On November 22 2017 the Haifa Magistrate's Court accepted Hachshara Insurance Company's claim and obliged its insured, Ziona Avital, to pay the deductible set in the policy plus legal fees.(1)
Hachshara filed the claim against its insured, Avital, a beautician, arguing that she must pay the deductible despite her objection to the settlement agreement signed between Hachshara and a third party, one of Avital's clients, who claimed that she had been scarred during Avital's permanent make-up treatment.
Avital, on the other hand, argued that she was not required to pay the deductible as:
- the insurer had reached the settlement without informing her; and
- she had objected to the settlement and Hachshara was therefore prohibited from signing it.
Avital based both reasons on Clause 68 of the Insurance Contract Law 1981, which determines as follows:
"In liability insurance, the Insurer may, and at the request of the third party must, pay to the third party the insurance benefits owed to the Insured by the Insurer, provided that he notifies the Insured in writing thirty days in advance and the Insured does not object during that period; but any argument available to the Insurer against the Insured may also be raised by him against the third party."
The court rejected Avital's first argument, as she had admitted receiving Hachshara's notifications regarding the negotiation and the agreement signed between Hachshara and the third party. Therefore, the main question concerned the virtue of an insured's objection to a settlement agreement in view of Clause 68 of the Insurance Contract Law.
The court proceeded by analysing Clause 68, concluding that it had the following aims:
- to create a direct front between the third party and the insurer providing liability insurance, thus avoiding unnecessary complications and expenses; and
- to allow the insured to be involved in the settlement procedure.
Based on these aims, the court concluded that while an insurer must include the insured in a settlement process and consider its objections, the insured has no veto right on the settlement and must present legitimate objections to the settlement or it will be rejected.
The court included an increase in an insurance premium among the legitimate objections, following what the insured considered to be:
- unjustified payments;
- possible damage to the insured's reputation due to recognition of the third party's claim; and
- fear of additional unjustified claims.
The court emphasised that the insurer had been exposed to the main risk, as it bore most of the payments and therefore had a legitimate interest to conduct the procedure according to its considerations.
When both sides present legitimate arguments, the court offers a two-stage test. First, it examines whether:
- the insured cooperated with the insurer; and
- the arguments raised against the settlement were well established and reasonable.
Second, if the insured's arguments are confirmed, it should be examined whether:
- these arguments would prevail over the insurer's; and
- they provide a defence that could reject the claim altogether.
At the same time, the insured's decision-making procedure should be examined to determine whether:
- the insurer's decision was made after the insured's arguments had been properly considered; and
- the decision was well informed, reasonable and proportional.
Should it be determined that this is the case, the insured must pay the deductible.
The court stated that the purpose of the insured's right to object to a settlement according to Clause 68 was to allow it an opportunity to convey its arguments to the insurer and not to force its position thereon.
Based on the tests detailed above, the court examined Avital's argument against the settlement, according to which the third party had not sustained permanent damage. The court stated that she had provided no evidence to support this claim – as opposed to Hachshara, who had submitted photographs and medical records to the contrary – and thus Avital's objection should be rejected.
The court concluded that while Hachshara had allowed Avital to be properly involved in the settlement and provided her with the opportunity to object to it, Avital's objection was based on general claims without base and did not suggest a legitimate reason to reject the claim.
Moreover, the court stated that given the circumstances and evidence that Hachshara had presented, the settlement amount was reasonable and proportionate to the damage and liability.
In light of the above, the court ordered Avital to pay Hachshara the deductible plus legal fees.
For further information on this topic please contact Dana Greenspoon at Levitan, Sharon & Co by telephone (+972 3 688 6768) or email (firstname.lastname@example.org). The Levitan, Sharon & Co website can be accessed at www.israelinsurancelaw.com.
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