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Insurance Benefits in "No Fault" System – Deduction of Tax on Compensation Paid to Road Accident Victims
by Adv. Aviv Klepner
The Road Accident Victims Law (hereinafter: the Law) which was legislated in 1975 imposes a duty on the driver of a motor vehicle to compensate the victim for bodily injury which the victim sustained as a result of a road accident in which the motor vehicle was involved, regardless as to who was at fault and caused the accident. The Law further provides for full and total liability even if no blame at all can be attributed to the driver. Hence each victim of a road accident is ensured payment of compensation.
However, with reference to the scope of compensation due to each and every victim, the Law provides various limitations.
Clause 4(a)(1) of the Law states:
….
(1) in calculating the compensation in respect of loss of earnings and loss of earning capacity, no income shall be taken into account which is in excess of three times the national wage average, according to the data of the
Central Bureau of Statistics, immediately before determination of the compensation:(2) Where the said compensation exempt from Income Tax, the loses of the injured for the purpose of these compensation will be calculated according to the income of the injured upon the deduction of the Income Tex applied to it at the time of the determining of the compensation, provided that the reduction for the purpose of said deduction will not exceed 25 percent of the income according to which the said compensations be calculated.
On 20 April 1998 a tragic road accident occurred in which the couple Raveh lost their lives. The couple's children who are the beneficiaries of the deceased and who were dependent on them for their livelihood, sued the insurer of the motor vehicle involved in the accident for their losses .
The deceased worked until his death as an independent architect together with a partner they conducted a business together with 6 employees. The parties agreed that the deceased's salary exceeded three times the average national wage. A dispute arose as to the interpretation of the above mentioned clause, which was eventually determined within the framework of an appeal and a counter-appeal which were filed to the Supreme Court (C.A. 8632/07 Elad Raveh v. Inheritance of the deceased Doron Raveh).
The couple's children alleged that the calculation should be based on net earnings i.e. initially income tax should be deducted from the salary which was actually paid to the deceased and only afterwards to apply the ceiling of treble the average salary. The insurer alleged that the calculation should be made on the gross value of the salary and therefore tax should be deducted from the said ceiling.
The Supreme Court justified the insurers' position and determined that from the point of view of the Law, a salary which exceeds treble the average salary does not exist. Therefore the tax which is prescribed by the Law in the region of 25% will be deducted from the ceiling of treble the average salary.
In other words, since the Law sets a limit as to the amount of compensation, any part of the salary above the ceiling should be ignored, and the tax should be deducted from the ceiling. The Court added that adopting the children's position will increase the inequality of the compensation since the tax will actually be deducted from the relative lower income amounts, and not from income which is higher than treble the average salary.
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