Introduction

Section 309 of the Traffic Regulations 1961 provides that the owner of a motor vehicle (or whoever has control over it) is prohibited from using or permitting another person to use the vehicle after it has sustained damage, until the completion of repairs and the receipt of a certificate of worthiness from a licensed garage.

Section 3 of the Limited Use and Register of Actions of Used Vehicle Parts (Prevention of Theft) Law 1998 provides that when an insurer pays its insured for damages to a vehicle that was declared a total loss – and has thus purchased the vehicle – the insurer can:

  • instruct an authorised body parts dealer to dismantle the vehicle and return its licence to the Vehicle Licensing Office; or
  • repair the vehicle at an authorised garage.

The insurer then has the right to sell the vehicle to a third party. During that period the insurer must keep the vehicle's licence in its possession until the buyer presents a certificate issued by a licensed garage declaring that the vehicle has been properly repaired.

In the case in question, the courts addressed whether an insurer is liable towards a third party that purchased a vehicle from it through an intermediary after the vehicle had been damaged in an accident but had not been properly repaired.

Facts

On March 22 2008 an insured's motor vehicle was damaged in an accident. The vehicle was insured by Shirbit Insurance Co Ltd, which paid the insured 90% of the vehicle's value. Shirbit was registered as the vehicle's owner in return.

Shirbit had an agreement with the Ordan Car Co (1992) Ltd that it would sell damaged vehicles intended for dismantling or repair to Ordan. Under this agreement the vehicle's registration papers would be held by Shirbit until Ordan presented it with a certificate stating that the vehicle had been properly repaired.

Pursuant to the agreement, the vehicle was sold by Shirbit to Ordan, which in turn sold it to a car dealer – Padal Agloni – who was obliged to repair the vehicle. The vehicle was then transferred to Shlomo Elkayam, who became the owner of the vehicle using forged documents.

On August 1 2009 Rivka Aharon (the plaintiff) purchased the vehicle from Elkayam. Prior to the acquisition, the vehicle was tested by Boaz Motor Vehicle Garage Ltd. The report that Boaz issued stated that the vehicle had been involved in an accident and as a result several parts had been damaged.

Magistrate court claim

The plaintiff filed a claim with the magistrate court against Shirbit, Elkayam and Boaz. The court determined that Shirbit was also liable for the plaintiff's damages as it had not created an effective mechanism to ensure the repair of the vehicle despite the fact that the Traffic Regulations do not impose any obligation on the insurer in that regard.

The court ordered Shirbit to pay compensation of IS43,076 (its estimate of the vehicle's value) to the plaintiff and ordered that Ordan be held liable for any amount that Shirbit paid to the plaintiff.

Shirbit and Ordan filed appeals with the district court.

District court appeal

The district court overturned the magistrate court judgment and determined that Shirbit was not liable for the plaintiff's damages and therefore that Ordan should not indemnify it.

Supreme Court appeal

The plaintiff argued that the traffic regulations prohibit the use of a damaged vehicle and thus include the transfer of ownership, unless the vehicle has been repaired.

Shirbit sold Ordan the damaged vehicle, thus allowing Ordan to use it. Further, Shirbit was negligent when it sold the damaged vehicle to Ordan without supervising its repair.

In addition, the plaintiff argued that Shirbit could have foreseen that Ordan, which is not a licensed garage, would sell the vehicle without repairing it.

Shirbit argued that the Traffic Regulations prohibit only the vehicle's use and not the transfer of ownership and it had therefore fulfilled the regulation's provisions by keeping the original vehicle licence in its possession.

Further, Shirbit argued that the plaintiff was aware that the vehicle had been involved in an accident after Boaz had revealed this information in its report.

Decision

The Supreme Court affirmed the district court judgment and stated that it was unacceptable to allow damaged vehicles to return to the road, but that the roads were filled with unsafe vehicles that had never been tested.

The court stated that the original purpose of the law was to prevent the use of spare parts from stolen vehicles. Further, it was not the legislature's intention to prevent insurers from selling damaged vehicles. However, the onward sale of that type of vehicle included several conditions.

According to Article 15 of the Torts Ordinance, Shirbit was entitled to transfer the vehicle to Ordan in its capacity as a subcontractor, while still holding the vehicle's licence as collateral.

The court determined that Shirbit was not negligent under these circumstances. However, for future reference it would be best if Ordan presented the vehicle's documents of sale to Shirbit to comply with the regulation's restrictions.

The Supreme Court rejected the plaintiff's claim and determined that the insurer was not liable towards a third party that had purchased a motor vehicle which had been involved in an accident from it through a second party.

For further information on this topic please contact Tal Yehuda at Levitan, Sharon & Co by telephone (+972 3 688 6768) or email (tal@levitansharon.co.il). The Levitan, Sharon & Co website may be accessed at www.levitansharon.co.il.

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