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The limitation period for filing an insurance claim against an insurance company is a critical issue to the rights of the parties to the insurance contract.
This newsletter focuses in the various aspects of this issue and summarises the relevant judgments.
What is the limitation period for filing an insurance claim against an insurer? The Israeli Insurance Contract Law - 1981 (Section 31) (hereinafter: “the Insurance Contract Law), stipulates that the limitation period for filing a claim for insurance benefits is three (3) years from the date of the insured event.
Does the limitation period of 3 years apply to a claim filed in court or only to a demand for indemnity?
For many years there were conflicting judgments as to whether the short limitation period of 3 years stipulated by the Insurance Contract Law applies to a claim which the insured file in court or – as other courts have ruled - to the insured’s demand made to the insurance company for receipt of insurance benefits. A precedent of the Supreme Court finally determined this dispute.
In C.A. 3812/91 PCA 5423/91 Aryeh Insurance Co. of Israel Ltd. v. Gerice Barbara 48(3)PDI 441, the Supreme Court ruled that the 3 years limitation period applies to a claim for insurance benefits filed by an insured in court. A claim which is filed more than 3 years after occurrence of the insured event is time barred and may be dismissed.
What is the date of the “insured event” from which the limitation period commences?
Are there any special circumstances which may extend the limitation period?
The 3 years should be calculated from the date of the” insured event”.
A question arose whether the date of the insured event is the date of the occurrence of the event as defined in the policy, or whether the period of limitation commences only when all the factual elements which enable the insured to file a claim, have crystallized.
The Limitation Law - 1958 includes various references to cases in which the limitation period can be extended (e.g. minority of plaintiff, unawareness of facts which form the cause of action, etc.). According to the above-mentioned Supreme Court precedent, these extension clauses also apply to a claim for insurance benefits. In view of the above, in all of the instances specified in the Limitation Law according to which the limitation period may be extended, the 3 years should commence only from the extended period.
In a case recently heard in the Magistrates Court of Tel-Aviv (CC 55279/01, Tomer Cohen v. Clal Insurance Co. Ltd. - as yet unpublished), various aspects of the extension to the limitation period for filing insurance claims were discussed.
Plaintiff who, at the time of the occurrence was a minor (under 18 years of age), sustained an injury to his eye while participating in a physical education lesson at school. He claimed insurance benefits under his Personal Accident policy. The claim was filed more than 7 years after the accident and the insurance company declined the claim on the basis that it was time-barred. In response, plaintiff raised 3 main arguments:
Plaintiff’s first argument: - At the time of the occurrence he was a minor. Therefore, in accordance with the Limitation Law, the limitation period commences only from the time he became 18 years of age. However, since more than 3 years elapsed since plaintiff turned 18, the court rejected this argument
Plaintiff’s second argument - the 3 years limitation period should be calculated only from the date when he was examined by a medical expert, and became aware of the material facts to substantiate his claim
Allegedly only a few years after the occurrence, did it transpire that his condition and vision would not improve. Therefore, only at this point in time did his cause of action crystallize.
The court rejected this argument and ruled that the date of the “insured event” from which the limitation period should be calculated, is the date of the occurrence, and not the date when the damage crystallized or the date when plaintiff learned about the extent of his damages.
Plaintiff’s third argument: The behavior of the insurance company following plaintiff notification extends the limitation period.
Following plaintiff’s notification to the insurance company, various letters were exchanged between the parties, which included a demand by the insurance company to plaintiff to submit medical documentation and be examined by its medical experts. Plaintiff complied with these demands, and in a timely manner provided the insurance company with the requested documents.
For several months plaintiff corresponded and held telephone conversations with representatives of the insurance company, and was advised that the matter was being dealt with. However, plaintiff only received a response five days after the limitation period had elapsed. In their response, the insurance company rejected the claim on the grounds that it was time-barred.
The court ruled that the insurance company must use its right to reject a claim, which has been time-barred, only in good faith.
