Canadian Underwriter

Two companies, one shareholder, only one named insured. What happens next?

March 14, 2023   by David Gambrill

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A man who is the sole shareholder of two companies — one that owns a title deed to a building (and the only named insured on the policy), and one a commercial tenant of that same building — has an insurable interest in both the building and the tenant’s contents, the Québec Superior Court has ruled.

The case was referenced in a blog posted for Mondaq by Priscilla Simard of Robinson Sheppard Shapiro LLP in Toronto, written last Wednesday under the title of CLC (Canadian Litigation Counsel).

In 9208-9499 Québec inc. vs. Royal & Sun Alliance of Canada, Mehdi Afzali is the sole director and shareholder of both Québec Inc.—the legal owner of the building—and Clickprinting, a printing press operation and the commercial tenant of the same building.

Québec Inc. has not been involved in any banking activities since 2015, the court found. It remains the title owner of the building, but all expenses related to the building were assumed directly by the tenant, Clickprinting, including insurance premiums.

Afzali consolidated the activities of both companies around 2015. He no longer distinguishes the two entities at an operational level.

Royal & Sun Alliance Insurance Company of Canada (since acquired by Intact Insurance) insured the building and its contents under an insurance policy issued through a broker in 2016. But the policy is issued solely to Québec Inc.

“Nothing explains why Québec Inc. is the only entity named as insured under the policy,” the Québec Superior Court found. “…[T]he insurance broker who acted as an intermediary at the time of subscription, claims to have verified that the building actually belonged to the insured. She did not check the content.”

In March 2018, a fire partially destroyed the building housing the printing business of Clickprinting. The building’s contents were comprised of the goods and printing press operations of Clickprinting. The contents burned in the fire and were deemed to be unrecoverable.

RSA refused to indemnify its insured, Québec Inc., for the damage, arguing that Québec Inc. had no insurance interest in the insured property. The insurer argued the building content did not belong to Québec inc., and that Québec Inc. had not demonstrated its economic interest in the building, which was used and supported exclusively by Clickprinting.

“The insurer argues that its insured [Québec Inc.] completely ceased to behave as the owner of the building by the end of 2014 at the latest and that this was the situation at the time the policy was taken out in 2016,” as Québec’s Superior Court characterized the insurer’s argument. “According to RSA, all the evidence shows that [Clickprinting]…behaves as the [building] owner as of 2015. Indeed, [Clickprinting] pays the mortgage payments, the property taxes, the premiums on the insurance policy in dispute, the maintenance and snow removal and renovations on the building.”

But ultimately, the holder of the title deed, Québec Inc., won the day in court.

“In the eyes of the court, the deed of purchase of the building by the insured [Québec Inc.] and the fact of its resale by the latter to a third party on Dec. 13, 2019, establish its right of ownership and its interest in insurance in the building on the day of the loss,” Québec’s Superior Curt ruled. “The financial obligation of the insured [Québec Inc.] towards the bank, guaranteed by immovable mortgage, also establishes its economic interest in the building.”

Furthermore, the court ruled, Québec Inc. had a clear economic interest in Clickprint’s equipment and inventory.

“The evidence demonstrates an economic interdependence between the two companies, given the consolidation by the shareholder of their operations,” the court ruled. “The evidence also demonstrates that the same individual holds the ultimate economic interest in the assets belonging to both companies.”


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