The outbreak and spread of COVID-19 in Israel is affecting businesses and the movement of individuals. For example, the current Health Ministry's instructions prohibit the provision of non-essential services and the operation of all shops, except food shops and pharmacies, and limit other workplaces to engaging 30% of their staff. In addition, people cannot travel more than 100 metres from their homes.
This, in addition to the total prevention of flights to Israel, has caused:
- a significant reduction in commercial activity;
- a sharp rise in unemployment rates; and
- uncertainty as to the future ability to rehabilitate businesses from the loss of revenue and business interruption caused by COVID-19.
Implications for insurance litigation
Courts
Until 16 April 2020 the courts are operating under a recess procedure (ie, handling only urgent matters, which are mainly criminal arrests and injunction orders). As a result, regular insurance litigation has been put on hold and no court sessions are taking place. The recess procedure extends the dates set by regulations for the filing of statements of defence or responses, as long as the state of emergency and the recess procedure are in place.
The courts are seeking ways to conduct remote sessions for motions which require no submission of evidence in order to minimise the effects of this recess. Most judges have a remote connection to their files and can partially advance claims during the state of emergency.
Insurance coverage
COVID-19 will likely lead to changes in the future terms or exclusions of various policies, which will consider the impact of COVID-19 on businesses and liabilities.
Will the current policy terms for different types of insurance give rise to claims for coverage of the losses and expenses resulting from the closure or slowdown of businesses? To answer this question, a distinction must be made between property and liability insurance.
Property insurance
Business interruption cover is usually purchased in Israel as a chapter within a business's property policy. Each policy's language should be specifically checked, as there may be differences in terms and wordings afforded to the various policyholders; however, the standard cover for businesses in Israel requires physical damage as a trigger for the coverage. The question, therefore, will be whether COVID-19 caused physical damage to property.
Although the term 'physical damage to property' has not been interpreted in the context of a virus pandemic in a specific judgment, it has been interpreted in construction policies as not covering financial losses or expenses or situations in which there is an inherent vice or the property was not suitable for its intended purpose. Moreover, it has been interpreted as covering only the actual damage to the insured property itself (eg, CA 7439/06 MAGMAN Engineering Works v Hachsharat Hayeshuv Insurance Co (2006); CA 5775/02 Neve Gan Construction Development and Investments v the Phoenix Insurance Co (2004)).
Therefore, and subject to the specific wording of each policy, it seems that losses resulting from the lockdown or closure of businesses due to COVID-19 cannot be considered as physical damage to the property itself.
Liability insurance
This cover indemnifies the assured against a claim for a breach of a legal or professional duty and includes third-party, professional and product liability.
While third-party and product liability policies require property damage or bodily injury to the third party, professional liability policies cover financial and economic loss. Hence, the financial loss caused by COVID-19 will likely give rise to professional liability claims against insureds and their insurers (a direct privity against liability insurers was granted to third parties by the Insurance Contract Law). Plaintiffs must prove a breach of professional duty by the insured in order to trigger the policy.
D&O insurance
One type of liability insurance is directors' and officers' (D&O) insurance, which indemnifies a company's directors and officers for claims alleging that a breach of their duties when acting in their capacity as directors or officers caused damage to third-party plaintiffs.
COVID-19 will likely lead to a wave of claims under D&O policies, resulting from the financial collapse of companies and the losses to investors.
Experience has shown that when companies enter bankruptcy proceedings, the appointed liquidator, trustee or receiver often tries to establish a claim against the company's directors and officers. In such cases, the liquidators may challenge transactions entered into by the company in previous years, while arguing for negligent or insufficient examination. Notably, liquidators need not establish a causal connection between the negligent transactions and the collapse of the company and can file claims for the loss caused to the company as a result of the transaction, even if this did not lead to the company's collapse.
Another risk to shareholders is class actions against public companies which do not properly report the risks arising from COVID-19 and its impact on the company.
The Israel Securities Authority instructed public companies to ensure that their reports (eg, annual reports and immediate reports when necessary) properly reflect the impact of COVID-19 on their businesses.
Notably, on 4 March 2020 the US Securities and Exchange Commission published a press release reminding all companies to provide investors with their financial reports and audits with insight regarding their assessments and plans for addressing material risks to their business resulting from COVID-19 to keep investors and the market informed about material developments.
The financial crises of many companies can also lead to:
- third-party claims against directors and officers of companies which cannot meet their contractual obligations; and
- employment practice liability insurance claims.
Personal accident insurance
Personal accident insurance policies grant insurance benefits in cases of death, permanent disability, loss of ability of work, burns and hospitalisation resulting from an accidental event. In most policies an 'accident' is defined as being a bodily injury caused by the operation of a physical power by an external factor which is the sole and direct reason for coverage.
Two cases, one of which was decided by the Supreme Court and has a binding effect on the lower courts, have dealt with a disease caused by a virus. In Muna Salim v Clal Insurance Co (CRA 4339/08), the estate of the insured, a school student, argued that a virus had caused a severe lung infection which had led to the student's death. The claim was based on a personal accident policy and was declined by two lower courts. This declination was upheld by the Supreme Court, which determined that it is difficult to consider a virus as being an accident.
Further, in Garaisa v AIG (2019, Haifa Magistrate Court) the claim was filed by a plaintiff whose left eye was infected by a virus after he swam in a thermal spring, resulting in a permanent disability. The court did not accept the plaintiff's distinction of his case from Muna Salim, alleging that in this case, the exact time of entering the spring and being attacked by the virus was identifiable. The court applied the Supreme Court's determination that the definition of an 'accident' in the policy required an event in which a violent physical power was operated on the insured; this case did not satisfy such definition.
Life, health and loss of work ability
Besides the financial impact of COVID-19 on companies in the life insurance sector (eg, a reduction in the value of assets and future management fees in respect of old policies), there will likely be an increase in claims for loss of work ability due to the unknown future effects of COVID-19.
However, as far as life insurance policies are concerned, experts rely on the global mortality statistics for COVID-19, which highlight high rates of death among elderly people. Since many of these policies are limited to retirement age (as they are part of employment agreements), COVID-19 is not expected to affect these policies.
Mediation
In recent years, mediation has been a successful tool for settling insurance disputes in Israel. In growing numbers, parties refer their disputes to non-binding mediation in front of a retired judge or an experienced lawyer.
During lockdown, these sessions may be conducted remotely via digital platforms in order to avoid the long queue in the courts and reach a settlement by consent. This trend will likely continue to increase.
For further information on this topic please contact Peggy Sharon at Levitan, Sharon & Co by telephone (+972 3 688 6768) or email ([email protected]). The Levitan, Sharon & Co website can be accessed at www.israelinsurancelaw.com.
