I Introduction

The Israeli insurance market is an expanding and evolving environment, and one that presents new challenges to all those involved. In this area, the focus of both the legislature and the relevant regulator is on the protection of the individual consumer. Courts of law have traditionally followed suit with this public policy, although, in recent years, a slight shift can be perceived towards a more balanced construction of insurance policies.

II REGULATION

i The insurance regulator

The insurance market is regulated by the Commissioner of Capital Markets, Insurance and Savings, appointed by the Minister of Finance. Two bodies advise the Commissioner: a four-member advisory committee and the Advisory Council, which has 15 members, of whom no more than six may be government employees.

The Commissioner is competent to resolve disputes between insurers and assureds. In practice, it will refrain from assuming this role in fact-laden cases. Its decision may be appealed to the district court.

ii Licensing

Writing insurance requires a licence. Foreign insurance companies cannot write insurance business in Israel, but Israeli citizens may buy insurance abroad. Writing reinsurance business, however, does not require a licence and foreign insurers are therefore free to do so.

The Commissioner is authorised to license a foreign company if the latter is registered in Israel and subject to regulation in the country of origin.

In a unique act, the Israeli government enacted a regulation in December 1951 exempting Lloyd's underwriters from the stipulations of the Law of Controlling Insurance Service. The practical effect of this is that Lloyd's underwriters are permitted to write business directly in Israel.

With the objective of increasing competition in the insurance industry to lower premiums for consumers, the Commissioner reduced the minimal capital requirements for establishing new insurance companies in Israel. As a result, two new insurance companies commenced business in 2018, and it is anticipated that additional insurance companies will be registered in 2019, some of these digital.

iii Compulsory insurance

Israeli law imposes compulsory insurance requirements on professionals or individuals in several areas, including the following:

  1. The capital market: insurance requirements are imposed on investment advisers and distributors; investment portfolio managers, mutual fund managers and trustees; provident funds and their managing companies; and underwriting companies. This compulsory insurance ensures protection of clients against negligent acts and omissions and infidelity of employees.
  2. Bodily injury coverage: Israeli law imposes compulsory insurance requirements for the coverage of bodily injury in clinical trials on human subjects (insurance requirements are imposed on the clinical trial sponsor).
  3. Motor accidents: the Israeli Road Accident Victims Compensation Law provides compensation for all victims of motor accidents on a no-fault basis. Compulsory insurance by all vehicle owners provides the source of compensation. Where such insurance was not placed, the injured party will receive compensation from a joint fund that receives a share from all premiums paid to insurers in the market. The joint fund will then have subrogation rights against the party that failed to take out insurance as required by law. In addition, sport events organised by registered sports authorities and organisations are subject to compulsory accident insurance. Schoolchildren are covered by compulsory personal injury insurance.
  4. Banks: there is no statute that compels banks to acquire compulsory insurance; however, the Commissioner of Banks has issued a directive that requires banks to acquire employee dishonesty insurance.
  5. Aviation: new regulations that will come into effect in June 2018 impose compulsory insurance on operators of commercial aircraft to, from or in Israel, in respect of passengers, baggage and cargo; third parties; and acts of hostility, war or terror.
  6. Organised sport activities are subject to compulsory accident insurance.
  7. School children are covered by compulsory accident insurance by the local authorities.

iv Directors' and officers' insurance

Directors' and officers' (D&O) insurance, although not mandatory, has become a prerequisite for most high-ranking directors and officers. Israeli courts have, in recent years, strictly applied reporting duties, and demanded accurate, full, updated reporting. The Business Judgement Rule has been adopted by the Supreme Court and courts are hesitant to intervene in decisions of boards of directors that comply with the requirements of the Business Judgement Rule.

Recent years have seen an increase in the number of claims, derivative claims and class actions in respect of breach of duties by directors and officers. Most of these end in settlements in which insurers play an important role.

