Halpern Investments Ltd. (“Halpern Investments”) was unsuccessful in obtaining an order that it was covered for damages resulting from fire where it was admitted that the principal of Halpern Investments (“Halpern”) had previously submitted a fraudulent proof of loss relating to the same fire on behalf of a co-insured company (“Regal”). The court found that Halpern was the guiding hand behind both Halpern Investments and Regal and that his fraudulent conduct warranted piercing the corporate veil to ensure that Halpern did not benefit from such conduct.

Halpern Investments Ltd. v. Sovereign General Insurance Co., [2004] A.J. No. 1376, Alberta Court of Queen’s Bench

Halpern was the sole shareholder and sole director of Halpern Investments and Regal, companies who owned and managed various buildings in downtown Calgary. Halpern and the two corporations were all co-insured under a business protector insurance policy that insured the buildings against, amongst other things, losses arising from fire. On July 25, 1994, a fire occurred at one of the insured apartment buildings. Subsequent to the fire, six proofs of loss, all of which were sworn by Halpern, were presented to the insurers. One of the proofs of loss was determined to have been submitted fraudulently, and Halpern was personally charged with fraud over $5,000. On July 31, 1996, an information was laid against Regal for identical offences relating to the fraudulent proof of loss. Originally, both Halpern Investments and Regal were seeking coverage under the insurance policy. Regal abandoned its claim after pleading guilty to the fraud charge. The insurers (“Sovereign”) denied coverage to Halpern Investments on the basis of statutory condition #7 of the policy, which states:

Any fraud or wilfully false statement in a statutory declaration in relation to the any of the above particulars, vitiates the claim of the person making the declaration.

Sovereign argued that Halpern was the guiding hand behind both corporations and that he and the companies were indistinguishable from each other at law. Sovereign submitted that the court should intervene to lift the corporate veil to find the statutory condition did apply to this case and that all of the insurance claims were vitiated by the admitted fraud of Regal.

The court noted that one of the most fundamental principles of companies law is that a corporation is a legal entity distinct from its shareholders: Salomon v. Salomon & Co. Ltd., [1897] A.C. 22. However, there is a narrow range of circumstances where lifting the corporate veil is appropriate. In Transamerica Life Insurance Company of Canada v. Canada Life Assurance Company et al (1996), 28 O.R. (3d) 423 (Gen. Div.), aff’d [1997] O.J. No. 3754 (C.A.), it was held that the courts will disregard the separate legal personality of a corporate entity where it is being used as a shield for fraudulent or improper conduct.

In the case at bar, the court found that the evidence established that Halpern had complete control over both Regal and Halpern Investments. Halpern was a hands-on player who was involved in the daily operations of both corporations. The only logical conclusion was that Halpern was the guiding hand behind both corporations and, consequently, the court found that he was fully aware of the fraudulent proofs of loss submitted to Sovereign.

The court found that this was an appropriate instance to pierce the corporate veil, and indicated that Halpern should not benefit from fraudulent conduct on behalf of Regal by pursuing the insurance claim under the name of Halpern Investments, a company which he also completely controlled. In the result, the court held that statutory condition #7 of the insurance policy applied to the claim of Halpern Investments and dismissed the action of the Plaintiff.

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