Facts Decision Comment Facts

On January 23 2017 the Supreme Court tackled the question of whether a non-admitted insurer is entitled to file a subrogation claim in Israel in its own name (CA 8044/15).

The court upheld the Central District Court judgment in VIG Vienna Group v the Drainage & Streams Authority Sharon (CC 53025-11-14), which approved a motion to strike out a subrogation claim filed by Austrian insurance company VIG for damages caused by flooding in January 2013 that resulted in damage to a plant that it insured.

The insurer filed a subrogation claim for recovery of the insurance benefits that it had paid against various defendants, including local authorities and municipalities and their insurers, for their failure to take measures to avoid the flooding. The defendants argued that VIG, which is not licensed or regulated by the Commissioner of Insurance in Israel, could not file a subrogation claim under Article 62 of the Insurance Contract Law 1981.

Based on the lower court's decision, the defendants argued that the subrogation right was afforded by law to an 'insurer', defined by the Control Over Financial Services (Insurance) Law as any party that has an Israeli or foreign insurer's licence.


The district court decided that the Insurance Contract Law regulates the substantive relationship between insurers and insureds, and that the Control Over Financial Services (Insurance) Law applies to the relationship between insurers and the regulator. Although they have different objectives, both laws are linked by the same purpose: to protect the insured in view of the gap between insured and insurer.

Therefore, the correct interpretation of Article 62 of the Insurance Contract Law is that the right of subrogation will be granted only to an insurer which has fulfilled the Control Over Financial Services (Insurance) Law's requirements (ie, obtained an insurer's licence).

The court held that the right of claim against wrongdoers is still held by the insured and, as a result, an insurer cannot file the claim in its name. Instead, a claim against parties responsible for causing loss must be filed by the insured, and the insurer will be entitled to the results of this judgment by virtue of the discharge and release document.

In VIG's appeal, the Supreme Court decided not to interfere with this decision, the district court decision was upheld and the right to sue the tortfeasor was not transferred to the insurer by the payment of insurance benefits; such claim should be filed in the name of the insured and the insurer will be entitled to the proceeds of the claim. This decision now has a binding effect on all lower courts.


The VIG judgment creates a distinction between the procedure by which an admitted or non-admitted insurer can file a claim against a party responsible for loss or damage. The latter may not file the claim in its name; rather, it must handle the claim behind the scenes as a claim which is formally submitted in the name of the insured. The insurer will be entitled to receive from the insured the proceeds of the claim, and these sums should be held by the insured as trustee for the benefit of the insurer.

The result of the judgment does not nullify the rights of a non-admitted insurer to the recoveries from the party responsible for the loss. However, from a procedural standpoint, the plaintiff should be the insured and the right of the insurers to these monies should be addressed in the discharge and release form, making the insured a trustee for the benefit of the insurer.

Therefore, foreign insurers should include in their policies and discharge and release form a provision to the effect that the insured should cooperate with the insurer in filing a claim against any party responsible for loss or damage and that the insurer may use the insured's name in such a claim. Further, the insured should confirm that the money recovered belongs to and should be transferred to the insurer up to the amounts paid by the insurer and will be held by the insured as trustee for the benefit of the insurer.

The law concerning the right of Israeli insureds to purchase insurance directly abroad for risks situated in Israel has not changed and is not influenced by the judgment. The Control Over Financial Services (Insurance) Law forbids carrying out insurance business in Israel without a licence; however, it is legal to sell insurances of Israeli risks directly from abroad.

For further information on this topic please contact Peggy Sharon at Levitan, Sharon & Co by telephone (+972 3 688 6768) or email (peggysh@levitansharon.co.il). The Levitan, Sharon & Co website can be accessed at www.israelinsurancelaw.com.

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