It is true that there is authority to suggest that a company cannot act in its own right. Therefore, as it can only act through its directors, the company cannot benefit from the fraud of its own director. This principle does have its limitations, however, as, although the director is an agent of the company, he may not be a shareholder and he is clearly not authorised by the company to burn down the premises if he does it without the knowledge of the shareholders or other directors.

Therefore, it is wise for the condition or exclusion to exclude the following:

– a conspiracy between any of the persons referred to in the condition;

– fraud committed by the owners of the company (i.e. the shareholders), the management of the company (which would include directors and company secretary) and the employees of the assured (in other circumstances it might be appropriate for the condition to cover partners if it is not limited company); and

– the fraudulent actions of the owners and management of any con¬tracting party to the assured, irrespective of whether there has been any collusion between the contracting party and the assured.

It is clearly possible to draft the condition as an exclusion and, in those circumstances, it would be possible for the insurer simply to reject the claim as an excluded peril.

Problems can still arise in global programmes with the interaction between the master policy and the policy of the subsidiary company. For example, a director of a subsidiary company may have started a fire giving rise to a claim. Rather than making a claim against the local policy, the parent company may try and make a claim under the master policy. Unless the policies are carefully drafted so as to make them interdependent it is quite likely that the fraud of the director of the subsidiary is not caught within the exclusion in the master policy.

It would also be possible for the director or shareholder of the parent company to have committed a fraud in respect of its subsidiary, such as burning down a warehouse. The parent company is not insured by the ARPI insurer. Is the director or shareholder of the parent company caught by the extended fraud exclusion? It would depend largely upon the precise wording of the exclusion. For example, some exclusions refer to the “proprietor” and in those circumstances it is arguable that a shareholder of the parent company is a proprietor of a wholly owned subsidiary – depending upon the precise ownership structure.