Facts

A truck owned by SAL Egg Marketing Company (the insured), which contained a detection system, was stolen after the detection system had been neutralised by an 'authorised user' (ie, someone who knew the system's security code).

Phoenix Insurance Company, which insured the truck under a commercial vehicle insurance policy, declined the insured's claim, stating that the truck had been stolen with the involvement of one of the insured's employees.

The insurer based their declination on two policy exclusions, according to which insurance coverage would not be granted where:

  • theft was committed by or in collaboration with one of the insured's employees; and
  • the insured failed to apply adequate protective measures.

Lower court decisions

The insured filed a claim against the insurer and others with the Jerusalem Magistrate Court. However, the court dismissed the insured's claim based on, among other things, the abovementioned policy exclusions.

The insured appealed to the district court, which accepted the appeal. The court found that the insured was entitled to insurance benefits, as there was no proof that it:

  • had received a copy of the policy from the insurer; and
  • was aware of the exclusions.

The insurer (and the insurance agency) requested leave to appeal to the Supreme Court.

Supreme Court decision

On 14 May 2018 the Supreme Court dismissed the appeal and ruled as follows.(1)

  • The insurer had not provided the insured with a policy specifying the rights and obligations of the parties according to Section 2(a) of the Insurance Contract Law 1981. The fact that the insurer had sent the insured a letter requesting payment of the premium was insufficient evidence regarding the insured's receipt of the policy. Further, it was unclear whether the policy was attached to this letter, as alleged by the insurer.
  • The insured had been unaware of the exclusion regarding theft committed by an employee (as opposed to the exclusion regarding the protective measures, which was highlighted in the insurance proposal).
  • There was a causal connection between the non-receipt of the policy by the insured and the damage caused to it due to the theft. The insurer alleged that the exclusion regarding theft by an employee existed in similar policies issued in Israel (ie, the insured could not have insured the truck without a policy that included such an exclusion and therefore there was no causal connection between the insured's non-receipt of the policy and the damage caused to it due to the theft).
  • The court denied the insurer's claim and stated that as the insured had been unaware of the exclusion regarding theft committed by an employee – and had therefore been unable to change its conduct and act to reduce such possibility – the exclusion did not apply.
  • The court ruled that Section 2(b) of the Insurance Contract Law 1981 relates to the interim period between the signing of a contract and the delivery of a policy to the insured. This section does not annul Section 2(a), which provides that the policy should be delivered to the insured.
  • The court declined the insurer's position according to which even though it had not delivered the policy to the insured, the insured had agreed to its terms and conditions, which is customary in the same type of insurance with the same insurer. The court stated that this kind of interpretation allows insurers to apply terms and conditions which the insured disagrees with or is unaware of. The court added that, in this case, six months had elapsed from when the contract was signed until the event, which cannot reasonably be considered an interim period.

The court dismissed the appeal and ordered the insurer to pay the insured's expenses of NIS20,000.

For further information on this topic please contact Liron Elias at Levitan, Sharon & Co by telephone (+972 3 688 6768) or email ([email protected]). The Levitan, Sharon & Co website may be accessed at www.levitansharon.co.il.

Endnotes

(1) RCA 4032/17, Phoenix Insurance Company v SAL Egg Marketing Company Ltd.

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