Introduction
Background
Facts
Decision
Comment
Introduction
In Cohen v Menorah Insurance Company Ltd(1) the Supreme Court reversed the district court's decision in what could be a precedent-setting case. The Supreme Court decided that, in this case, the insured was entitled to insurance benefits during the interim period between signing the health declaration and finalising the insurance contract, even though it was proven that the insured was aware of his deteriorating health but did not disclose it to the insurer. Notwithstanding this, the Supreme Court ruled that the insured's awareness could not automatically be interpreted as awareness with fraudulent intent.
The period between signing the health declaration and finalising the insurance contract was characterised by the Supreme Court as 'interim'. This period is intended to enable the insurer to investigate the insured's answers to the insurer's questions and to decide if it wants to accept the insured in accordance with the insurance proposal. During this period - which may take a while - an insured event may occur.
Background
The duty of disclosure in the pre-contractual stage derives from the general duty to behave in an acceptable and bona fide manner during negotiations leading to the signing of a contract. Such obligation also applies to the relationship between the insured and the insurer. Pre-contractual disclosure is designed to ensure effective and fair communication between the insured and the insurer, since an insurer which does not have complete information regarding the risk involved will find it difficult to price the policy appropriately.
The duty of disclosure applies to the insured before the conclusion of the contract in accordance with Clause 6 of the Insurance Contract Law, which states:
"6. Duty of disclosure:
Where before the conclusion of the contract the Insurer asks the Insured in writing, either as part of the insurance proposal form or otherwise, a question as to an issue likely to affect the willingness of a reasonable Insurer to conclude the contract at all or to conclude it on the conditions contained in it (hereinafter: 'material matter'), the Insured will reply to it in writing completely and straightforwardly.
A sweeping question, embracing various matters without differentiating between them, requires no reply as aforesaid unless it is reasonable at the time of the conclusion of the contract.
The concealment by the Insured, with fraudulent intent, of information he knows to be a material matter will be treated as the giving of a reply which is not complete and straightforward."
The consequences of non-disclosure allow the insurer to cancel the contract by written notice to the insured.
Facts
On October 29 1997 the insured, an automobile mechanic, signed an insurance proposal form, together with a health declaration, for the purpose of purchasing life insurance, including work disability compensation.
On December 13 1997 the insured was hospitalised with abdominal pain and nausea and was diagnosed with Crohn's disease. However, he continued to work as usual. On February 8 1998 the insured received the insurer's confirmation that the policy would come into force on January 1 1998 (retroactive).
On September 6 2000 the insured's Crohn's disease worsened and the National Insurance Institute determined that the insured had 100% disability.
The insurer refused to pay for the disability compensation, contending that it was the duty of the insured to disclose his sickness before the date from which the insurer agreed to insure.
The insured filed a lawsuit against the insurer in the Tel Aviv Magistrates' Court, which was rejected on the grounds that the insured breached his proactive disclosure duty according to Clause 6(c) of the Insurance Contract Law. According to this clause, the insured was obliged to inform the insurer if there was any change in his health status after signing the health declaration.
The insured appealed the magistrate's court's verdict to the district court. The district court ruled that it would not interfere with the conclusions reached by the magistrate's court.
In his appeal to the Supreme Court (the highest court in Israel), the insured claimed that even if the district court's decision was accepted on grounds of the proactive disclosure duty according to Clause 6(c) of the Insurance Contract Law, it should be ruled that this duty was invalid during the post-signature stage in which the insurance proposal and health declaration forms had already been filled out, since when the insured signed the contract, he had answered the questions truthfully and honestly.
Decision
Judge Yoram Denzinger discussed the question of whether the insured was obliged to update the insurer regarding changes pertaining to his health status during the interim period.
The Supreme Court ruled that it was inappropriate to allow the insurer, which controlled the length of the interim period, the option to withdraw from the insurance contract without proving intention of deceit on the insured's part.
Clause 6(c) of the Insurance Contract Law includes several accumulative aspects that allow the insurer to retract from its original agreement to insure - but only if all the aspects are fulfilled.
The Supreme Court ruled that in evaluating these elements the relevant time period must also be examined. On one hand, at the time of declaring his health status, the insured was aware that this was a 'testing time' regarding his relationship with the insurer and that information provided to the insurer would affect its willingness to enter into an insurance contract. On the other hand, during the interim period, the length of which was controlled by the insurer, the rules could be said to be different. The insured cannot always be aware that a certain event will develop into an actual change of a risk that is considered fundamental to the insured.
Comment
During the period when the insurance proposal and health declaration are filled out and provided by the insured, it is possible under some circumstances to conclude that there could be a connection between the awareness of the insured and an intention to deceive. During the interim period there is no justification to conclude automatically that the actual awareness of the insured to the change in his health also indicates an intention to deceive. Therefore, an insurer wishing to prove intention to deceive on the insured's part during the interim period must prove not only that there was awareness of the health change, but also that the insured realised that such change was a fundamental and material issue.
The Supreme Court accepted the insured's appeal and ruled that the insurer must compensate the insured for his loss of ability to work. In addition, it ordered that the claim be returned to the magistrates' court in order for it to determine the total compensation to which the insured is entitled.
For further information on this topic please contact Oz Berkowitz at Levitan, Sharon & Co by telephone (+972 3 688 6768) or by fax (+972 3 688 6769) or by email ([email protected]). The Levitan, Sharon & Co website may be accessed at www.levitansharon.co.il.
Endnotes