In a recent decision handed down by the Supreme Court, the boundary between maintaining the Commissioner’s directives to include “full grounds and reasons for dismissing the claim” in a letter of declination, and the right of Insurers to provide additional details in the Statement of Defence was outlined, as the Supreme Court accepted Insurers’ position that elaboration of declination arguments raised in the letter of declination is accepted.
In 1998 the Commissioner of Insurance issued a Directive according to which, a declination letter sent by the Insurer re an insurance claim submitted thereto, should include all reasons of declination, in order to give the Insured the required information so that he will be able to properly assess its position, and decide what are the steps he should take.
A reason for declination which was not included in the declination letter may not be raised afterwards in future proceedings. The Supreme Court upheld this directive and therefore, it has a binding effect on all Insurers as being a legal precedent.
In view of this requirement, numerous court cases dealt with the question whether an argument raised in the Statement of Defence had previously been mentioned in the declination letter otherwise it should be struck out from the pleadings.
After numerous judgements handed down by the Courts of the lower instance, ordered the striking out of sections from Statements of Defence of Insurers stating that those sections extended the defence beyond the points raised in the declination letters [thus preventing the insurance companies from handling their defence in the best way possible], the Supreme Court finally clarified in a judgement that it is possible to elaborate in the Statement of Defence the declination reasons stated in the letter of declination, provided that the essential points were included in the letter of declination as required.
The above decision was given in the framework of an appeal filed by Adv. Sharon Shefer and Adv. Karin Bar-El of Levitan, Sharon & Co. on a decision of the Central District Court which ordered to strike out several clauses in the Statement of Defence submitted by Lloyds Underwriters in response to the claim that was filed by a CIT Company (Modiein Ezrachi) with the District Court. The basis of this determination was that Lloyds Underwriters had failed to comply with their duty as required by the regulations of the Commissioner of Insurance, to provide a full and detailed position in respect of each allegation raised in their declination letter, and their explanations and interpretations in the Statement of Defence, which were not mentioned in the declination letter, should be deleted from their Statement of Defence.
In the appeal filed on behalf of Lloyds Underwriters, it was alleged that the letter of declination fulfilled their duty as per the Commissioner’s requirements and that no additional explanations were required for the declination of coverage. They argued that the District Court’s decision to strike out sections from their Statement of Defence creates a high standard, according to which the letter of declination, which is intended to provide the Insured with the full position of Insurers regarding the Insured’s Claim, to be as detailed as the Statement of Defence. This standard places any Insurer a very heavy burden which is inconsistent with the rationale of the Commissioner’s instructions. Lloyds Underwriters argued that the Court must distinguish between cases in which Insurers argued in their Statement of Defence that another term of the policy was violated by the Insured and was omitted from the declination letter, to a case in which a technical explanation or additional details were raised in the Statement of Defence to the points included in the declination letter. Lloyds Underwriters further argued that, the striking out arguments and clauses from their Statement of Defence, damaged their right to provide the Court with the full details required for their defence, whereas Plaintiff’s right was undamaged, as it is entitled to raise arguments in its Statement of Response regarding the alleged “new arguments”.
Plaintiff argued in response that providing general reasoning in respect of conditions that were violated in the Insurers’ declination letter is insufficient, and it is necessary that Insurers will elaborate their arguments in a detailed manner to avoid a situation in which the declination letter wording will be general and laconic in a manner that may harm the Insured’s right to plan his actions in a future suit.
The Supreme Court (the honorable Judge Grosskopff) discussed the arguments raised by both sides in the motion and the response, accepted the underwriter’s position and ruled that despite the Commissioner’s instructions, the letter of declination should include all the reasons for declining the claim but this instruction does not mean that the degree of details required in the declination letter must include all the information held by Insurers.
The Supreme Court determined, that the purpose of Insurers’ obligatory duty to provide explanations in the declination letter is to enable the Insured to plan its future steps in the matter of filing a claim for insurance benefits, and to prevent the conduct of bad faith on the part of Insurers. As such, the letter of declination cannot be laconic. On the other hand, “the Commissioner’s instructions should be interpreted reasonably and in consideration of the circumstances”.
Therefore, one should not expect, that in order for Insurers to send a declination letter, Insurers will need to invest similar resources to those invested in defence of the claim, and one should not enable the Insureds to use Insurers’ obligation to provide explanations in the declination letter as a tool to tie Insurers’ hands in the legal procedures.
For example, one should not expect the letter of declination to lay out all future defence arguments of Insurers (including alternative defence arguments) in the event if a Statement of Claim is filed by the Insured, and one should not expect that Insurers will elaborate in the declination letter issues concerning the interpretation of the terms of the policy and it does not need to include all the facts and data used as grounds for its defence.
Under these circumstances the appeal was approved in full and it was determined that the original Statement of Defence filed by Lloyds Underwriters will remain as is, despite the fact that it includes details and explanations beyond those given in the letter of declination.