It is almost daily practice that insurers are those who dismiss claims in which their insured's are the defendants. According to the provisions of Section 68 of the Insurance Contracts Law, the insurer must approach the insured and update him about any settlement and receive his position on that. To the question whether the insured is required to receive a positive approval or whether it is sufficient that the insured does not object to it or does not response within a given time, it has already been decided that the silence of the insured for some 30 days will suffice for payment ([Ch.Y'] 17625/05 Clal Insurance Company Ltd v Rozin Mordechai). This is the general rule. However, what about exceptional cases? What is the law when the insured is the party which is particularly interested in settling – whether for commercial reasons or because he fears that in a judgment he would be exposed beyond the limits of his insurance coverage? How is the insurer exposed, if at all, to the end result notwithstanding its refusal?
Recently, the Tel-Aviv Magistrates' Court in (Ch.Y') 7612-02-12 the Israel Electric Company Ltd v Moshe Bar – Kiduchei Nision Ltd – found that the insurer should pay the insured's part in a mediated settlement. The case concerned an insured claim, which was settled in the settlement reached via mediation. The financial risk to which the insured was exposed was high, but his part of the settlement was relatively low (only 10% of the inclusive offer), and the insurer refused to take part in the mediation itself, since it claimed an exclusion under the policy. The court obliged the insurer to pay this 10% part and in doing so noted that under USA law this is the situation.
Indeed, in the USA it has been held that an unreasonable refusal on the part of the insurer will still make it liable to pay even beyond the limit of the coverage, and in cases of doubt concerning the refusal, such doubt will go to the benefit of the insured:
"In view of such expectation an insurer should not be permitted to further its own interests by rejecting opportunities to settle within the policy limits unless it is also willing to absorb losses which may result from its failure to settle. Finally, and most importantly, there is more than a small amount of elementary justice in a rule that would require that, in this situation where the insurer's and insured's interests necessarily conflict, the insurer, which may reap the benefits of its determination not to settle, should also suffer the detriments of its decision."
With respect to the question whether in Israel the insurer would be exposed to make payment beyond the limits of the coverage in a liability claim (this question in the context of property claims has already been answered in the Sky-Club precedent which decided that the insurer is likely to be held to pay under certain circumstances), the case law has not yet provided an answer. It would appear that this is an extreme case such that if the insurer's refusal to make payment is based on reasonable considerations and is not a refusal empty of all real justification, there is no reason to impose on the insurer an obligation beyond the limits of the policy.
Reference: (Ch.Y') 7612-02-12 the Israel Electric Company Ltd v Moshe Bar – Kiduchei Nision Ltd