The Israeli Companies Law prohibits the indemnification (as well as insurance and exemption) of a director or officer in respect of the following matters:

  1. breach of fiduciary duty towards the company, unless committed in good faith and with reasonable grounds to believe that the action would not prejudice the company's interests;
  2. acts committed intentionally or recklessly;
  3. acts committed with the intention of gaining unlawful personal benefit; and
  4. fines and penalties, including civil fines and monetary levies.

III INSURANCE and REINSURANCE LAW

i Sources of law

The Israeli legal system is fundamentally a common law regime, without jury. However, throughout the years, civil law statutes have been enacted that adopt principles from various jurisdictions in Europe and elsewhere. The Insurance Contract Law (ICL) was passed in 1981, adopting principles of consumer protection. In conjunction with this, the Control of Financial Services (Insurance) Law was passed, which provides regulatory provisions for the market. The law applies to all types of insurance other than reinsurance, marine, aviation and insurance of diamonds or valuable metals.

ii Making the contract

The ICL does not specify a unique format for execution of the insurance contract. However, it does specify particular rules aimed at reinforcing consumer rights and imposing limitations on insurers, remedies and power. These rules aim to moderate the typical imbalance of power between the insurer and insured.

iii Duty of disclosure

The ICL imposes an explicit duty on the insured to answer the insurer's questions in full and truthfully, when presented in writing in respect of a material matter. A material matter is defined by the Law as one that could affect a reasonable insurer's willingness to assume the risk in general or to assume it under the terms specified by the policy.

The Law further stipulates that fraudulent concealment of a matter that the insured was aware of as being a material matter is regarded as an untruthful and incomplete answer. Israeli courts have interpreted this in conjunction with the questions posed by the insurer on the proposal form: a subject not mentioned in a proposal form has been deemed as immaterial and therefore, there can be no positive duty of disclosure regarding such a subject and no sanction for non-disclosure.

iv Interpreting the contract

An insurance contract is interpreted according to the (revised) Article 25 of the Law of Contracts and case law, which clarified rules of interpretation of insurance policies, such as Cohen v. Migdal Insurance Company2 and MS Aluminium Products v. Arie Insurance Company.3

The stages of interpreting a policy are as follows:

  1. The first stage is based on the subjective intention of the parties to the specific policy. If possible, the parties' intentions will be ascertained literally from the language of the insurance contract. Otherwise, for the subjective intention, the court will look at external circumstances, such as communications exchanged between the parties.
  2. Second, if the subjective intention of the parties cannot be ascertained, then the court will seek the objective intention of the parties, namely the intention of reasonable and honest parties with respect to the policy in question. The objective intention can be ascertained, for example, from common practice among other insurers in the relevant type of insurance.
  3. A policy construction that gives it force and effect is preferable over one that voids the policy provisions.
  4. Only if the court cannot ascertain the subjective or objective intention of the parties will the court interpret ambiguities in the policy against the drafter (usually the insurance company).
  5. Courts also refer to the doctrine of the reasonable expectations of the insured, but only if there are several reasonable interpretations and one of them meets the reasonable expectations of the insured. This is generally used together with other rules of interpretation.

v Warranties and conditions precedent

The ICL provides no basis for the doctrines of warranties and conditions precedent as implemented in common law countries. The Israeli law has adopted a proportionate remedy principle regarding both breach of contract terms and breach of duty of disclosure. The significance of this principle is that other than in cases of fraud, there is no automatic exemption of the insurer from liability.

Where the insurer alleges breach, the court will consider its extent and effect, and is authorised to reduce liability proportionately according to the ratio of the actual premium and the higher premium that would have been charged had the insured disclosed the material matter or had the insurer known that the policy condition would not have been adhered to.

The insurer bears the burden of proof that full disclosure or non-adherence to the condition would have had an effect on underwriting.

Furthermore, the ICL negates remedies where the breach of the duty of disclosure or the policy condition did not affect the risk.

vi Intermediaries and the role of the broker

The licensing of insurance brokers is regulated by law, requiring a licence, which follows on from practical training and examinations. The licensing is in three areas of expertise: general insurance, marine and pension insurance brokerage.

The licence may be granted to an individual or to a corporation.

