Late Payment of Insurance Claims - Israeli Law Perspective

1. Late Payment of Insurance Claims -Israeli Law Perspective Adv. Peggy Sharon AIDA Reinsurance Working Party Paris, 2nd December 2015

2. Interest and Special Interest The Insurance Contract Law, 1981 Para 28: Interest 28: Insurance benefits bear index differentials and interest from 30 days after occurrence/claim. Special Interest 28A: Failure to pay insurance benefits which were not in dispute in good faith, within 30 days from the claim – a special interest of up to three times the applicable interest prescribed by law, in addition to the regular interest set above.

3. In which circumstances Special Interest was Imposed? Cohen v. Clal (2007) Car accident – benefits delayed due to attachments and liens on vehicle. Payment - only 13 months after removal of liens. Unjustified delay in payment = behaviour not in good faith → Double interest rate.

4. Late Change of Position Towards a Claim – not in Good Faith Laken v. Migdal Lightning damage to electrical board and equipment – at first, Insurer accepted the cause of damage but later changed its position, re an excluded cause related to wear and tear. Breach of duty of good faith. 3 times the interest rate.

5. Wrongful declination Based on Breach of Policy Term Platinum v. The Phoenix (2012) Declination of claim for lack of security measures without actual check – 1.5 times the rate.

6. Object of the Special Interest - Penalty Sanction on Insurer’s Conduct Holinsky v. Migdal (2013) Plaintiff lost his work ability and received insurance benefits during two years after which benefits were stopped. The Court: After approval of claim under the policy, The Insurer cannot decline the claim without proving improvement of Plaintiff’s medical condition. Reconsideration of claim after 2 years of payments led to lengthy Court proceedings → 3 times the interest rate.

7. Extra Contractual Damages Imposed Due to Late Payment Sky Club v. Peltours and Others • Declination of coverage and late payment: right for compensation for collapse of business. • Damages beyond policy limit. • Cause of action - Breach of Contract. • Scope of Damage – foreseeable.

8. Loss of Profits caused by Late Payment Hadar v. AhadHa’am Restaurant • Late payment of insurance benefits led to loss of lease extension (5 years). • The Court: Insured entitled to damages of 5 years loss of profit. • The cause of action: Contracts and Tort – negligence. • Foreseeable damage in case of declination in good faith, unforeseeable damage where declination was not in good faith.

9. Can the Court Award Both: Damages + Increased interest? Conflicting Decisions: Dayan v. Shomera (2009) Yes: The Court awarded both: 3 times interest and damages for foreseeable damage. Reasoning: Special Interest = penalty Damages = indemnification for foreseeable Damage. No:Trablus v. Hadar (2002): If the insured can prove his actual damage caused by the delay – he will get the indemnification – if he cannot – he will receive the Special Interest.

10. The Cedent – Reinsurer’s Level: • Is it outside the ceded risk? • Involvement of Reinsurer in handling the claim – award should bind the Reinsurer.

11. Merci,Thanks,Toda!