According to Clause 62 of the Insurance Contract Law, 1981 (hereinafter: the Insurance Law), once the Insurer compensated the Insured, it is entitled to an independent right of subrogation against the tortfeasor.
A question arises – does the right of the Insurer to subrogate still exist in a situation where the Insured claimed the full amount of the loss from the tortfeasor, while concealing that he was compensated for part of his losses by the Insurer.
Background – The Facts:
On 23rd March 2011, the insured’s apartment was burglarized and some of its contents were stolen. The insured filed a complaint to the Police and shortly thereafter, three suspects were arrested.
In April 2011 an indictment was filed against the burglars.
The Insured approached Migdal Insurance Co. Ltd. (hereinafter: Migdal) which insured the contents of the apartment. Migdal paid the insured an amount of NIS 12,409. On 18 August 2011, 3 months after receipt of the compensation, the insured filed a civil claim against the 3 perpetrators for the amount of NIS 600,321 (hereinafter: the insured’s claim) alleging that this was his loss. The Statement of Claim did not mention the compensation received from Migdal.
In October 2011, two of the perpetrators were convicted and in November 2011 the 3rd perpetrator was also convicted. As part of the criminal judgement each perpetrator was required to compensate the insured with the amount of NIS 100,000.
On 7th July 2013, the Court handed down its decision in the insured’s claim and ordered the three perpetrators, to compensate the insured, jointly and severally, in the amount of NIS 177,427 (plus interest and legal fees) disregarding the amount already awarded by the criminal court.
Migdal’s Subrogation Claim:
On 7th June 2013 Migdal filed a subrogation claim to the Magistrates Court in Haifa, against the three convicted perpetrators, demanding subrogation of the amount it paid to the insured.
The Court’s discussion related to the relationship between the tortfeasor, and the insurer in case of subrogation.
According to Clause 62 (b) an insurer is not entitled to exercise its right for subrogation in a manner which will infringe the insured’s right to seek compensation from a third party, for its losses over the amount paid by the insurer.
The Magistrates Court analyzed the question: what influence do the proceedings the insured conducted against the tortfeasors have on the insurer’s subrogation right?
Based on a precedent ruled by the Supreme Court in C.A. 5/87 Lipshitz v. Levi (42 (2)177), the Court determined that the insurer’s subrogation right was not revoked despite the fact that the tortfeasor paid the Insured full amount of the loss. The tortfeasors have the right to sue the insured who withheld the information about the compensation received from the Insurer.
The Court differentiated between two situations: a situation whereby the insured’s claim against the tortfeasor was instigated before the insurer paid the insurance benefit. In such case the insurer does not have any right of subrogation, and can withhold payment to the Insured.
In situations when the legal proceedings of the Insured against the tortfeasor were initiated after the insurer paid the insurance benefits, the Insurer has the right to subrogate the tortfeasor and is not influenced by any proceedings between the insured and the tortfeasor i.e. under no circumstances the right of subrogation of the Insurer is revoked.
This decision relied on additional precedent made by the Supreme Court – C.A. 9311/99 Menora Insurance Co. Ltd. v. Jerusalem Candles Ilum (1987) Ltd. where the Court emphasized that revoking Insurers’ subrogation right can be made only in the framework of the law (the Israel Insurance Contract Law) or in the framework of an agreement between the Insurer and the Insured.
To sum up: Insurers subrogation right is an independent right. The Insurer has the right to exercise its right even in case when the tortfeasor must pay twice.