In Formand v Shomera the plaintiff did not disclose previous insurance claims when asked to do so during a pre-contract phone call.(1) However, the court rejected an allegation of fraudulent intent against the plaintiff and did not award the remedy available to the insurer of reducing insurance benefits in proportion to the additional premium which would have been charged had the full facts been known, as the need for an additional premium was not proven.
The plaintiff had a property insurance policy that had been issued by Somera Insurance and effected through insurance agent, Erlich Insurance Agencies. The plaintiff lost an insured bracelet, which was assessed by the loss adjuster as being worth of IS20,000. The insurer declined the plaintiff's claim on the grounds that, contrary to her declaration when purchasing the policy, the plaintiff had submitted four insurance claims in the three years before the loss concerning:
- a lost camera;
- two cases of lost jewellery; and
- bathroom damage.
The plaintiff argued that after acquiring the insurance, which was effected over the phone with the agent, she had notified the agent of one previous insurance claim. She further argued that:
- one of the claims had been cancelled after she found the jewellery for which the claim had been made; and
- the bathroom damage had been a trivial matter.
The defendants argued that the plaintiff had breached the duty of disclosure required under Article 6 of the Insurance Contract Law, by failing to report the previous claims before the issuance of the policy. Further, they claimed that the plaintiff had known that this was material information and concealed it with the intent to defraud.
The defendants claimed that had they known the plaintiff's claim history, they would not have agreed to insure her property.
The duty of disclosure is imposed on the insured before entering into a contract by Article 6 of the Insurance Contract Law. It includes a duty to respond fully and honestly to questions posed by the insurer and not conceal information that is known to be material with fraudulent intent, even without a specific question being asked.
The plaintiff was asked by the insurer's telephone representative whether she had previously submitted insurance claims or suffered losses or damages to her property within the past three years, to which she answered no. This showed that, prima facie, the plaintiff had not fulfilled her duty of disclosure under Article 6. However, the court did not accept the defendants' argument regarding the plaintiff's intention to defraud, as the plaintiff had not been made aware that these details would be significant for the insurer.
Where an insurance contract is effected over the phone, a recording of the conversation is an appropriate substitute for the written requirement. In the absence of the recorded conversation, the defendants did not provide evidence to support their allegation that the plaintiff had claimed to have made no claims in the previous 20 years. Further, the insurance agreement had been 'signed' on the telephone without providing the plaintiff the opportunity to read it in real time.
The defendants argued that they were entitled to be discharged of liability under Article 7(c)(2) of the Insurance Contract Law (ie, a reasonable insurer would not have concluded the contract had it known the full facts even for a higher premium). According to the court, a heavy burden is placed on an insurer that argues for a discharge of liability under Article 7(c)(2). The insurer should have presented the court with:
- its underwriting policy, according to which an insurance contract with the plaintiff was not allowed; and
- concrete evidence of the risk in insuring the plaintiff, which it had failed to present.
There was no dispute that the plaintiff's claims history included four insurance events. However, only two of them appeared prima facie to be relevant for assessing whether she was a risky candidate for insurance (ie, the losses of a camera and jewellery). The other claims did not indicate clear insurance risks.
Further, the insurers provided no evidence that other insurers would not have insured the plaintiff had they known of her previous claims.
In these circumstances, the remedy available to the insurer is a reduction of insurance benefits if it can prove that an additional premium would have been charged had the full facts been known. In this case, the insurer presented no evidence concerning the additional premium and, therefore, the court did not award the relief. Instead, it ordered the insurer and the agent to pay the full claim (80% by the insurer and 20% by the agent).
This judgment was handed down by the Small Claims Court and, as such, does not serve as a precedent or a persuasive source for future cases. However, the yardsticks applied by the court and the interpretation of the facts for the purpose of checking the available remedies for non-disclosure are in line with higher-instance decisions. Evidently, not giving a full and honest answer to a specific question constitutes non-disclosure, without the need to prove fraudulent intent.
For further information on this topic please contact Peggy Sharon at Levitan, Sharon & Co by telephone (+972 3 688 6768) or email ([email protected]). The Levitan, Sharon & Co website can be accessed at www.israelinsurancelaw.com.