In the recent Haifa Magistrates Court case of Harel Insurance Co v Magid(1) the question arose as to whether an insured party is obliged to pay the deductible in accordance with an insurance policy if the claim filed against it is declined.
The defendant was insured by Harel Insurance Co Ltd under a public liability insurance policy.
A third party filed a claim against both the insured and Harel. Harel handled the defence on behalf of itself and the insured and bore both its own legal expenses and those of the insured.
The claim against the insured and Harel was declined and the plaintiff was instructed to pay IS2,300 towards the insured and Harel's expenses – a fraction of the actual expenses borne by Harel for handling the defence. Harel demanded that the insured pay the difference between the two amounts, which the insured refused. Harel filed a claim against the insured with the Haifa Magistrates Court.
Harel alleged that – in accordance with the public liability policy – the deductible also applied in respect of expenses incurred by the insurer in defence of the insured. Therefore, Harel was entitled to the insured's share of the legal expenses that it had borne on the insured's behalf.
The insured alleged that the deductible did not apply as the insurer had been obliged to pay insurance benefits as a condition to collecting the deductible. Once the third-party claim had been declined, the insured had no duty to pay the deductible.
In addition, the insured alleged that Harel had not acted in good faith by failing to demand that the court reimburse it for the full expenses that it had borne.
According to the policy, the insured was obliged to bear the deductible even if the amount paid by the insurer related solely to defence costs.
It had been the insured's obligation to minimise damage – including defending a claim filed against him – and such obligation included the requirement to bear the legal expenses (according to accepted practice). Once the insured had approached the insurer and advised that it would take on the defence itself (ie, triggered the policy), the insured had been obliged to pay the deductible.
The court determined that it was irrelevant that Harel had not been obliged to compensate the insured, and that the legal position in this respect was the same whether the claim was accepted or declined.
The policy's conditions were clear: the deductible also applied in respect of expenses incurred by the insurer for handling the defence (eg, expert's expenses and loss adjuster and lawyer's fees).
In addition, the court determined that the insured's allegation that the insurer had not acted in good faith was vague. Therefore, the court did not accept the allegation – especially as the insured had admitted that the defence handled the case on his behalf and to his satisfaction.
No appeal has been filed in respect of the court's decision.
For further information on this topic please contact Ronit Warshai at Levitan, Sharon & Co by telephone (+972 3 688 6768) or email ([email protected]). The Levitan, Sharon & Co website may be accessed at www.levitansharon.co.il.