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What is an Intentional or Criminal Act in P.I. Policies?
In C.A. 2016/00 Anatoli Rozenzweit v. Jacob Rosenblitt and Hadar Insurance Co. Ltd., the Israeli Supreme Court ruled on the question of whether a Professional Indemnity policy covers intentional or criminal acts. The insured, a construction engineer, designed the construction of two buildings. After completion of the work, cracks were detected in the structure's skeleton.
The client demanded compensation from the insured, alleging that the latter acted negligently, and was, therefore, liable for the losses the client sustained.
The insured notified his P.I. insurers (hereinafter: the Insurers) about the claim filed against him, and requested indemnification therefor.
The Insurers engaged the services of a private investigator who examined the circumstances. In a conversation the investigator had with the insured, the latter admitted that during the planning of the project he had not fully complied with the Israeli regulations and standards relating to the materials, their strength, measurements and quantities to be used in the construction of such buildings. The insured explained to the private investigator that his clients had explicitly instructed him not to exceed their budget, and therefore he had to cut on materials in order to execute the project on the cheapest budget possible, as required.
Based on the above admission, the Insurers declined coverage under the policy, on the grounds that the policy did not cover intentional acts and alternatively, that the policy excluded criminal acts.
The Supreme Court determined that the insured's behaviour does not constitute an intentional act, and therefore Section 26 of the Insurance Contract Law, which discharges insurers from liability in cases of intentional acts, does not apply. An insured will be deemed to have acted intentionally only if it is proven that he intended the loss or damage to be caused.
If the insured is aware that he is acting in breach of the relevant standards or regulations, but he did not intend for the damage to occur, his acts should be included under the definition of 'Wrongful Acts' under the P.I. policy.
Here, although the insured knowingly breached the applicable regulations and standards, it was not proven that he had foreseen that construction of the buildings according to his plans would result in cracks, since he mistakenly thought that the margins within the standards will be sufficient for a safe building.
With regard to the policy exclusion, which excluded any criminal act - the Court determined that only 'real' criminal acts, which are 'mala per se' are excluded from coverage. Breach of strict liability offences which do not include an element of 'mens rea' cannot be considered as criminal acts for policy purposes.
In view of the above, the Court determined that the insured is entitled to indemnification under the policy.
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