To what extent are insurers responsible to their policyholders? Is this responsibility limited to matters included in a policy or does it extend beyond them?
The Rishon LeZion Magistrate's Court recently addressed these questions in Maria Kadesh v Ayalon Insurance Co, which concerned a claim filed by an insured against an insurer not only for damages caused as a direct result of a water leak, but also for additional damages and mental anguish.
The court ruled that the insurer had acted negligently as its representative had misled the policyholder regarding the insurance coverage offered.
The insured sustained damages as a result of a leak in her apartment. She hired an expensive repair contractor from a company specified in her insurance policy to repair the damage. After the contractor told the insured that her policy did not cover the damage, an engineer who visited the site informed her that the work had been carried out improperly and that the leak damage was in fact covered under the policy.
Due to the extensive work required, the insured had to leave her apartment. She demanded indemnification for the costs of the repairs and renting another apartment, but the insurer paid only part of the damage and declined the majority of the costs. In her claim, the insured argued that she was entitled to be paid under the policy and the tort law due to the misleading information that she had been provided regarding her insurance coverage.
The insured's statement of defence argued that according to the policy in question, only direct damage caused by an insured event was covered and not consequential damage.
The Rishon LeZion Magistrate's Court held that insurers can be held responsible for negligence regarding matters outside a policy. In this case, it was determined that the initial opinion that the damage was not covered under the policy in question was mistaken and involved negligence.
The court based its decision on the nature of the policy. A policy is a contract between an insurer and a policyholder according to which when an insured event occurs, the insurer must pay the insured benefits if the appropriate conditions have been met. If the insurer does not pay, it breaches the policy and thus the insured will have a cause for breach of contract.
When the contractor notified the insured – without professional knowledge in this regard – that the damage was not covered in the insurance policy, this conduct was unreasonable, negligent and constituted a breach of contract.
The judge added that contractors act on behalf of insurers and that professionals sent by insurers to insureds have obligations and responsibilities and insurers may sometimes pay the price for the former's mistakes.
The judge also ruled that the insurer had acted in breach of contract even though the insured had raised a tort cause of action and not an explicit breach of contract claim. However, as the substantive arguments had been raised and discussed, even with the absence of the legal title 'breach of contract', the court could consider this a cause.
The court found that the liability imposed on the contractor was binding on the insurer on whose behalf he had acted. As the contractor was in breach of contract and negligent, the company was obliged to compensate the insured for the damage that had been caused to her, even if they were not covered by the policy, in accordance with the rules applicable to compensation for breach of contract.
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