to
the person insuring", that insured should be held to have a sufficient
interest. To "have a moral certainty of advantage or benefit, but for
those risks or dangers", or "to be so circumstanced with respect to
[the subject matter of the insurance] as to have benefit from its existence,
prejudice from its destruction" is to have an insurable interest in it. To
the extent that this Court's decisions in Clark v. Scottish Imperial
Insurance Co., supra, Guarantee Co. of North America v. Aqua‑Land
Exploration Ltd., supra, and Wandlyn Motels Ltd. v. Commerce
General Insurance Co., supra, are inconsistent with this definition
of insurable interest, I respectfully suggest that they should not be followed.
4. Conclusion
43. Mr. Kosmopoulos, as sole shareholder of
the company, was so placed with respect to the assets of the business as to
have benefit from their existence and prejudice from their destruction. He had
a moral certainty of advantage or benefit from those assets but for the fire.
He had, therefore, an insurable interest in them capable of supporting the
insurance policy and is entitled to recover under it.
5. Disposition
44. I would dismiss the appeal with costs
to both respondents. In view of the disposition of the main appeal, the cross‑appeal
of the respondents against the insurance agency is also dismissed. I would award
both respondents their costs of the cross‑appeal against the appellants.
The following are the
reasons delivered by
45. McIntyre
J.‑‑I have read the reasons of my colleague, Wilson J., in
this appeal. She has set out the facts, referred to many authorities, and
considered the law on this question of an insurable interest. I agree with her
result. I would dismiss the appeal. In doing so, however, I would not go as far
as my colleague has gone in rejecting totally the limited definition of an
insurable interest in Macaura v. Northern Assurance Co., [1925] A. C.
619 (H.L.), and adopting the expansive definition of Lawrence J. in Lucena
v. Craufurd (1806), 2 Bos. & Pul. (N. R.) 269, 127 E. R. 630. I would prefer
to adopt the approach of Zuber J. A. in the Court of Appeal. He was of the view
that the Macaura rule should not be accepted to compel a holding that a
sole shareholder and sole director of a company could not have an insurable
interest in the assets of the Company. Modern company law now permits the
creation of companies with one shareholder. The identity then between the
Company and that sole shareholder and director is such that an insurable
interest in the Company's assets may be found in the sole shareholder. This
approach fits well with Lucena v. Craufurd without opening the concept
of insurable interest to indefinable limits.
46. As I have said, I would dismiss the
appeal with costs.
Appeal and cross‑appeal
dismissed with costs.
Solicitors for the
appellants: Fasken & Calvin, Toronto.
Solicitors for the
respondents: Dutton, Brock, Somers, MacIntyre and Collier, Toronto.
Solicitors for cross‑respondents:
Paterson, MacDougall, Toronto.