Double insurance applies when an asset is insured against one risk with more than one insurer for coincident periods. The doctrine of double insurance is a derivative of the indemnity principle. The doctrine's rationale is based on the prevention of enrichment of the insured as a result of an insurance event.(1)
Double insurance is regulated under Article 59 of the Insurance Contract Law 1981, which states that in double insurance, the insurers are liable for the insured jointly and severally in respect of the overlapping insurance amount, according to the ratio of the amounts of insurance.(2)
Article 59(d) regulates the relationship between the insurers themselves: "The insurers will bear the burden of obligation between themselves in accordance with the ratio of the amounts of insurance."
Article 62 of the law provides the insurer with the right to subrogate against a tortfeasor that is liable for the damages covered under the policy:
"(a) Where, by reason of the event Insured against, the Insured has a right to compensation or indemnification also against a third person, otherwise than by a contract of insurance, such right passes to the Insurer when and to the extent that he has paid insurance benefits to the Insured."
The question was raised about which article prevails when the right to participation conflicts with the right to subrogate (ie, whether the tortfeasor's insurer is entitled to participation from the insurer of the damaged party under the double insurance provisions).
The Supreme Court ruling which deals with double insurance and is the basis for answering the above question is ILD Insurance Co Ltd v Migdal Insurance Co.(3) The question was whether the insurer of the tortfeasor, which paid the insurance benefits as a result of an insurance event, was entitled to participation from the insurer of the damaged party due to the fact that both insurers insured the same property, hence double insurance. The Supreme Court ruled that the subrogation right prevails and therefore, the insurer of the damaged insured is exempt from participation due to full liability on the part of the tortfeasor.
An additional question that arose was whether the insurer of the tortfeasor is entitled to participation under the Double Insurance Law if the tortfeasor is not fully liable. The issue was brought before the Supreme Court in Bituach Haklai Insurance Co Ltd v Ayalon Insurance Co Ltd.(4)
Ayalon, which insured Hipo Industries – the lessees of a warehouse – filed a subrogation claim against the construction company, which had been retained by the insured to perform work in the warehouse, and against Bituach Haklai Insurance Co Ltd, which insured the owner of the building in a property policy. While performing the work in the warehouse, a fire broke out which caused severe damage to the building and the showroom.
The extensions to the structure were insured by Ayalon and Bituach Haklai and therefore Ayalon claimed for participation under Article 59 of the Insurance Contract Law. The magistrate's court ruled that both Ayalon's insured and the building contractor were negligent and therefore 50% liability should be attributed to each party.(5)
The court denied the claim against Bituach Haklai, stating that as the court had attributed contributory negligence of 50% to Ayalon's insured (the lessee of the warehouse), Ayalon was not entitled to participation (ie, the tort principle prevails over the Double Insurance Law).
The district court ruled that the contributory negligence of Ayalon's insured was 30%.(6) The court further stated that the tort law deals not only with negligence, but also with its degree and proportionality and therefore, when the tortfeasor is not solely responsible for the damage, it is not right to exempt the insurer of the damaged party from participation regarding the damage which did not result from negligence. In light of the above, the court ruled that Bituach Haklai, the warehouse owner's insurer, would participate with Ayalon for part of the net damage (ie, 70%).
The court distinguished ILD Insurance from the subject claim and stated that there was a single tortfeasor which was liable for 100% of the damage, but in the subject claim the tortfeasor was liable for only 30% of the damage. The method used by ILD, whereby each attribution of contributory negligence (even in a low percentage) leads to a denial of a duty of participation, could not be applied in this case.
The court further stated that Articles 59(d) and 62 of the Insurance Contract Law derive from the common principle of preventing unlawful enrichment:
- Article 59(d) – participation right, preventing enrichment of one insurer at the expense of the other; and
- Article 62 – subrogation right, preventing enrichment of the insured in respect of the damages incurred.
Where a conflict arises between these rights, the decision should be in accordance with logic and the purpose of the law (ie, an honest and equitable distribution of the burden of payment).
The principles of equitable distribution and preventing unlawful enrichment led to the liability of Bituach Haklai (the owner's insurer) to participate in that part of the damage in which contributory negligence was not determined.
The court approved the district court's judgment and declined the appeal. The court further distinguished between the two parts of the damage:
- Where contributory negligence exists, Ayalon alone will bear the payment.
- In respect of the other part of the damage, the duty of participation applies.
For further information on this topic please contact Ornit Kertis at Levitan, Sharon & Co by telephone (+972 3 688 6768) or email (email@example.com). The Levitan, Sharon & Co website may be accessed at www.levitansharon.co.il.
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