On 30th July 2018 Aida Israel held a meeting which was hosted by Clal Insurance Co. at their auditorium.
Two issues were dealt with:
- Whether article 25 of The Insurance Contract Law (which discharges the Insurer from liability in fraudulent claims), applies to road accidents under the specific law: The Compensation of Road Accident Victims Law.
- How will a fraudulent notification by the Insured concerning the circumstances of an accident affect an innocent third party’s claim.
On the first subject Adv. Omer Harlap from Amikam Harlap & Co Firm reviewed the various approaches of judgements given by the lower instances , some of which held that article 25 applies to road accidents claim and some determined that in view of the fact that the compensation for road accident victims is providrd by a specific law which details a list of circumstances in which the Insurer may be discharged of liability under the policy among which fraudulent claim is not mentioned , hence article 25 of the Insurance Contract Law which is the general law that applies to insurance is inapplicable to road accidents claims (bodily injury). Following the lecture, a discussion was held between the participants which raised contradicting views; on the one hand ethical and moral considerations and on the other hand arguing that since the specific law is based on a no-fault system the list of exemptions of the Insurer is a closed list to which nothing else can be added.
This subject awaits therefore, determination which will be given by the Supreme Court which judgement have a binding effect on all lower Courts.
On the second subject , property insurance was the background on which a recent judgement was given by the Supreme Court . Adv. Eti Attiya reviewed the judgment which raised the question whether an innocent third party claim may be harmed by a false description of the occurrence made by the Insured to its Insurers.
For a summary of this judgement please an article below written by Peggy Sharon:
The Effect of a Fraudulent Claim by the Insured on the Third Party’s Claim
Peggy Sharon, Adv.
Levitan, Sharon & Co.
RCA 1219/18 Shay Peretz v. (1) Shlomo Insurance Company (2) Ron Zohar (18 June 2018)
In the Israeli Insurance Contract Law, there is a direct privity between the Third Party that claims damages due to a breach of duty by an Insured against such third party. The Thrid Party may file a court claim against the Insurer, bu the Insruer may raise any defence argument against such Third Party (e.g. coverage issues, exclusions, etc.) that might be raised against the Insured.
A bicycle rider was hit by a car driven by Zohar whose car was insured against third party (property) claims with Shlomo Insurance Company. After the occurrence, Zohar approached his Insurer to obtain insurance benefits for the damage caused to his car and claimed that the damage was caused by an unsuccessful parking. Later, when the bicycle rider approached the Insurance Company in a claim concerning the damage caused to his bicycle, it transpired that the event in which the damage occurred was a car accident with the bicycle rider and not an unsuccessful parking. Therefore, Shlomo Insurance declined the third party’s claim. The third party filed a court claim against Zohar and Shlomo Insurance Company for the damage to his bicycle. Shlomo Insurance declined the claim and also claimed for recovery of the benefits paid previously for the damage to the car.
The District Court in an appeal, reversed the judgement and determined that the discharge of the Insurer according to Article 25 applies also to a third party claim even where such third party is in good faith.
After an appeal in the District Court which decided to dismiss the Third Party’s claim, the Supreme Court dealt with the issue as an appeal on the question whether Article 25 of the Insurance Contract Law, 1981 discharges the Insurer also vis a vis a bona fide Third Party.
The Supreme Court was divided into a majority opinion which decided that the third party claim should not be paid by the Insurer, notwithstanding the fact that he acted in good faith and a dissenting opinion that such a third party claim should not be declined. Judges D. Minz and Y. Wilner, the majority judges, described the liability policy as an insurance which is aimed at protecting the Insured against being exposed to a monetary liability towards a third party and not at protecting the third party. Such third party is not considered as a beneficiary under the policy and the insurance contract is not considered as being a contract for the benefit of a third party.
Although the Insurance Contract Law grants the third party a direct cause of action against the liability Insurer of the tortfeasor, the object of this privity is to avoid a situation where the Insured seeks insurance benefits and refrains from passing them to the third party. The third party’s right against the Insurer cannot be stronger than that of the Insured’s against his Insurer. The direct privity is only a procedural vehicle aimed at utilizing the substantive right of the Insured which stems from his contract with his Insurer. There is no dispute that the Insured gave a false description of the occurrence with a fraudulent intent in order to obtain insurance benefits and therefore the Insurer is discharged from any liability towards the Insured according to Article 25. In these circumstances, where the basis of payment of insurance benefits to the Insured falls away, the third party claim also collapses.
The fact that there is no causal connection between the third party claim and the fraud does not alter the conclusion, as according to Article 25, no causal connection is required for the discharge of the Insurer, vis a vis the Insured. Hence, also lack of causal connection between the fraud and the third party claim will not alter the result. Therefore, the third party’s claim was dismissed. The dissenting opinion of Judge Y. Amit was based on his view that the third party’s right is a substantive right which accrued at the moment of the occurrence and therefore a later, false act by the Insured should not harm it.
In this judgement the Supreme Court clarifies the law concerning Article 25 in two aspects. The first, that fraud by the Insured will affect also a bona fide third party claim and second, that the total discharge of the Insurer in case of a fraudulent claim does not require a causal connection to be proven between the fraud and the liability of the Insurer.