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The Duty to Report a Claim is part and parcel of Claims-Made Insurance

By Peter Gad Naschitz and Shimon Chertow (Naschitz Brandes Amir).
30 November 2016

A new judgment of the Tel Aviv District Court supports the proposition that a claimsmade liability insurance policy does not respond to a claim that is brought against the insured subsequent to the expiration of the policy in respect of an occurrence that the insured knew of but did not report to the insurer during the period prescribed by the policy. This ruling adds to a trend to enforce the terms of claims-made insurance notwithstanding doubts raised by the courts in the past concerning the appropriateness of insurance of this type in Israeli law.

Part of the judgment deals with the involvement of a cleaning and guarding company in a fire that broke out in a garage situated in the Herzliya airport and caused damage to third party property. The company held a claims-made professional liability insurance policy. The fire occurred only six days prior to the termination of the ordinary policy period, but the policy included an extension adding 180 days to the period in which the insured was entitled to give an appropriate notification to the insurer of an event that could result in a claim being brought in the future, in which case the claim would be deemed as having been made during the policy period. In fact, no notification was given, and after a year and a half the insured was sued in court.

The insured argued that the fire constituted an "insurance event" that occurred during the policy period and therefore the insurer was obligated to cover it. It also argued that the condition requiring the reporting of the claim during the policy period should not be enforced against it because there had been no certainty that a claim would be made, and that the Insurance Contract Law does not release the insurer from its liability in circumstances of innocent delay in giving notice of an insurance event.

In rejecting the assertions of the insured, the Court remarked that an ordinary liability insurance contract according to the definitions in the law does indeed cover the liability of the insured for insurance events that occur during the policy period. However, in claims-made liability insurance - the type agreed upon in the subject case and the conditions of which were known to the insured - the "insurance event" and the liability of the insurer are defined in terms of the making of a claim against the insured during the period of insurance. Such insurance applies to claims made in fact against the insured during the policy period, as well as potential claims discovered by the insured in connection with a certain occurrence or set of circumstances that it could be sued for in the future – provided that the insured reports the same to the insurer in order for an "insurance event" to come into being under the policy. However, if the insured does not invoke the policy by giving notice to the insurer of a potential claim within the stipulated time frame, the consequence will be that no "insurance event" will have occurred as far as the insurer is concerned, and there will be no basis for the insured to sue for coverage. It follows that even where the claims-made policyholder is in doubt as to whether it is going to be sued in connection with a certain occurrence, it has a duty to report to the insurer within the time limits of the policy, failing which it will lose the right to coverage in respect of the occurrence.

Reference: Civil Case (Tel Aviv District Ct.) 4783-11-09 Israel Airports Authority and Lloyds Underwriters v. Herzliya Area Municipal Association, published in Nevo (E. Bechar, J., 9.11.2016).