In a recent Court judgement handed down by the Magistrates Court of Tel Aviv, the Court denied an insurance claim due to the fact that the insured provided false information regarding the identity of the driver of the insured car. The false information was provided in order to try and avoid payment of the high deductible which applied to damages caused by a young driver.
In our review we will refer to the legal background which led to the Magistrate Court's decision and to the circumstances of the case.
The legal background
Sections 22-25 of the Israeli Insurance Contracts Law - 1981 set the insured's obligations upon the occurrence of an insurance event: Sections 22-23 determine the duty to provide an immediate notice; the duty to deliver to the insurer, upon request, information and documents required to ascertain the insurer's liability, etc. Section 24 refers to the insurer's remedy in case where an insured's duty under Sections 22-23 is breached and Section 25 deals with insurance fraud.
According to Section 25:
"Where a duty under Section 22 or 23(b) is infringed or anything mentioned in Section 24(b) is done or the insured or the beneficiary communicates false facts to the insurer or conceals from it facts connected to the insured event or connected to the insurer's liability, and the same was done with fraudulent intent - the insurer is released from liability."
In a precedential decision handed down in 1998 by the Supreme Court (MCA 230/98 The Israel Phoenix Insurance Co. Ltd. v. Ahmed Nasra), it was determined that Section 25 applies to cases which fulfill the following conditions:
(a) The insured provided false or untrue facts;
(b) The insured was aware of the fact that the information provided was false or untrue;
(c) The insured acted with the intention to receive money to which it was not entitled based on the false and untrue information.
In this case, the Supreme Court fully denied an insurance claim which was based on a list of items which were allegedly stolen from the insured's business, since it transpired that the list included many items which were not stored in the business at the time of the burglary.
The Supreme Court stated that the purpose of Section 25 is to discourage an insured from providing the insurer with untrue information or from concealing relevant facts with fraudulent intent by fully discharging the insurer from liability in such cases.
C.C. 45146/08 Shemer Yosef v. Bituach Yashir IDI Insurance Co. Ltd.
On 16th July 2009 the Magistrates Court in Tel Aviv took an additional step in the fight against insurance fraud. In its judgement, it determined that although the fraud was meant to increase the insurer's liability by only a small amount - approximately NIS 500 ($125), the insured's insurance claim in the amount of approximately NIS 10,000 ($2,500) was denied altogether.
The insured event occurred on 8th May 2008, when the insured's 20 year old son was involved in a car accident which caused damage to the insured car. According to the insurance policy, the deductible which applied to damages which were caused while a young driver was driving the car was NIS 500 higher than the applicable deductible in case the car was driven by an experienced driver.
In order to save these NIS 500, the insured reported to the insurance company that he - and not his son - drove the car at the time the accident occurred. When the insurer discovered that this information was untrue, it denied coverage based on Section 25 of the Insurance Contracts Law.
The insured filed an insurance claim to Court and argued, inter alia, that the small deductible amount which he tried to save does not justify the drastic sanction of fully denying his claim.
The Magistrates Court denied the insured's claim while referring to the three conditions set by the Supreme Court in MCA 230/98. The Magistrates Court found that the information provided to the insurer regarding the identity of the driver was false and that the insured was aware of the falseness of this information. In addition, it was proven that the false information was provided in order to achieve financial gain - to reduce the amount of the deductible. Under such circumstances, when all three conditions were fulfilled, the insured's claim should be denied altogether.
Comments
In an interview published several weeks ago with the CEO of one of the largest Israeli insurance companies, he estimated that at least 10%-15% of the premiums paid by insureds are a result of insurance fraud in various insurance fields. Many of these frauds - including the one discussed by the Tel Aviv Magistrates Court - can be classified as "soft fraud" in small amounts.
Section 25 of the Insurance Contracts Law was legislated in order to fight such fraud and hopefully, the message sent to insureds by the Magistrates Court's judgement will contribute to this ongoing battle.
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