The court examined the correspondence, which was exchanged between the parties, and concluded that in this case, the insurance company did not act in good faith. They led plaintiff to believe that his claim is being considered, and prolonged their final decision until 5 days after the limitation period had elapsed. An insurance company, which has held negotiations with its insured and requested that he submit documents and details, should have advised its position to the insured without delay, within a reasonable time, and not waited until the limitation period had elapsed. The insurance company failed to specifically notify plaintiff during the negotiations that they reserve their right to decline the claim if it will not be filed within the limitation period, and therefore, will not be allowed to rely on this allegation for declination of the insurance claim.
The court ruled that the claim had not been timed-barred.
We believe this ruling is of great importance to insurers and should be carefully studied. Insurers should be aware that certain correspondence and demands from the insured, following his notification of the event, might later harm their right to argue that the claim has been time-barred and therefore insurers should carefully consider their position.
It is worthwhile mentioning that, in another case; the court ruled that settlement negotiations between the insurance company and the insured do not stop the limitation period from running out.
In cases where the insured was unaware of various elements, which are essential for his claim, will the limitation period be extended?
This complex issue, where certain material facts which are relevant to his insurance claim, were unknown to the insured until a later stage, was discussed in a relatively new precedent of the Supreme Court. In C.A. 1254/99 Hameiri v. I.L.D. Insurance Co. Ltd., the court analyzed the various provisions in the laws and their applications. Section 8 to the Limitation Law stipulates that in cases where plaintiff was not aware of some facts which were essential to his cause of action and he could not learn about these facts by reasonable efforts, the limitation period would only commence from the time he became aware of these facts. The court ruled that this is a general provision which applies to all kinds of claims, whether or not the damage is an integral part of the cause of action. In all of these cases the late discovery of the relevant facts would extend the limitation period, which will then commence from the date of the discovery thereof .
On the other hand, there are many cases where the damage is discovered later, sometimes even many years after it had occurred. Section 89(2) to the Tort Ordinance (New Version) deals with these types of cases and stipulates a “Discovery Rule” according to which, when the damage has been discovered after its occurrence, the limitation period commences from the discovery of the damage. However the maximum limitation period for filing a claim is 10 years from the date of the occurrence. The Supreme Court ruled that this is a specific provision, which applies only to the damage element but not to any other elements, nor to the casual connection between the damage and the loss. In other words, if plaintiff discovered the damage after it had occurred, he will have 3 years from the discovery of the damage to file an insurance claim, but no more than 10 years from the date of the occurrence.
It is worthwhile mentioning that the “Discovery Rule” does not allow plaintiff to wait until the full extent of the damage is ascertained or proven, but only until some signs of damage were observed. See for example: C.A. 831/80 Zamir v. Chemicals and Phosphates, 37(3) PDI 122. Nor should one confuse the late discovery of the damage and the late discovery of the evidence to prove the damage. In the latter case the extended period should not apply. See: Namer v. the Port Authority, PDI 15,225.
The limitation period in Liability Insurance
As opposed to all other types of insurance, under the Israeli Law the limitation period in liability insurance is different.
Section 70 of the Insurance Contract Law stipulates that in liability insurance the claim for insurance benefits will not prescribe as long as the third party claim against the insured has not prescribed.
The court ruled that the limitation period for an insurance claim in liability insurance, commences on the same date when the cause of action of the third party against the insured eventuated. Since the third party might sue the insured throughout the regular period which is normally seven years), therefore his liability insurance should protect the insured during that same period.
In Motion 1470/01 in C.C. 24321/99 I.L.D. Insurance Co. Ltd. v. Nachum Cohen in the Jerusalem Magistrate Court (as yet unpublished), the court ruled that Section 70 ceases to apply when the third party claim has been already filed against the insured, or when a judgment has been handed down accepting the third party claim against the insured.
The court ruled that in these cases, no further extension is granted to the insured, since he is already able to file his insurance claim against his insurers within the regular three years period.
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