For liability insurance, Section 70 of the Insurance Law provides that "in liability insurance the claim for insurance benefits does not prescribe as long as the Third Party Claim against the insured does not prescribe". According to the General Limitation Law a claim prescribes after 7 years from the date the cause of action was established.

The Supreme Court held in ACA5916/02 Hamishmar Insurance Co. Ltd. v. Eliahu Insurance Co. Ltd. that the date on which the cause of action of the insured against the insurer crystallized is the date on which the claim against the insured is filed in Court.

In a recent precedent1 the Court decided that in Liability Insurance once a claim has been filed against the insured, the insured's claim against the insurer is prescribed three years after the claim against him was filed.

Special and specific rules apply in the case of Life and Personal Accident insurance and where the insured is required to pay a deductible following judgment against the insured and its insurer.

The Insurance Law specifically stipulates in clause 72 that it does not apply to reinsurance contracts. Therefore, the General Limitation Law 1958 (hereinafter: the Limitation Law), which applies to any contract, will apply to reinsurance matters. The Limitation Law stipulates that the period of limitation for a civil action is 7 years from the date on which the cause of action was established (subject to specific exemptions such as in the case of a minor or where the damage is not yet known).

For proportional reinsurance, the limitation period runs from the date on which the cause of action against the cedant was ascertained (i.e. the insured's liability towards the cedant was established).

For excess of loss reinsurance, the limitation period runs from the date the cedant's cause of action against the reinsurer crystallized, i.e. from the date the retention agreed in the reinsurance contract was exhausted.

The Position Where a Foreign Law Governs the Insurance or Reinsurance Contract

The Limitation Law is a procedural rule² which the parties may agree to extend or shorten by separate agreement. If the insurance or reinsurance contract is governed by a foreign law, and the limitation period is specifically mentioned therein, then one can argue that this is a specific contract relating to the period of limitation.

However, if a contract (insurance or reinsurance) which is governed by a foreign law does not include a specific clause which specifies the limitation period, and the contract is subject to the jurisdiction of the Israeli courts, the Israeli Procedural Law will govern the litigation and thus the Limitation Law will apply.

Moreover, since the limitation period is a procedural rule which does not annul the underlying legal right, one can rely on such right for set-off or counter-claim purposes, even if the period of limitation has prescribed. 

1.      On Submission of a Claim

                According to clause 15 of the Limitation Law, if the claim was struck out with prejudice, the period when the claim was pending in court (or arbitration) will not be taken into account for the purpose of calculating the Limitation Period (hereinafter: the Standstill Period).

                The Standstill Period is calculated from the date the Statement of Claim was submitted to the Judicial Authority (which includes arbitration). Therefore, in case of arbitration, the period between the request for arbitration until the date the arbitrator is chosen and until the Statement of Claim is filed, is a period that will be taken into account for the purpose of limitation.

                In order to ensure that this period will not be taken into account, a separate agreement will need to be concluded.

2.         Standstill or Tolling Agreement

                Where the parties agree in writing to suspend the limitation period by specific agreement, that agreement interrupts the running of the period.

3.      Admission of Liability

            According to clause 9 of the Limitation Law, if the defendant admits in writing or otherwise in Court that the claimant has a right, whether such admission was made during the limitation period or after it expired, a new limitation period will commence from the date of admission.

4.      Specific Directives Regarding Insurance Contracts:

The Commissioner of Insurance issued a directive relating to Private Lines Policies pursuant to which, from 1^st January 2011, Israeli insurance companies must notify their insured in every correspondence which relates to a claim what  period of limitation applies and that the submission of a claim to the insurer does not stop the running of the limitation period. If such information is not given, the period that elapsed until such information was given will not be taken into account. for the purpose of the limitation period.

Extension of the Limitation Period (in Civil Matters)

The Limitation Law includes several situations whereby the limitation period is extended over and above the regular limitation period of 7 years, e.g. when plaintiff is not aware of the facts constituting the cause of action, and even with reasonable care could not have discovered them (clause 8).

Only the submission of a Statement of Claim to Court or to an arbitrator stops the running of the Limitation Period.

In a case of arbitration, in order to ensure that the limitation period will not run until the actual start of the arbitration, in the absence of mutual consent, the claimant should submit a claim to Court (even where  an arbitration clause exists) in order to ensure that the period of limitation is stopped.

Raising the limitation Argument at the First Instance

Failure to raise a limitation argument at the first instance revokes the right to raise such argument later on (clause 2 of the Limitation Law).

When is the first chance?

In M.C.A./97/4049 Assurance General de France v. the Official Receiver as the Liquidator of North American Bank, the judge ruled that the first chance is the first opportunity when the defendant participated in a court hearing, even if the court hearing related to the procedural issue of Court fees which precedes the litigation, i.e. the first chance is the first Court hearing regardless of its topic.

The limitation defence is a procedural defence which does not extinguish the legal right. Therefore, in certain cases the defendant can still rely on the legal right, even if the claim is prescribed.

Clause 4 of the Limitation Law states that the right to set-off and counter-claim in the same matter can be raised against a claim which has not prescribed even if the set-off and the counter-claim, as independent claims, are already time barred.

According to the Financial Services (Insurance) Control Law 1981, the Commissioner of Insurance has a right to appoint an Administrative Manager for an insurance company (clause 68). Such appointment will occur if the Commissioner believes that the said insurer cannot fulfill its obligations (clause 68).

The Administrative Manager should present a creditors’ arrangement plan to the court, which will define the creditors, amounts to be paid and dates of payment. Such plan will override any other stipulation, including limitation periods.