In November 2017 the Supreme Court approved the district court's decision in VIG VIENNA Insurance Group v The Drainage Authority (CA 8044/15) that a foreign insurer which is not licensed under the Supervision Law is not entitled to file a subrogation claim in Israel.
The Supreme Court upheld the reasoning that Article 62 of the Insurance Contract Law entitles an insurer to file a subrogation claim against a wrongdoer that causes damage. In the absence of a definition of the term 'insurer' in the Insurance Contract Law, the court applied the definition provided in the Supervision Law, which requires that an insurer be admitted to engage in insurance business in Israel. Accordingly, foreign insurers with no licence to do insurance business in Israel are outside the ambit of Article 62 of the Insurance Contract Law and are therefore not entitled to file a subrogation claim in Israel.
The court accepted the argument that the Supervision Law's aim is to protect insureds and that foreign insurers that are not subject to Israeli regulations should thus not be entitled to the rights available to admitted insurers.
Arguably, this judgment is unjustifiable and its reasoning is irrelevant to the issue from the perspective of the protection of insureds and the general context of insurers' subrogation rights.
Granting foreign insurers subrogation right cannot harm insureds
At the subrogation stage, the insurer has already indemnified the insured and sought recovery from the wrongdoer for the damage that it caused the insured. At this stage, the insured's interest in receiving insurance benefits has been fulfilled and is no longer in question. In fact, blocking the claim against the wrongdoer serves the interests only of the wrongdoer and has no positive impact on the insured.
The Supervision Law aims to protect insureds; however, allowing foreign insurers to file subrogation claims does not harm this aim. The notion of insurance is to release insureds from the need to chase after a wrongdoer, leaving it to insurers to indemnify the insured first and then recover the costs from the party responsible for the loss or damage. There is no legal or moral justification in giving wrongdoers the benefit of being immune against a foreign insurer's recourse.
VIG precedent may cause delays and complicate payment of insurance benefits
Insureds that sustain damage are entitled to indemnification from either the wrongdoer or the insurer. VIG does not deny insureds' right against wrongdoers but rather determines that where a foreign insurer has fulfilled its obligation under the policy, the wrongdoer is exempt from any liability towards both the injured party and the insurer. This may incentivise insurers not to pay insurance benefits until a court claim is filed against them and the wrongdoer together. In such a case, the wrongdoer may be found liable for the damage in whole or in part, which would reduce the insurer's liability.
Hence, instead of protecting insureds, VIG may encourage behaviour which harms their interests. Further, where an insurer admits liability, VIG would encourage arrangements with the insured which would enable the proceedings against the wrongdoer (eg, by granting a loan to the insured which will be repaid only if the insured's claim against the wrongdoer is successful).
All of these unnecessary potential complications do not align with the aim of protecting insureds as they are at the cost of (unintentionally) protecting the party that caused the damage.
Foreign insurers essential for Israeli market
Large and complicated risks are insured by the global insurance markets and the umbrella of these insurance policies is vital for the performance of large infrastructure projects or the protection of specific risks (eg, space) which are covered by foreign insurers that specialise in such insurance.
For example, Israel Aviation Industry v Pembroke (district court CC 63630-01-18) concerned the destruction of a satellite during a failed pre-launch test. Such insurance can be provided only by global insurers and the existence of the Israeli space industry is dependent thereon. It is imperceptible that where such insurers are sued in Israel (and their share is settled in the meantime) would be unable to sue in Israel a party responsible for the damage.
Which interest is protected by denial of insurer's recourse claim?
Since VIG, the lower courts have issued contradicting judgments, which has led to even more extreme results.
For example, in Teva Pharmaceutical Industries v T&M Roshem Security Services Ltd (24 November 2019), the Tel-Aviv District Court decided that once the insurance claim had been paid, the wrongdoer could not be sued by either the insured party or the foreign insurer, as the idea of filing the claim in the insured's name was only a non-binding side comment in VIG. This result is unjustifiable and the Supreme Court should reconsider its judgment in view of Teva.
On 29 November 2019 the Haifa District Court heard Aras Romorkor Hizmetleri Sanayi Ve Ticaret Ltd v Chrysopigi (CC 35583-11-18), where foreign marine insurers filed a subrogation claim. The court denied the motion to strike out the claim based on VIG. The court held that the Insurance Contract Law specifically excludes marine insurance from its scope (except for Article 62) and that the foreign insurer's right of subrogation was therefore valid.
As a side comment, the judge also opined that the interpretation adopted in VIG was not the only one possible. The definition of a term in one law can differ from its definition in another, according to the specific situation in question. Pursuant to Section 18 of the decision:
no consumer protective object justifies enrichment of the injured party to enjoy double compensation or enrichment of the wrongdoer that will be exempt from any payment for damage which was indemnified by the insurer… one may conclude that in the interpretation of the term insurer for the purpose of the subrogation provision under article 62 in the Insurance Contract Law, a different interpretation is required. Accordingly, it is possible to recognize that anybody who paid insurance benefits for an insured event either while holding an Israeli license or not, may enjoy the subrogation right which is granted to an Insurer.
This decision is now under appeal in the Supreme Court.
When interpreting the meaning of the term 'insurer' in Article 62 of the Insurance Contract Law, the courts should not ignore Article 72, which explicitly provides that reinsurance contracts are not subject to this law, except for Article 62. This shows that the legislature's intention was to allow reinsurers which are foreign insurers, which are also not subject to the Supervision Law, to file subrogation claims.
Hence, foreign insurers, which do not meet the definition in the Supervision Law, are not necessarily blocked from filing a subrogation claim in Israel.
The Supreme Court is expected to readdress VIG in the near future. In view of its problematic outcome, it is hoped that the court will take this opportunity to reconsider its position and set a new and fairer precedent.
