In light of your discussion in relation to the Big Bend Hotel case, do you think this Court would pierce the corporate veil? Why or why not?
Kumar operated a hotel that was destroyed in a fire. Kumar decided to acquire another hotel but knew that he would be turned down for fire insurance because of the suspicious circumstances surrounding the fire. He therefore incorporated Big Bend Hotel Ltd and had it acquire the hotel and apply for the insurance. Subsequently, the new hotel burnt down. The insurance company refused to pay when it found out that Kumar was the sole shareholder of Big Bend Hotel. The corporation sued for payment of the insurance proceeds.
The court denied the corporation’s claim. It held that the insurance company would not have issued the policy to Kumar. Even though the corporation was a distinct legal person from Kumar, it was being used solely to disguise the real person behind the corporation. The insurance company should be able to disregard the separate personality of the corporation and treat the policy as if it had been applied for by Kumar directly. On that basis, the insurance company did not have to pay because Kumar had fraudulently failed to disclose the prior fire loss.