In a 4 August 2021 judgment, the Haifa District Court declined a request for the certification of a class action lawsuit filed against seven insurance companies, which included a claim for the reimbursement of a premium paid for business insurance due to alleged reduced risk as a result of national lockdowns and restrictions imposed following the covid-19 outbreak.


In April 2020, business owners who purchased business insurance policies from seven insurance companies filed a request for the certification of a class action lawsuit against the insurance companies following the covid-19 pandemic. In March 2020, following the outbreak of the pandemic, a number of restrictions were imposed upon Israel's residents, which led to the closure of several businesses. The remaining businesses reduced their number of employees and saw a reduction in the number of suppliers and customers.

As a result, it was alleged that the level of risk to which the insurers were exposed by employers' liability insurance and the third-party insurance of businesses during the period of restrictions was substantially reduced. Accordingly, the insurers had to significantly reduce the amount of the premium collected from the class members – for insureds in business insurance, that included the coverage for employers and/or third-party liability during the period of the restrictions, or part thereof.

Since the insurers had continued to collect the premium and had ignored the special circumstances created by the pandemic, the request for approval demanded that the respondents compensate the group members for the excess premiums they had paid – an estimated amount of at least 81.37 million new Israeli shekels. In addition, the motion sought a court order and/or a declaratory judgment stating that a material reduction in the activity of businesses in the applicable circumstances required a reduction of the premium.

The applicants argued that their claims were based on the Insurance Contract Law 1981 and on the general law.


The Court ruled that the basic principle in insurance is that the premium is derived from the risk that the insurance company will bear – that is, the amount that the insurance company will be charged if the insured event occurs, weighed against the probability of the insurance event occurring. Clauses 16-21 of the Insurance Contract Law deal with various situations relating to changes in risk.

The applicants referred to clause 16(b) of the Insurance Contract Law, titled "Cancelled Risk". It was determined that in the interpretation of the clause, the starting point is the language of the law, and that the words of the legislation should not be given a meaning that they cannot bear linguistically. Clause 16(b) of the Insurance Contract Law constitutes a specific expression of the law regarding the frustration of contracts that regulates situations in which it is not possible to perform the contract due to various circumstances. The provision deals with the nullity of the risk of an insured event occurring after the conclusion of the insurance contract. For example, when an asset that is insured against fire risks is destroyed due to the realisation of the risk of an earthquake, the insurance contract is automatically cancelled from the date on which "the insured event becomes impossible".

The Court ruled that even if the applicants could prove that the level of risk had decreased, it could not be said that the insured event had become "impossible" after the conclusion of the contract. The applicants had not requested, and were probably not interested in, the cancellation of the insurance contract, which is the outcome of clause 16(b) of the Insurance Contract Law, and therefore the clause was irrelevant.

The applicants also argued for the applicability of clause 20 of the Insurance Contract Law, titled "Risk Reduction". This argument was declined. The clause allows the insured to notify the insurer of a change in the level of risk, after which it will be entitled to a reduction in the premium. The announcement cannot be made retroactively, since the principle of insurance law is that the pricing of risks is made in advance and the collection of a premium is in line with this pricing, and not retrospective pricing after it is known whether the risk has materialised.

In addition, clause 20 of the Insurance Contract Law refers only to a situation where the premium was originally set in light of "circumstances that aggravated the Insurer's risk" and not to any changes in circumstances. The applicants had not proved that there were circumstances in their case that had aggravated the risk for which an additional premium was charged for a special risk beyond the basic premium. The regular traffic of customers before covid-19 was not a circumstance that had aggravated the insured risk, but was rather the regular standard. Therefore, the condition in clause 20 of the Insurance Contract Law – that where the aggravating circumstances ceased to exist, the premium would be adjusted – would not apply either. Hence, this section did not apply.

