In The Israeli Airports Authority v Herzliya Municipality Firefighting Services (CA 4783-11-09), the Tel Aviv District Court determined that a professional liability insurance policy on a 'claims-made' basis does not apply to claims filed against the insured after expiration of the policy for circumstances which were known to the insured during the policy's set timeframe, but were not notified to the insurer.
This ruling is part of an ongoing trend in Israeli courts to enforce the claims–made basis insurance conditions, despite previous doubts on the status of this class of insurance under Israeli law.
After a fire broke out in Herzliya Airport causing property damage, a claim was filed against the security company hired by the airport authority. It was alleged that the security company guards failed to conduct the proper checks after a fire alarm and reported it to the firefighting services as a false alarm. The court ruled that the security company was responsible for the damage and proceeded to address the question of whether the insurance policy issued by Phoenix Insurance Co covered the security company's liability.
The insurance policy was for professional liability insurance on a claims-made basis, valid from March 1 2007 to February 29 2008. The fire occurred six days before the policy expired.
The policy also included an extension of 180 days, during which time the security company could notify Phoenix of circumstances which might lead to a possible claim. If the security company had notified Phoenix of the fire during this timeframe, the claim would have been considered as filed during the policy period. However, the security company did not notify Phoenix of the fire until 18 months later, when the claim against it was filed.
The security company argued that the policy covered its liability because the fire occurred during the policy period. Further, the security company argued that it had not known for certain that a claim would be filed against it and – pursuant to the Insurance Contract Law – an insurer must cover the insured's liability in a case where the insured failed to notify the insurer, or notified it with delay under proper circumstances.
The court dismissed the security company's claim and stated that the policy is on a claims-made basis. Coverage under this policy is valid only if the claim is filed against the security company during the policy period.
In this specific policy, the definition of the term 'claim' included "information from any source provided by the Insured on the occurrence of an insured event". Hence, the claims-made basis insurance was valid either on:
- claims filed against the security company during the policy period; or
- possible claims that the security company had reason to believe would be filed against it with respect to a specific event, if the security company properly notified Phoenix regarding this event.
The court ruled that there was no doubt that the fire occurred during the policy period. However, the claim against the security company was not filed during the policy period. Since the security company failed to notify Phoenix of the fire and the possibility that a claim would be filed against it, the expired insurance policy was not relevant to this claim. The court added that, despite a tendency to criticise claims-made basis policies, it recognises the validity of the policy in hand and the security company was aware of the character of this policy. In this case, the security company failed to prove that the insurance policy was unclear.
Therefore, since Phoenix received no notification of the fire and its potential to lead to a claim in the timeframe stated in the policy, no insured event has occurred within the policy period and no coverage is due for the security company's liability for the fire damage.
In a claims-made basis policy, the insured must notify the insurer of any event or circumstances that could result in a possible claim in the timeframe stated in the policy. Notification must be given even when it is unknown whether the event will result in a claim, otherwise the insured party will lose its right to receive insurance coverage for the event which occurred during the policy period.
For further information on this topic please contact Neta Ben-Tzur at Levitan, Sharon & Co by telephone (+972 3 688 6768) or email (email@example.com). The Levitan, Sharon & Co website can be accessed at www.israelinsurancelaw.com.