|
By Adv. Rachel Levitan
Admitted Companies:
The insurance business in Israel is governed by two specific laws:
The Insurance Contract Law -1981 which deals mainly with the insured-insurers relations and the Insurance Control Law -1981 (hereinafter: 'the Control Law') which deals with the supervision of insurance business in Israel.
The Control Law deals with the licensing and financial requirements of Insurers and brokers and provides restrictions on the management of insurance business, requires mandatory deposits, restricts the holding or the transfer of means of control of insurance companies as well as insurance brokers, and imposes sanctions (civil and criminal) for the breach of its provisions.
Any insurer who wishes to conduct insurance business in Israel must be an Israeli incorporated company which has received a license from the Commissioner of Insurance to act as an Insurance Company in Israel.
The Commissioner of Insurance has full discretion to grant such license or to refuse it. The minimum capital required for operating as an Insurance Company in Israel is approximately $10 million (for limited activity).
Each branch of insurance is subject to separate approval and the minimum capital depends on the number of insurance branches which the company would like to operate.
The Law also regulates the incorporation ad licensing of insurance brokers.
Activities of Non-Admitted Companies in Israel:
Although the Control Law does not permit a company which is not admitted in Israel to issue policies in Israel, there is nothing in the law to prevent Israeli citizens from purchase of policies from a non-admitted company which is based outside Israel, provided the policies are not issued in Israel.
Such non-admitted companies can subject their policies to the Israeli Law and in effect, issue policies similar to those which are issued by Admitted Insurers.
In practice, many large conglomerates in Israel insure themselves directly with foreign insurance companies which are not admitted.
Restrictions on Holdings of Means of Control:
The Control Law provides, in Section 32, that no person may hold more than 10% of any specific type of means of control in an insurance company unless such person is permitted to do so by the Commissioner.
The Control Law defines the term 'means of control' in broad terms to include the right to vote, to nominate directors, to participate in the profits and the right to the residual assets of the company in liquidation, after the discharge of its debts.
The transfer of any means of control in an insurance company is subject to a permit from the Commissioner.
Solvency Control:
In order to enable efficient control, the Control Law requires insurers to comply with various reporting duties, such as an annual audited financial report, including reports on the business of subsidiaries.
The insurers should also submit summarized semi-annual reports and notices in respect of any changes in directorship or management, and any further information or document required by the Commissioner concerning their insurance business.
The Control Law also empowers the Minister of Finance to enact regulations concerning various matters such as regulations regarding the minimal paid-up capital of the insurer; the ways of investing the capital, the funds and the liabilities of an insurer; the ways to calculate the provisions for outstanding claims in general insurance and life insurance, necessary deposits of reinsurers and collateral in proportional reinsurance, as well as the separation of accounts and assets of life insurers.
Liquidation - Nomination of Administrative Manager:
Where the Commissioner considers (after consultations with an advisory committee) that an insurer cannot meet its obligations or that its directors or managers have acted in a manner likely to impair the proper management of its business, he may, with the approval of the Minister of Finance:
- Suspend or restrict any authority of a director or of any manager or other employee of the insurer;
- Suspend any director or manager from office for a period of three months;
- Appoint an administrator {appointed manager) to manage the business
The appointed manager will be vested with all the authority and functions of the managers, the board of directors, and committees of the board of directors which will no longer carry out their functions or exercise their powers.
In spite of the vast authorities of the Commissioner, the above described system of control did not prevent the collapse of several insurers in the last decade (for example Halevanon, Yardenia, Oshiot, Hassneh and Continental Insurance Co.).
As a result of the collapse of Hassneh Insurance Co. of Israel Ltd., which was the largest insurer in Israel until its collapse, an amendment to the Control Law was enacted in 1994. The said amendment included the gist of the mechanism of a creditors' arrangement programme which may be submitted to the court for the discharge of the liabilities of an insolvent insurer. Such scheme may differentiate between the rights of insureds and the rights of other creditors.
Participation of Banking Organizations in the Insurance Industry:
According to the Banking Licensing Law (1981), a bank is not permitted to hold more than 20% of the means of control in a subsidiary which is not engaged in banking activities, provided such means of control do not exceed 20% of the capital of the bank. As a result, banks are not permitted to control insurance companies or insurance agencies.
