Several years ago the Commissioner of Insurance issued two directives regarding an insurer's duty upon declination of coverage. The first, issued on 9 December 1998 provided that when an insurer decides to decline coverage it must include in its letter of declination all the reasons which have led to taking this decision. An insurer will not be entitled to raise, at a later stage, any reason which was not presented in the original letter of declination. The second directive, issued on 29 May 2002 provided that an insurer may raise declination arguments which were not included in its letter of declination only if they are based on new circumstances which developed after the letter was issued or if the insurer could not have known about them at the time it declined the insured's claim.
The Commissioner's directives were adopted by the Supreme Court in its precedential decision in M.C.A. 10641/05 Israel Phoenix Assurance Co. Ltd. et al v. Haviv Asulin handed down on 4 May 2006. In this case the insured - Haviv Asulin, sought coverage under a life insurance policy due to a disability from which he suffered. The insurer declined coverage contending that the insured failed to disclose his medical condition prior to the issuance of the policy. Consequent to filing of the claim in Court the insurer filed a Statement of Defence including arguments which were not raised in the original letter of declination. Based on the Commissioner's directives, the Magistrates Court ordered to strike out all defence arguments which had not been previously detailed. The District Court dismissed the insurer's appeal and the Supreme Court denied the insurer's motion for leave to appeal giving effect to the Commissioner's directives.
Since the Haviv Asulin judgement was handed down, motions to disregard new arguments for declination raised by insurers in their Statements of Defence became a matter of routine in insurance claims. In many instances insurers are deprived of the right to add or amend their original coverage position and are limited by the arguments included therein.
Implementation of the Commissioner's Directives in Recent Court Judgements
Recently, several Court rulings were handed down by the lower Court which discussed the implementation of the Commissioner's directives.
In C.C. 5590/03 Naim Kudha v. Menorah Insurance Co. Ltd., (4 June 2008) the Magistrates Court in Jerusalem ruled that the insurer - Menorah, was estopped from raising declination arguments which were not included in its original letter of declination. In this case the insured under a life insurance policy sought coverage after he was diagnosed with multiple sclerosis. Menorah declined coverage based on the allegation that the diagnosis was made within the 90 days qualification period as provided by the policy. After the insured filed his Court claim Menorah filed its Statement of Defence in which it repeated its original argument for declination and added that the insured breached his duties of disclosure and concealed information regarding his medical condition.
The Court found that the insured's illness was diagnosed after the qualification period had ended, and thus held that Menorah's first argument for declination was unjustified. As to the new allegation raised in Menorah's defence, the Court ruled that according to the Commissioner's directives Menorah is estopped from raising such allegation and it is limited by the arguments in its original letter of declination. The Court ordered Menorah to pay insurance benefits as well as the special interest set in the Insurance Contract Law - 1981.
In C.C. 17381/08 Albert Elbaz v. Harel Insurance Co. Ltd. (13 August 2008) the Magistrates Court in Tel Aviv took an additional step and ruled that the Commissioner's directives limit the insurer's possible defence arguments also in cases where no letter of declination was issued.
On 23 August 2007 a fire broke out in the insured's garage causing severe damages to the insured's property. The insured approached Harel which had covered him under a business policy, however, he did not receive any response regarding Harel's coverage position. Therefore on 20 February 2008 the insured filed his insurance claim to Court.
In its Statement of Defence Harel, for the first time, argued that prior to the issuance of the policy the insured concealed material facts regarding threats he had received. Consequently, the insured filed a motion to Court in which he requested that this allegation be struck out in limine. The Court accepted the insured's motion and held that an insurer's coverage position must be given to the insured within a reasonable time.
Based on the Commissioner's directives the Court ruled that an insurer who failed to provide its timely coverage position will not be entitled to raise, at a later stage, any declination reason it could have been aware of at the time it was obliged to respond to the insured's demand.
The defence of an insurer who did not present its coverage position on time will be limited to arguments regarding the quantum of damage and to arguments it could not have known at the time of declination.
Another approach was taken by Judge Kasirer of the Magistrates Court in Tel Aviv in two recent judgements.
In C.C. 56231/07 Efraim Aharon v Migal Insurance Co. Ltd. (28 September 2008), the insured demanded coverage for damage he suffered as a result of a work accident. The insurer declined coverage based on a time-bar allegation. Consequently, a court claim was filed.. In its Statement of Defence the insurer stated that the insured has no cause of action and that his rights under the policy have already been exhausted. The insured requested the Court to strike out these allegations since they were not included in the original letter of declination. The Court declined the insured's motion ruling that the arguments raised in the Statement of Defence derive either from the original declination reason or from the facts detailed in the insured's Statement of Claim. In such circumstances these arguments can be raised in the insurer's Statement of Defence although not specified in the letter of declination. Furthermore, the Court stated that an insurer cannot be expected to draft its letter of declination as a Statement of Defence, and that this was not the intention of the Commissioner's directives.
Judge Kasirer repeated this position in C.C. 69971/07 Lichtenstein Igal v. Clal Insurance Co. Ltd. (27 October 2008) in which the judge enabled an insurer to argume in its Statement of Defence arguments which were not included in the original letter of declination stating that the new arguments are only the particulars of the general declination reason provided in the first place.
Comment
It is clear that an insurer who does not include all declination arguments in the first letter of declination issued to the insured, risks its ability to rely on additional declination reasons. As a general matter, insurers are subject to the frame set in their letter of declination and are entitled to deviate therefrom only in rare circumstances. Therefore, a declination of coverage letter should be drafted only after a thorough examination of all relevant facts and after carefully considering all coverage issues which may arise in the case.
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