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The Haifa District Court and the Tel Aviv District Court recently issued conflicting decisions on the question of whether foreign insurers can file subrogation claims through their insured after paying the insured insurance benefits.
In each case, the alleged tortfeasor requested that the court strike out the foreign insurer's claim, arguing that the latter had no right to file the claim in Israel as it was a non-admitted insurer. The Tel Aviv court (the Teva claim) accepted the motion and dismissed the claim, whereas the Haifa court (the Aras claim) declined the motion.
In the background of this issue stands another judgment – Vienna Insurance Group (VIG) v Sharon Drainage Authority (CA 8044/15, 23 November 2017). In VIG, the Tel Aviv District Court determined that a foreign insurer which had no licence to carry out insurance business in Israel was not entitled to file a subrogation claim in the Israeli courts, although it had paid insurance benefits to its insured.
The district court reasoned that a subrogation claim is granted to insurers by virtue of Article 62(a) of the Insurance Contract Law. The term 'insurer' is not defined in the Insurance Contract Law; however, it is defined in the Control Over Financial Services (Insurance) Law as an entity which is admitted to engage in insurance business in Israel.
The district court concluded that the Control Over Financial Services (Insurance) Law's definition should apply to the Insurance Contract Law; thus, only admitted insurers are entitled to file subrogation claims as provided by Article 62(a). The district court also indicated that the prohibition applies to foreign insurers; however, a claim against a tortfeasor may be filed in an insured's name, which will be considered a trustee for the benefit of the foreign insurer for the money which may be recovered from the defendant.
VIG requested that the Supreme Court overturn the district's court judgment and approve the filing of the claim by a foreign insurer. The Supreme Court denied the appeal and confirmed the judgment.
In Teva Pharmaceuticals Ltd v T&M Goshen Security Services Ltd (CC 67134-03-18, 24 November 2019), Teva filed a claim on behalf of its insurer, alleging that one of the defendants (Goshen) had been responsible for the malfunction of a drugs freezer, which had caused the loss of and heavy damage to drugs amounting to more than $5 million. Its insurer (NUFIC, a foreign insurer) paid Teva insurance benefits. The claim against Goshen aimed to recover the paid amounts.
In addition, Teva was a co-plaintiff claiming its unpaid deductible.
The defendants (Goshen and Ayalon Insurance Co, which insured Goshen's professional liability) requested that the court strike out the part of the claim which related to NUFIC's claim based on VIG.
NUFIC argued that the district court judge in VIG had indicated that an insured may file a claim against a tortfeasor and that a foreign insurer will be entitled to the monies awarded in the claim. Thus, foreign insurers can recover from the tortfeasor the monies paid as benefits, through the insured's claim.
However, in Teva Judge Ilani stated that the Supreme Court in the VIG appeal had determined that a foreign insurer has no right for subrogation and that this is a binding precedent which binds all lower instances. However, the district court's reference to the possibility of filing the claim in the insured's name was only an obiter dictum (ie, a side remark), which was not confirmed by the Supreme Court and, therefore, has no binding effect.
In view of the above, the judge accepted the defendants' position and struck out the insurer's part of the claim. According to this decision, Teva received insurance benefits for the property damage and losses that it had sustained and, therefore, could not be indemnified again for this loss. Hence, Teva had no cause of action and its claim in the name of NUFIC, the foreign insurer, was struck out.
In ARAS Romorkor Hizmetleri Sanayi v the Vessel Chyrospigi (CC (Haifa) 35583-11-18, 29 November 2019), damage was caused to a barge by an oil tanker in the Haifa bay port. A foreign insurer paid insurance benefits to the owners of the barge. The owners filed a claim against the tanker and the Haifa bay port and the insurer joined as co-plaintiff.
Further, a motion to strike out the claim was filed based on the fact that, according to VIG, a non-admitted insurer is not entitled to file a subrogation claim.
Judge Sokol of the Haifa court reviewed the basis of the subrogation right against a tortfeasor being founded on considerations of justice and the avoidance of unjust enrichment. The court opined that there is no justification to discharge a wrongdoer from rectifying damage that it has caused. The triangle of the tortfeasor, insurer and victim is based on these principles of justice and judicial policy in view of which the term 'insurer' in the Insurance Contract Law should not necessarily be identical to the definition in the Control Over Financial Services (Insurance) Law. According to this opinion, any party which pays insurance benefits – whether it holds an Israeli insurance licence or not – enjoys the right of subrogation.
The Haifa court emphasised that it would be an absurdity if it is established that the port was liable for the damage and yet was discharged from indemnifying the plaintiffs.
This case regarded marine insurance, which is exempt from the Control Over Financial Services (Insurance) Law and is not subject to the Insurance Contract Law, except for specific articles (including Article 62). Therefore, the right of subrogation under Article 62 applies to marine insurance contracts.
The court concluded that:
It is obvious that the legislator acknowledged that a foreign Marine Insurer which does not hold a license according to the Control Law, may benefit from the subrogation right according to Article 62 of the Insurance Contract Law therefore a long line of decisions and judgements provide that a Marine Foreign Insurance has a subrogation claim in Israel.
Hence, the court declined the motion to strike out the claim.
The Supreme Court may have to deal with this issue again on appeal, which is expected. It is necessary to clarify this issue or even reach a conclusion in the spirit of the Haifa court concerning the inappropriate results of limiting the subrogation right of foreign insurers. It is a fundamental principle that tortfeasors should not unjustifiably escape liability.