Most banks in Israel hold shares in insurance companies, up to the limit legally permitted.
Until recently, banks were not allowed to sell insurance products, not even personal line products. Recently, discussions have been held between the Commissioner of Banks and the Commissioner of Insurance with the aim of allowing banks to sell private line insurance products.
The Position of the Intermediary (Broker) - The Agent of the Insurer:
According to the Insurance Control Law, a broker cannot act as an intermediary between any person and an insurer unless he is licensed.
The status of the insurance broker is defined in the Insurance Contract Law, Clauses 32-36 which state that for the purpose of negotiating an insurance contract, and for the purpose of its conclusion, the broker will be considered as the agent of the insurer. The position of the broker as the agent of the insurer also relates to acceptance of premium, and to the receipt of any notifications or information from the insured.
Section 33(b) states that for the purposes of the insured's duty of disclosure at the conclusion of the insurance contract, the insurance agent's knowledge of the true facts concerning a material issue will be regarded as the insurer's knowledge.
As a result of these provisions, information which was given to the insurance broker is considered information rendered to the insurance company, whether the former has in fact disclosed it to the Insurer or not. The remedy of the insurer will be in a separate claim against the insurance broker for breach of the agency terms (CC 75/87 Tennenbaum v Hadar Insurance Co. Ltd. and Pazit Insurance Agency Ltd., PSM 50(3), 177).
The Formation of an Insurance Contract:
The formation of an insurance contract is subject to the Insurance Contract Law. This law deals with insurance contracts in general, and also includes specific stipulations regarding types of insurance contracts such as life insurance, liability insurance, and property insurance.
A contract of insurance is a contract between an insurer and insured according to which, in consideration for the payment of an insurance premium,the insurer is liable to pay insurance benefits to the insured or the beneficiary, on the occurrence of an insured event. An insurance contract need not necessarily be in writing. The behavior of the parties can serve as evidence that an insurance contract was concluded (CA 702/89 Eliahu Insurance Co. Ltd. v. Noam Orim. PDI 35(2) 811).
The Effect of Non-Disclosure:
In case of non-disclosure, the insurance contract does not become void. The insurer can only cancel it from the moment he found out about the non-disclosure. The only exceptions to the above rule is in case the insurer can prove actual fraud on the part of the insured (the burden of proof of fraud lies on the insurer (CFU) 1649/16, Dankner & Others v.Aryeh Insurance Co of Israel Ltd., PSM 1990, 485) or that the non-disclosure relates to a material fact, which as a result no reasonable insurer would have agreed to insure (objective test).
In the event of non-disclosure which does not derive from fraud, the remedy of the insurer is payment of partial insurance benefits.
There is no voluntary obligation on the part of the Insured to disclose information. Such information will only be rendered in answer to specific questions put forward by an Insurer.
Special Elements in the Insurance Contract Law:
Cancellation of an insurance contract: unless in case of fraud, a policy cannot be voided. The cancellation of an insurance contract will become valid after proper notification has been given to the insured.
Payment on account of insurance benefits: the insurer is obligated to pay the insurance benefit amounts which are not in dispute within 30 days after the insurer has received all the necessary information.
Limitation - Time Bar: the period of limitation with regard to an insurance claim is three years from the date the insurance event occurred. However, in liability insurance, the prescription period is the period in which the claim against the insured will prescribe.
Expenses over Policy Limits: the Contract Law provides (clause 66) that in liability insurance, the insurance contract covers also reasonable defence costs which the insured will bear even over the policy limits.
Privity between the Third Party and the Insurer: in liability insurance, the plaintiff (third party) has privity against the insurer of the tortfeasor.
Reinsurance:
The Insurance Contract Law does not apply to reinsurance. Thus, a reinsurance contract will be governed by the Contract Law (General Part) 1973 (hereinafter: the Contract Law).
In accordance with the leading precedents of the contract interpretation, C.A. 4628/93 the State of Israel v Appropim PDI 49 (2) 265, the contract will be interpreted not only according to its wording, but also in accordance with the surrounding circumstances which preceded the formation of the contract. Thus the intention of the contract will take into account the intention of the parties.
|
Home
