In July 2018 the Jerusalem District Court dismissed Shem Tov Ltd's liquidator claim against Menorah Insurance based on a claims-made policy that had been issued 20 years previously and expired four years later.
Shem Tov's liquidator requested the court to allow a claim against its directors and Menorah, alleging the directors' negligence by approving loans to the company's controlling shareholders contrary to its interests and without implementing the audit committee's legal provisions and recommendations.
Within the framework of the request, the liquidator petitioned to impose a payment of NIS17 million on Menorah under professional liability policies that it had issued to Shem Tov and its directors and officers between 1996 and 2001.
The case addressed the following insurance-related issues:
- Menorah denied the claim against it based on several arguments. The main argument put forward was that Shem Tov's insurance policy was a claims-made policy that had ended 16 years prior to the claim's submission.
- The liquidator also raised arguments regarding the disadvantages of a claims-made policy.
- The court discussed the question of whether the liquidator, who had been appointed seven years previously, could raise arguments regarding the terms of the policy after many years and whether it was even possible to consider such arguments as being between Shem Tov and Menorah.
- The liquidator argued that Menorah should have searched and approached the directors and officers who had served at Shem Tov over the years to warn them of the consequences of Menorah's non-renewal of the policy.
- In addition, the liquidator argued that the policy contradicts the Insurance Contract Law and that its conditions prejudiced the insured.
After analysing the various insurance issues in detail, the Jerusalem District Court rejected the liquidator's arguments and accepted Menorah's position.
The court ruled that Shem Tov – through its directorate and with the approval of its board of directors, who had known of, weighed up and agreed to the terms of the policy – had chosen to purchase a claims-made policy.
In addition, the court found that criticism of such coverage cannot justify a claim under any circumstances (ie, even if there is a problem with a policy, it does not mean that any claim can be approved and that the policy applies). For example, alleged damages cannot be covered only due to a policy's problematic terms. In Shem Tov, the insureds and Shem Tov's directors had been aware of the terms of the policy and had agreed to them.
It was further determined that Menorah had not breached its duty of disclosure or to emphasise exclusions or its obligation to verify the policy's understanding, as claimed by the liquidator.
In addition, the court ruled that the insurer was not obliged to inform Shem Tov's directors that their company had not paid its premiums or renewed its policy with Menorah.
The court also discussed the issue of limitation periods. The claim was filed almost 20 years after the policy had been issued and almost 16 years after the company had stopped paying its premiums. Due to these circumstances the claim was dismissed.
The court stated that it could not accept a claim filed 16 years after a company had stopped paying its claims-made insurance premiums as doing so could create a situation in which a policy never ends, which would be unreasonable.
The request against Menorah was declined and, due to the company's debts to its creditors, the court ordered no costs.
For further information on this topic please contact Dror Zamir or Rotem Weiss at Levitan, Sharon & Co by telephone (+972 3 688 6768) or email (firstname.lastname@example.org or email@example.com). The Levitan, Sharon & Co website can be accessed at www.israelinsurancelaw.com.
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