The activities of insurance agents are regulated by law. An insurance agent is defined as 'one who engages in insurance brokering between the insured and insurers, and as a liaison between the insurer and the insured'. It is considered an agent of the insurer with regard to the negotiations leading up to the formulating of the insurance contract, unless appointed in writing by the insured as an agent of the insured. As the agent of the insurer, any fact brought to its knowledge regarding a material matter will be considered as known by the insurer for the purpose of the insured's duty of disclosure.

Payment of premium to the agent is also considered as payment to the insurer.

The agent is considered the insurer's agent for the purpose of receiving notice of the identity of the insured and the beneficiary, unless the insurer informed the insured and the beneficiary in writing that notification must be sent to a different recipient.

The presumption that the insurance agent is the agent of the insurer serves as an obstacle that insurers must surmount to be allowed to rely on policy terms.

In Clal Insurance Company Ltd v. Mussa Ally4 the court ruled that the insured was not deemed as receiving a copy of the policy terms as the document had been sent to the agent and not to the policyholder. The fact that the agent in that case was a close relative of the policyholder did not suffice to overcome this obstacle. Furthermore, the insured had signed the section in the proposal form appointing the agent as his own agent. However, the court ruled that in the absence of clear-cut evidence that the insured fully understood the meaning of this waiver, the legal presumption prevailed and the agent remained the agent of the insurer. As a result, the court did not allow the insurer to rely on stipulations in the policy making cover conditional upon the insured taking measures to alleviate the risk. The court ruled that as the policy had not reached the hands of the policyholder, the insurer had not fulfilled the duty to ensure that the policyholder was fully aware of these conditions and the consequences of non-compliance.

vii Claims

Notification

The ICL provides that the insured must notify the insurer of the insured event immediately after becoming aware of its occurrence. However, as with the approach to breach of policy terms or the duty of disclosure, the law does not sanction late notification with automatic dismissal of the claim. The burden of proof in this respect is on the insurer, who must prove substantive damage as a result of the failure to notify on time. To meet this burden, it is not sufficient to show a theoretical possibility that damage may be sustained by the insurer.

In any case, the claim will not be dismissed but reduced proportionately with regard to the extent of the damage caused by the delay. Furthermore, as with the majority of the provisions of the ICL, the above are reinforced as the Law mandates that these provisions cannot be modified by agreement unless such modification is in favour of the insured. The practical effect of these provisions is that, as a rule, insurers cannot rely on a 'late notification' argument unless their rights were significantly prejudiced as a result of such late notification. These provisions have been the subject of discussion in numerous Israeli court cases wherein the courts have consistently ruled that an insurer that wishes to benefit from the remedy provisions must show that its rights were actually prejudiced by the insured's non-compliance with the duty to notify.

The burden of proof borne by the insurer is not a light one. It must prove actual damage as a result of breach of the notification duty. Statements to this effect were made in several cases including Hassneh Insurance Co v. Asulin,5 where the burden imposed on the insurers to prove actual damage was emphasised.

In Wile v. Phoenix Insurance Co,6 the court again ruled that it is not sufficient for the insurer to merely prove the breach of the notification duty, rather, actual damage as a result of the breach must be shown to have occurred.

International Bank v. Prudential Insurance Co was an extreme case.7 The bank advised insurers of the court claim against it only after it had already lost the case in court. Prudential refused to indemnify the bank, dismissing the claim based on the argument of late notification. The bank filed suit and the court ruled in favour of the bank holding that Prudential had not proved any damage as a result of the late notification. The court stated that the bank had defended the claim against it in a comprehensive and highly professional manner. Furthermore, the court ruled that the insurers had breached their duty to act in good faith by raising such 'technical arguments'.

Good faith and claims

Section 27 of the ICL provides that the insurance benefits will be paid within 30 days of the day on which the insurer is in possession of the information and documents required for the ascertainment of his or her liability. However, insurance benefits not disputed bona fide will be paid within 30 days of the day on which a claim is submitted to the insurer, and they may be claimed separately from the remainder of the benefits. (See subsection x, below.)

