On September 25 2017 the Central District Court declined a claim filed by Eran Polack and several companies that he controlled against Menorah Mivtachim Insurance Company, as Menorah proved to the court that the claim had been filed with fraudulent intent.
In February 2010 Eran Polack, an Israeli diamonteer, opened a new office for diamond trade in Hong Kong. One day after the office opened, Polack reported to his insurers that he had been robbed under the threat of violence and that $10 million worth of diamonds had been stolen. Polack was insured under a jewellers' block policy with a limit of liability of $3.5 million. However, in February 2010 (just days before reporting the alleged robbery), Polack had extended his insurance coverage under the policy to $10 million.
The majority of diamonds reported stolen were not owned by Polack, but rather by other diamonteers from whom he had collected the goods on a memo basis before the alleged robbery.
According to the statement that Polack provided to his insurers, he had travelled to Hong Kong in order to execute a diamond deal with a new client. When Polack arrived in Hong Kong, he met two African men who allegedly presented themselves as representatives of an African businessman who had been sent by a broker from Moldavia who wanted to purchase high-valued diamonds. Polack agreed to meet the representatives before dinner in order to show them where his office was located and ensure that it was properly secured for the deal. He claimed that when the African men exited the elevator leading to the floor on which his office was located, they became aggressive and demanded that he open the door. Polack argued that the men attacked him with a knife and ordered him to empty the contents of his safe into their bags.
The insurers suspected that the circumstances described by Polack were untruthful and declined the claim, setting out several arguments relating to:
- Polack's failure to prove an insurance event; and
- a breach of insurance conditions (ie, permitting strangers to enter his office when he was alone on the premises).
A few months after the claim was submitted to court, the Gemology Institute of America laboratory – which had issued gemological certificates for most of the diamonds that were allegedly stolen – reported that a number of the diamonds listed as stolen had subsequently been sent to it by Polack, who had asked the lab to issue new certificates. This led the insurers to open another investigation, which revealed that a number of the diamonds reported as stolen had remained in Polack's inventory after the alleged robbery under a different identity and new code. Further, some of the diamonds in question had undergone polishing intended to disguise their identity.
As a result, the insurers asked to amend their statement of defence and added the allegation of a fraudulent claim.
The allegation of fraud was supported by Don Palmieri's expert opinion, which referenced 400 diamonds with an overall value of more than $6 million which had been reported as stolen, but had in fact remained in Polack's stock after the alleged robbery.
Polack argued that the diamonds found in his possession were different from those stolen and were part of his stock. However, he was unable to provide purchase invoices for these diamonds or a reasonable explanation for the duplication of the relevant certificates.
On September 25 2017 the Central District Court handed down an extensive judgment declining the plaintiffs' claim and determining that the claim was fraudulent.
The court examined the insurers' argument of fraudulent intent using the following criteria from a Supreme Court precedent:
- providing false or fraudulent facts;
- awareness that fraudulent facts were provided; and
- intent to receive funds based on fraudulent or inaccurate facts.
The court examined the allegation of fraud concerning the diamonds that had allegedly been robbed and were subsequently discovered in Polack's stock following the robbery. The court accepted the theory presented by the insurer's gemological expert, according to which diamond certificates could be compared to ascertain whether they belonged to the same stone. The court also accepted the insurers' arguments that many of the diamonds which had allegedly been stolen remained in Polack's possession.
The court concluded that the insurers had proven all of the above elements of fraudulent intent (ie, the plaintiffs had provided false facts in their claim, as they had included diamonds which they knew had not been stolen, and had been aware that these facts were false and provided them in order to receive unlawful insurance benefits). The court also found that:
- at least 115 diamonds (over one carat) valued at over $5 million had remained in the plaintiffs' stock after the robbery; and
- this was not a marginal fact, but rather the heart of the claim that had resulted in it being declined.
Notwithstanding the above, the court also referred to whether the robbery had occurred and the circumstantial evidence provided by the insurers which had raised many doubts, including the fact that:
- no steps were taken to find out the alleged buyer's identity;
- the office in question was not organised for the alleged business transaction; and
- Polack had allowed his secretary to leave work earlier than usual and ordered her to cover the office windows before she left.
Although only circumstantial evidence was provided to substantiate the allegation of a staged robbery, the court determined that the distance between what had been presented and the burden to prove fraud imposed on the insurers in this case was slim.
As a result, the court ruled that the insurers proved that Polack had:
- provided false facts in connection with the robbery, in that he had alleged that he allowed his assailants to enter his office only after they had threatened him; and
- willingly allowed his assailants to enter his office.
Therefore, in view of the plaintiffs' version of events, the court ruled that Polack had acted with fraudulent intent and dismissed the claim with costs.
This article was first published by the International Law Office, a premium online legal update service for major companies and law firms worldwide. Register for a free subscription.
For further information on this topic please contact Peggy Sharon, Sharon Shefer or Karin Barel at Levitan, Sharon & Co by telephone (+972 3 688 6768) or email (firstname.lastname@example.org, email@example.com or firstname.lastname@example.org). The Levitan, Sharon & Co website can be accessed at www.israelinsurancelaw.com.