Further, the applicants had not notified the insurers of the alleged change in their situation contrary to the requirement of the notice set forth in clause 20 of the Insurance Contract Law. The Court declined the applicants' contention that there had been no need to give active notice to the respondents, in view of their knowledge of the reduction in risk from government announcements. It was ruled that even if the respondents had known that restrictions had been imposed, this did not mean that they had been aware of a reduction in the risk of one business or another, since not all businesses were closed during the period of restrictions. In the absence of notice to the insurers, the insurers could not be expected to guess which of the insureds had reduced their business and to what extent. If the insurers had decided on their own to reduce the insurance coverage by half or a quarter, this reduction would not have been valid.

The applicants had attached to their request for certification an expert opinion in support of their claim that there had been a reduction of risk within the coverage of employers' liability and third-party liability in business policies. The Court ruled that the opinion was not sufficiently convincing, for, among other things, a lack of data regarding the components of business insurance premiums.

The applicants' argument that there was a connection between the number of employees, suppliers and customers who visited the businesses and the level of risk had not been proven. The level of risk was not determined by the number of customers or suppliers, nor by the number of days of activity during which a business was open. Also, the premium did not change according to the number of working hours of the employees, or whether an employee went on maternity leave, for example.

There was no basis for the assumption regarding the rate of reduction in the attendance of employees during the lockdown period. It was possible that contrary to the decrease in the demand for services during the lockdown period, there was an increase in the demand for services after the lockdown. Insurers are not entitled to an additional premium due to the increase in risk in one part of the year and are not obliged to repay the premium due to a reduction in part of the normal risk in another part. The calculation is annual and is done in advance. The insured has the right to notify the insurers of a waiver of a certain form of coverage for a period of time or its reduction, which would apply from the date of the notice onwards.

In addition, people who work from home are also considered to be employees for employer liability insurance. In any case, the number of employees present in the business does not necessarily affect risk. The decline in the number of employees varied between the various employment industries and throughout the year. In addition, some businesses' activity increased as a result of covid-19, while the activity of others after the lockdown periods within the insurance year filled the previous gaps.

The Court accepted the insurers' claim that the applicants' attempt to draw a conclusion regarding a sharp decrease in risk due to the pandemic using a comparison of the number of claims filed in a particular month was unfounded. The date of filing an insurance claim does not coincide with the date of the insured event, and the applicants had ignored the fact that the timing of the filing of the claims varied greatly. A decrease or increase in the number of claims in a particular month can be affected by a number of factors (eg, a change in the number of policies sold or a change in customers).

Accordingly, the Court rejected the applicants' claim for breach of a statutory duty relating to clauses 16 and 20 of the Insurance Contract Law. The Court also rejected the claim that the insurers had become unlawfully enriched. It was determined that the insurers had not got rich at the expense of the applicants and the other members of the group, but had received from them the agreed insurance premiums in exchange for the agreed insurance coverage in accordance with the policies. The respondents had not breached the insurance contracts and had charged a premium lawfully. In addition, the applicants' allegations of negligence and breach of good faith were rejected.

In conclusion, it was determined that the applicants had no cause of action and the request to certify their claim as a class action should be denied; the claim was not suitable to be a class action. This was in light of the significant difference between the individual businesses in terms of the way in which they had operated during the covid-19 pandemic, which required conducting individual inquiries that were not suitable in such proceedings.

In addition, there is a built-in solution in the Insurance Contract Law whereby the insured, which has information on the scope of activity, can notify the insurer regarding the reduction of insurance coverage from then on. There is no justification for managing the claims of insureds that have not acted in accordance with insurance law and have not notified the reduction of coverage, but seek to do so post factum.

The request for certifying was denied and each of the applicants was ordered to pay expenses in the amount of 8,775 new Israeli shekels to the respondent that had insured it.

It is not yet known whether the applicants intend to appeal the decision.

It should be noted that additional requests for the certification of class actions have been filed against insurance companies before the Tel Aviv District Court. In the course of these requests, similar arguments were raised regarding car and apartment insurance. Decisions on the requests are currently pending.

For further information on this topic please contact Tammy Greenberg or Aviv Klepner at Levitan, Sharon & Co by telephone (+972 3 688 6768), fax (+972 3 688 6769) or email ([email protected] or [email protected]). The Levitan, Sharon & Co website may be accessed at www.levitansharon.co.il.