Story Case

Mr. Abe Martin, known among his business associates as a man of abundant caution, contracted with Mr. Arthur Tobin to buy forty shares of stock in a corporation owning a thriving powder mill in Sheboygan, Michigan. Some time before the shares were delivered to Mr. Martin, and when it seemed certain that the contract would be completed, Mr. Martin insured the powder factory in his own name with the Illinois Insurance Company. Forty-eight hours after Mr. Martin became owner of the shares, the powder factory was destroyed. Mr. Martin seeks to recover insurance. Can he do so?

Exiling Court Case. Biggs Vs. The Commercial Mutual Insurance Company, Volume 125 New York Reports, Page 7

One Tobias was owner of thirty-six shares of stock in a steamship corporation. This corporation was the owner and operator of a steamer, "Falcon." Tobias applied to the insurance company for insurance in his own name upon this steamer. The policy was issued to him in accordance with his request. Thereafter, the vessel was destroyed by fire. The policy was assigned to Riggs, who brings this action.

The company contended that Riggs could not recover, because Tobias had no insurable interest in the steamer when the policy was issued to him.

Mr. Justice Andrews said: "The stockholder in a corporation has no legal title to the corporate assets in property, nor any equitable title which he can convert into a legal title. The corporation itself is the legal owner and can deal with corporate property as owner, subject only to the restrictions of the charter. But stockholders in a corporation have equitable rights of pecuniary nature growing out of their situation as stockholders which may be prejudiced by the destruction of the corporate property. The object of business corporations is to make profits through the exercise of the corporate franchises, and gains so made are distributable among the stockholders, according to their respective interests, although the time of the division is ordinarily in the discretion of the managing body. It is this right to share in the profits which constitutes the inducement to become stockholders; also at the settlement of the affairs of the corporation, the assets, after payment of the debts, are divisible among the stockholders. Therefore the right to dividends and the right to share in the fiscal distribution of the corporate property may be prejudiced by its destruction." Judgment was given for Riggs.

Ruling Law. Story Case Answer

A shareholder in a corporation has an insurable interest in the property held by the corporation, although he has neither a legal nor an equitable title to any of the property held by the corporation. As a member of the corporation he is entitled to participate in the profits earned; since these profits must be earned by the property which the corporation owns, it is reasonable that the shareholder stands in such a legal relation to the property of the corporation that he will be benefited by its preservation, and prejudiced by its destruction.

But Mr. Martin, in the Story Case, was not, at the time he insured the mill, a shareholder in the corporation owning it. An uncertain contract right to buy the shares was not an insurable interest; therefore, he cannot recover. Had he waited to insure until he had purchased the shares he could have recovered to the extent of his losses.

In the same manner a purchaser of any property has an insurable interest therein, only after the contract of purchase has been executed, although title has not yet passed.