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An insurance company insured Asulin under a Life insurance policy which included coverage for loss of ability to work. Asulin demanded insurance benefits due to his medical disability as determined by the National Insurance Institute (NII).
The insurer declined the claim alleging that the assured did not disclose information regarding his medical condition when he signed the proposal form.
A claim was filed by the assured in the Magistrates Court against the insurer. In its Statement of Defence, the insurer raised new reasons for declination of coverage, following which the assured filed a motion requesting the Court to strike out the new arguments from the Statement of Defence.
The Magistrates and District Courts
The Court analyzed the instructions of the Commissioner of Insurance dated 9th December 1998, according to which, upon declination of an insured's claim, the insurer is required to give all the reasons for the declination at the first opportunity, otherwise the insurer will be estopped from raising arguments of declination at a later date.
According to additional instructions published on 29th May 2002, an insurer may raise new arguments for the declination at a later stage only in the event that new facts and circumstances were revealed after the insurer had given its reasons for the declination or if the insurer could not have known these facts at the time it declined the insured's claim.
Based on the above instructions, the Court accepted the assured's request to delete the new arguments which the insurer raised for the first time in its Statement of Defence.
The District Court upheld the Magistrates Court's decision and ruled that the obligation to carry out an insurance contract in good faith is the basis of the instructions given by the Commissioner of Insurance, the purpose of which is to end the phenomenon of not informing an insured of the reasons for declination of a claim and to prevent declinations without a reasonable explanation.
The Supreme Court Judgement
The Supreme Court reinforced the decisions of the lower courts. According to the judgement, the Commissioner of Insurance acted according to the Law of Supervision of Financial Services (Insurance) - 1981. The purpose of this law is to protect an insured against a powerful insurer, and to balance the inequality between insurer and insured.
The duty to detail all reasons for declination conforms with the object of legal efficiency, since an insured which receives a clear and reasoned response to his claim will be able to properly estimate the profitability of filing a claim to court.
Contrary to the assureds - the insurance companies have sufficient resources in order to give well-founded and definite decisions, and therefore, their rights are not prejudiced by the court ruling.
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