A recent judgment by the Jerusalem District Court may change the current interpretation of the law concerning the prescription period for liability insurance. The judgment considerably prolongs an insurance company's exposure to indemnify claims filed by insured persons.
Section 31 of the Insurance Contract Law (1981) stipulates that the limitation period for an insured person to file a claim for insurance benefits is three years from the date of the insured event.
According to the General Prescription Law (1958), the limitation period for a claim is seven years from the date when the cause of action was established, subject to specific exceptions.
In liability insurance, Section 70 of the Insurance Law provides that: "in liability insurance, the claim for insurance benefits does not prescribe as long as the Third Party Claim against the insured has not prescribed."
The rationale for this extension is that the third party has a period of seven years in which to sue an insured party according to the Prescription Law. The insured's liability insurance should be available to it during the concurrent period. Otherwise, the insured's indemnity claim might prescribe (ie, cease to be liable on account of the passage of time) after three years, while a third party can file a claim against the same insured for an additional four years.
Once the claim against the insured party has been filed, the rationale for Section 70 no longer exists since the risk in filing the claim has already materialised. However, the question arises of when the insurance claim against the liability insurer becomes time-barred.
The Supreme Court in Hamishmar Insurance Co Ltd v Eliahu Insurance Co Ltd (ACA5916/02) ruled in obiter that the date on which the cause of action of the insured party against the insurer crystallised is the date on which the claim against the insured is filed in court.
Several district court judgments followed the above Supreme Court ruling, stating that the insured's claim against the insurer is prescribed three years after the claim against the insured was filed.
A recent judgment handed down by Judge Moshe Drori in the Jerusalem District Court in Petkin v Odis (CA 7342/05, published on March 7 2011), changed this previous approach. In Petkin the plaintiff was injured by a crane that fell off a truck that had been rented by a construction company, TAGY, and crushed both his legs.
A claim for damage was filed according to the Road Accident Victims Compensation Law (1975) against the compulsory insurance insurer of the truck, alleging that the accident should be classified as a road accident, and hence be insured under the compulsory insurance. The district court ruled that the event was a car accident. In the appeal, the Supreme Court overturned the decision of the court of the first instance and ruled that the event was not a road accident. As a result, this claim remained as a tort claim against various defendants, including TAGY.
In the view of the Supreme Court's ruling, TAGY filed a motion to file a third-party notice against Eliahu Insurance Co for indemnification of any damages awarded for the benefit of the plaintiff. Eliahu alleged that the motion for a third-party notice should be declined as time-barred. Eliahu argued that according to Section 31 of the Insurance Law, TAGY's indemnification claim had already prescribed, since the claim against it was filed more than three years after the claim against TAGY was filed.
The judge had to determine the date of the insured event from which the calculation of the limitation period should commence. After reviewing the latest judgments, Drori ruled that the limitation period of three years starts only after a judgment has been handed down accepting the plaintiff's claim against the insured and awarding damages.
In view of the above, since a judgment ruling that TAGY is liable to compensate the plaintiff has not yet been handed down, not only has the limitation period for filing the indemnification claim not yet prescribed, but moreover it has not yet even started.
This decision places insurance companies in a problematic position. As explained by Yadin in The Insurance Contract Law - Interpretation of Contract Laws:
"Longer prescription periods will not enable litigating an insurance claim as the evidence in the claim has been weakened and obscured due to the passage of time, and furthermore would force insurance companies to hold reserves for longer periods of time."(1)
Nevertheless, it should be noted that this judgment is a result of special circumstances, as the nature of the claim (ie, whether it was a liability claim or a road accident claim) was not known until the Supreme Court's decision.
From the above decision, it is clear that the issue of when a claim against an insurer in liability cases becomes time-barred does not yet have a final answer.
The incurred but unreported elements of liability claims in Israel, especially in policies written on an occurrence basis, should now take into account longer periods than were assumed before this current judgment.
For further information on this topic please contact Idit Speiser at Levitan, Sharon & Co by telephone (+972 3 688 6768), fax (+972 3 688 6769) or email ([email protected]). The Levitan, Sharon & Co website may be accessed at www.levitansharon.co.il.
(1) U Yadin, The Insurance Contract Law - Interpretation of Contract Laws (1984), edited by G Tadesky.