Insurer's duty to issue a coverage position letter

Coverage position letters have been the basis of limitations on insurers' practical rights and scope of defence in Israeli courts, where the coverage position letter did not meet the regulator's requirements. These requirements have been adopted by the courts as legally binding in the framework of the insured–insurer relationship. The Supreme Court added that insurers' obligations also apply to a third party that is entitled to direct privity with the insurer.

The first directive on the subject, issued in 1998, required the insurer to specify all grounds for denial of coverage, sanctioning failure to do so by precluding the insurer from raising any new argument in future litigation. The Commissioner cited the insured's right to receive all details to be able to seek advice regarding possible legal relief on the basis of the insurer's position as the rationale for this sanction.

Later, a variation on the original directive was issued, clarifying that arguments based on events subsequent to the coverage position letter, or based on grounds that could not have reasonably been known to the insurer when issuing the coverage position letter, would be allowed to be introduced at a later stage.

The courts afforded the directives the power to limit the scope of insurers' rights to evoke defence arguments beyond those cited in the coverage position letter:

  1. the insurer is obliged to effectively investigate the circumstances of the loss or claim to form its coverage position as soon as possible after receipt of the claim;
  2. the coverage position must be provided to the insured in writing, within 30 days of receipt of information and documents required from insured;
  3. where coverage is declined (whether wholly or partially), all grounds for this position must be detailed therein;
  4. the insurer is precluded from raising any argument on circumstances, conditions or exclusions that were not mentioned in the coverage position letter; and
  5. the insurer will be able to broaden its defence only in rare cases where the circumstances material to its updated coverage position were not known and could not reasonably have been known. Such cases would certainly include intentional behaviour aimed at concealing material facts from the insurer.

viii Reinstatement

Reinstatement clauses are common in property insurance and provide coverage beyond the scope of the ICL. Reinstatement (i.e., 'new for old') is an additional cover and is subject to a time limit that may cause friction with the insurer. This type of cover was analysed in the precedential ruling in Phoenix Insurance Co Ltd et al. v. The Deborah Hotel et al.8

The meaning of a reinstatement clause in the policy is that in consideration of a higher premium, the insured reinstates the damaged assets at a new value; that is, at the current price, without reduction for wear and tear, etc. The option to choose reinstatement instead of compensation for the damage is in the hands of the insured, not the insurer.

Both conditions are found in the reinstatement clause of the policy in question – namely the limited time to complete the reinstatement and the insurer's liabilities for payment of expenses after the reinstatement is actually carried out – and are a fundamental part of reinstatement value insurance accepted in the insurance industry.

Precisely because of the restrictions in the clause, in relation to both the completion of reinstatement and payment only after the insured has covered his or her expenses, accepted behaviour and good faith requires the insurer not to create obstacles for the insured to exercise his or her rights under the policy. The matter in question of this ruling created a vicious cycle whereby it was not possible to begin the reinstatement procedure before the insurer approved its scope and details. The parties turned to arbitration to settle the argument; however, this process was not activated because of the position of the insurer, which was that it could be activated only after the reinstatement period. It was ruled that the insurer's position was inconsistent with the spirit of the policy and not the conventional way that insurers should fulfil their obligations. Therefore, the Supreme Court ruled that under the circumstances there was no justification for denying the insured's request to extend the period of reinstatement.

The condition that reinstatement costs are due (beyond compensation for the actual damage) only after the insured covers his or her expenses independently and only after the reinstatement is complete is a basic condition for the implementation of reinstatement insurance.

The time limit will not apply where the insurer is found to have unlawfully denied insurance benefits and so prevented the insured from reinstating the damaged property. In Hadar Insurance Co Ltd v. Ehad Ha'am Food and Investments Ltd9 the insurer claimed that the insured failed to reinstate the equipment in the allotted time and therefore was not entitled to reinstatement values. The Supreme Court rejected the insurer's argument, ruling that by detaining the insurance benefits for the actual damage, the insurer prevented the insured from reinstating the equipment and therefore could not invoke the time limit condition against the insured.

ix Dispute resolution clauses

The insertion of dispute resolution clauses is not widely accepted in standard policies, as this is considered an infringement of the insured's rights to take up matters with the courts.

x New legislation

The amended Section 28 to the ICL stipulates that in personal insurance (life, auto, home, health – but not liability) the court is obliged to award, and in non-personal insurance the court may award, an additional interest award of up to 20 times the basic interest rate, when an insurer did not indemnify the insured the amounts not in dispute in good faith on the appropriate date (in long-term care insurance – up to 10 times). If the court decides not to apply this special rate, it should explain the reasons for its decision.

