In a Supreme Court decision handed down on 15th September
20131 which serves as a precedent, judges ruled on one
of the most repeated disputes which the lower Courts have dealt
with in the past few years, i.e. whether the Insurer can avoid
liability in the event the Insured overlooks a condition to apply
security measures set in the policy.
The circumstances of the insured event were simple – Mr.
Slutzky purchased a comprehensive household insurance policy which
included cover for his jewellery, worth approximately $80,000. As a
condition to Insurer's liability, the policy stipulated that
the jewellery must be kept in the safe while at home. On the date
of the burglary, the said jewellery was actually held in a drawer,
but not in the safe, and it was taken by the burglars. The burglars
did not attempt to force open the safe at all.
There was no dispute that the Insured failed to comply with the
security measures demanded by his Insurers in respect of jewellery
(i.e. that it be kept in a safe while at home) and that the
Insured's failure to comply with these measures can be
considered as a direct causal connection for the loss.
The Supreme Court referred to Section 21 of the Israel Insurance
Contract Law and to Section 18 of the Law, which deals with
increase in risk.
Section 21 states:
"If it was conditioned that the Insured should take
measures to substantially reduce the risk of the Insurer and such
measures were not taken during the requested period, Clauses 18 and
19 will apply subject to the relevant changes."
Clause 18 (c) stipulates that:
Where the insured event occurred before the contract is
cancelled by virtue of this clause, the Insurer is only liable for
the proportional insurance benefits, in a rate that is based on the
premium which a reasonable insurer would have charged for cover
without the specific measure to reduce the risk vis a vis the
The clause further provides that the Insurer will be exempt from
liability only when no reasonable Insurer would have agreed to
cover the risk even for a higher premium.
In order to explain the logic of the law which only agrees to
void a policy in case of fraud, or in the case of an extreme
situation that no Insurer would agree to cover, the Supreme Court
cited from German and French laws, and emphasized that all these
legal systems try to avoid a solution of "all or
nothing". When dealing with insurance contracts in all these
legal systems, the Courts will try to find a solution which will
allow insurers to make a partial payment of the insurance benefits
rather than voiding the contract.
Therefore, the Court ruled that the Insurer will not be
automatically exempt from liability, even when the Insured
infringes the policy conditions.
It was ruled that the burden to prove the appropriate premium
rate lies on the Insurer and can be divided into three stages:
If this specific Insurer had a
similar policy which does not require implementation of a measure
to reduce the risk, then such Insurer should prove to the court
that the premium it would have charged and the difference between
that premium and the premium actually charged will serve as a basis
for the calculation.
If the specific Insurer does not sell
the same policy without a requirement for said protection measures,
then it should provide proof as to the behaviour of a
"reasonable insurer" and the cost of such policy on the
Only when it can be proven that no
reasonable Insurer would agree to cover the said risk without
implementation of the relevant security measure, then the Insurer
will be exempt from liability.
In this specific case, as the Insurer failed to prove the cost
of the alternative policy or to provide evidence that no reasonable
Insurer would agree to cover such risk, the Insured will be
entitled to full payment of the insurance benefits.
1. P.C.A. 3260/10 Lloyds Underwriters v. Eliha
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