Section 27 provides that the insurance benefits will be paid 30 days after the insurer received all information and documents required to ascertain the insurer's liability under the insurance contract. For insurance benefits that are not in dispute, the payment should be made within 30 days of the date the insurance claim was notified to the insurer. If this Section is breached, the insurance benefits will accumulate the above-mentioned interest. According to a Supreme Court precedent, the 30-day period will be calculated from the date the insured notified the insurers regarding the insured event.

Insurance Arbitration Institute

A new bill proposed by the Ministry of Finance in 2018 stipulated the establishment of an Insurance Arbitration Institute and compulsory arbitration of insurance claims in this Institute (except for claims by big companies (according to turnover and number of employees) and claims against third parties). If, and to what extent, this proposed bill will be approved is yet to be determined.

IV DISPUTE RESOLUTION

i Jurisdiction, choice of law and arbitration clauses

As a rule, insurance contracts, other than those concerning reinsurance, marine, aviation, diamonds and precious metals are subject to Israeli law. Jurisdiction is local and the competent court is determined by the amount claimed – up to 2.5 million shekels with the lower court and above this amount with the district court, as first instances.

ii Right of appeal

There is an automatic right of appeal against judgments of the court of first instance to the appeal court within 45 days. As a rule, the appeal court will not intervene on points of fact unless a severe and obvious error is clearly evident.

Leave to appeal is required to allow access to a second appellate instance and to appeal interim decisions. As a rule, the appellate court will only allow such appeals in exceptional cases. With regard to appellate judgments, the petitioner must show severe injustice or that the issue is one of importance to the public. The petition for leave to appeal must be filed within 30 days of handing down of the subject decision.

Most district courts will now complete hearing of an appeal within three years. At the Supreme Court, however, a case may take much longer.

The courts distinguish between lawyers' fees and costs, and are authorised to award either or both to the winning party. Lawyers' fees are usually awarded as a percentage of the judgment.

iii Arbitration

Arbitration is very similar to a court process – evidence is brought, and discovery and testimony can be compelled by the arbitrator by using the court's mechanism. Rules of evidence do not apply where parties have not agreed otherwise.

The essential difference between arbitration and a court process concerns the options for appeal, amendment or annulment of a judgment, which for arbitration are rare and very difficult to obtain compared with a court judgment. There is, in essence, no route to appeal against an arbitral judgment except where the parties initially agreed to allow an appeal, this being limited to 'a fundamental error in application of the law which causes significant miscarriage of justice'. A motion for the annulment of a judgment will be allowed only in cases where the arbitration suffers from a serious procedural flaw as listed in the Law of Arbitration. Arbitration is significantly more expensive and time-consuming than mediation. (See Section III.x.)

As stipulated by the Commissioner, an insurance policy may not include a clause binding the insured to arbitration, in case of a future dispute. This clause is considered to be prejudicial to insured's rights. This stipulation does not apply when the insured specifically agreed to the arbitration clause.

iv Alternative dispute resolution

Mediation is the most common form of alternative dispute resolution and a recent amendment to the Civil Procedure Rules mandates referral of all litigants in all claims for over 75,000 shekels (excluding damages for victims of motor vehicle accidents) to hold a meeting with a mediator to discuss holding mediation talks. This is a general rule and not specific to insurance cases. This is a precondition for continuing to trial but the court is not authorised to penalise parties for not agreeing to mediation or for not making an offer to settle.

A positive incentive for early settlement is afforded by rules regarding payment and refund of court charges. Court charges are levied on monetary claims at the rate of 2.5 per cent of the claim. Half of the court charges is paid on filing the claim and the second half is paid only if the case goes to trial. Furthermore, the first half of the court charges will be refunded automatically to parties that settle before three pretrial hearings have been held and the court is authorised to refund the entire charges paid if a resolution is reached, at any stage, by mediation or arbitration.

Mediation will normally be conducted by a lawyer with experience in the field or a relevant expert and will take much less time as meetings are held with the parties and the lawyers, with no need for testimony or any discussion of formalities, such as admissibility of evidence or discovery issues. It is also possible to have confidential discussions with the mediator, ex parte, which are effective in sounding out an objective party's point of view without the risk of unnecessarily revealing evidence to the counterparty.

V SUBROGATION

i Stricter rules

Subrogation by insurers is seemingly a simple matter of transferring rights from the insured to the insurer regarding the insured damage, against third parties. However, as depicted in a ruling by the Supreme Court in Lloyd's Underwriters and IEC v. Ashdod Port (December 2014),10 as outlined below, the subrogating insurers may have to make additional efforts to prove the elements of the claim in order to ensure the full transfer of rights and benefits.

Background

The Israel Electrical Company purchased equipment from Siemens in the amount of tens of millions of dollars for a new power production installation. While being unloaded at the Ashdod Port, the crates were dropped and damaged by impact. Siemens later determined that several units must be replaced and others should undergo repair.

Subrogation

Under Israeli law, subrogation is contingent on the insurer establishing all of the following conditions:

  1. the obligation to pay insurance benefits on the basis of a valid policy;
  2. actual payment of insurance benefits on the basis of this obligation; and
  3. proof of the insured's right for compensation from a third party in relation to the insured event or damage.

Regarding the reviewed case, all these conditions seem to exist. The district court dismissed the subrogation claim and held that the insurers' considerations in regards to the payment were 'unreasonable'. The court found that the insurers failed to conduct an independent assessment of the damage and accepted Siemens' conclusions blindly, even though they were obviously an interested party.

The Supreme Court upheld the decision, specifically in regard to the fact that the insurance policy covered impact damage only and that no investigation had been carried out to determine whether indeed all the damage was caused by impact and not by other unrelated causes.

Review and comments

The Supreme Court judgment emphasises the fact that in order to preserve and ensure the prospects of subrogation, the insurer must invest efforts, beyond those necessary to determine coverage, in order to investigate and preserve evidence necessary for the future subrogation claim. The insurer must invest independent efforts to determine the exact nature of the damage and cannot rely on the advice of and interested party, such as the manufacturer or supplier of the damaged product.

ii Subrogation by a foreign insurer

Subrogation in Israel stems from Section 62 of the Insurance Contract Act 1981, which transfers any rights that the insured may have for remedy in relation to the insured loss to the insurer upon payment of the insurance benefits. In VIG – Vienna Insurance Group v. Sharon Drainage and River Authority (October 2015),11 VIG filed a subrogation claim in Israel, and the action was denied by the district court. The court ruled that Section 62 grants the subrogation right to an insurer, meaning an insurer registered by law in Israel and subject to local regulations. The court ruled that the rationale behind this was to grant rights of subrogation only to the companies that were also obliged to act within the confines of local regulatory rules.

This ruling was not the first of its kind in recent years in the lower courts; however, the appeal to the Supreme Court on this case was denied, creating a precedential binding rule, precluding foreign insurers from availing themselves of the right of subrogation in Israel.

Comments

According to Section 72 of the Insurance Contract Act 1981, Section 62 is the only section of the law that applies to reinsurers. As a result, we hold the view that a foreign insurer wishing to insure risks in Israel and retain subrogation rights must do so via a local insurer as a fronting company who would later exercise the subrogation right. Alternatively, as suggested in the VIG case, a recovery claim should be filed in the name of the insured, who may then remit proceedings to the foreign insurer.

Our view is that the legal position of Lloyd's underwriters in Israel is different to other foreign insurers because they are permitted to write insurance business in or from Israel on the basis of being exempt from the requirements of the Insurance Supervision Law.

VI YEAR IN REVIEW

i Civil procedure reform

The Rules of Civil Procedure were significant reformed in 2018 and will come into effect from September 2019. The overriding objective of this reform, as with the Lord Woolf reform in England, is to enable the court to deal with cases justly and at a proportionate cost, while improving the efficiency and speed with which they are dealt with. The new procedure places severe time constraints on litigants while expanding the court's discretion regarding case management.

The reformed Rules of Civil Procedure are expected to accelerate proceedings owing to stricter time limits for preliminary proceedings and defence. The new rules warrant the particular attention of the claims departments of insurers, who will have to review claims handling procedures to meet the new requirements.

ii Reduction of interest rates

With respect to bodily injury claims, in calculations of future loss, the fixed annual interest rate was 3 per cent for many years. Owing to the very low inflation rate, several courts have implemented a 2 per cent rate that substantially increases the compensation. However, not all courts have fully adopted this new figure and are waiting for the decision of the Supreme Court. The eventual decision is especially important for insurers' risk calculations and liability reserves.

iii New codification of insolvency and rehabilitation

In March 2018, the Israeli parliament approved the new Insolvency and Rehabilitation Law 2018. The Law will come into force on 15 September 2019.

One of the main changes in this Law is the definition of insolvency, which now includes two alternative tests: the cash-flow test and the balance test.

The main relevant issue regarding D&O insurance is the provision in the Law relating to the directors' and the CEO's liability in case of insolvency, as defined under the Law.

iv Cyber technology

The new Regulations for the Protection of Privacy (Information Security), enacted in 2017, became effective in May 2018. The Regulations establish, for the first time in Israel, a specific arrangement regarding protection of databases, including establishing organisational procedures and risk management enhancement steps in the management of databases. They also include a duty to report any severe data breach to the Database Registrar, and the Registrar may instruct that notification be given to the data subjects who may be affected.

In addition, the EU General Data Protection Regulation, which also became effective in May 2018, applies to Israeli companies that either target the European Union (by offering goods or services to individuals from EU Member States) or monitor the behaviour of individuals from EU Member States (e.g., by tracking them online).

There are also new duties attached to directors and officers of companies regarding cyber-risk management and reporting, which should be included in the company and D&O insurance.

v D&O insurance

The new Insolvency and Rehabilitation Law, described in subsection iii, imposes liability on the directors and on the CEO of the company in any case where these individuals knew or could have known that the company is insolvent, and did not take reasonable measures to mitigate the scope of the insolvency. In such a case, the directors and CEO could be held liable towards the corporation for the losses sustained by the creditors, as a result of their failure to prevent or mitigate such losses. Certain provisions of the law provide a safe harbour defence for the directors and CEO, however, the law prohibits the corporation from granting them exemption or indemnification.

Insurers that write D&O policies in Israel may wish to address the extended duties of directors and CEOs under the law.

VII OUTLOOK AND CONCLUSIONS

The Israeli insurance market will continue to be very competitive, dictating a soft market, especially in personal lines insurance. It is expected that the high level of competition and developments in technology will lead to creative new products in the market and increase in sales of direct insurance.

Insurtech is very developed in Israel. Israeli insurance companies are looking at ways to transform parts of their activities to digital formats such as sale of policies, underwriting information and handling of claims, in particular in personal insurance. As a result of the growing competition, digital search engines compare terms and costs of insurance offers by competing insurance companies, to present tools to the consumer to find the most suitable insurance.

A new Commissioner of Insurance was appointed in 2018 and, although his vision is still unknown, it is certain he will encourage the market to make digital and technological improvements.


Footnotes

1 Harry Orad is a founding partner at Gross Orad Schlimoff & Co.

2 CA 4688/02.

3 CA 453/11.

4 CA 2626/01.

5 CA 215/91.

6 CA 1438/02.

7 CF 7/88.

8 CA 191/80.

9 CA 7298/10.

10 CA 12/7287.

11 CA 53025-11-14; appeal (dismissed) 8044-15 (January 2017).