Dear Clients and Colleagues,

On 13 December, 2021, the Israeli Supreme Court – Justice Grosskopf with the concurrence of Justices Barak-Erez and Amit – issued its decision in Civil Appeal 206/20 Teva Pharmaceutical Industries Ltd. et al v. T&M Goshen Security Services Ltd. et al. The Supreme Court reversed the decision of the Tel Aviv – Jaffa District Court and set a new precedent with regard the ability of foreign (i.e. not licensed in Israel) insurers, to file subrogation claims in Israeli courts.

In short, the Supreme Court ruled, that a foreign insurer may file a direct subrogation claim or an indemnification claim, against the third party wrongdoer who caused the harmful event, as a result of which the insured incurred damages compensated by the foreign insurer. The Supreme Court ruled that Israeli licensing is not a pre-requisite for subrogation rights under Israeli law. In order to substantiate liability it will suffice for a foreign insurer to prove a contractual obligation of the insurer towards the insured in accordance with a valid insurance policy; payment in accordance with the aforesaid obligation; and a third party which has a duty to compensate the insured for the relevant event.

In so ruling, the Supreme Court set a new precedent, which was counter to two parallel approaches in Israeli jurisprudence. The first approach stated that foreign insurers may only submit subrogation claims “via” the insured (i.e., that the insured submits the lawsuit against the third party wrongdoer, in trust for the insurer); the second approach contended that a foreign insurer is debarred from submitting subrogation claims in Israel, with regards to insurance events which occurred in Israel. A third approach mentioned, allowed certain specific subrogation claims avoiding the above conflict.

In this specific case, Teva had submitted a subrogation claim in trust for the National Union Fire Insurance Company of Pittsburgh, PA (NUFIC) – Teva’s foreign insurer – with regard to an insurance claim paid by NUFIC to Teva for damages resulting from alleged negligence of Goshen (a security services company), at a Teva facility in Israel.

The reason Teva submitted the claim “for” NUFIC is a previous ruling of the Lod District Court, in an unrelated case [Civil Claim 53025-11-14 Vienna Insurance Group (VIG) v. The Sharon Drainage Authority (23 January, 2017)]. In that decision, the District Court ruled – a ruling later upheld by the Supreme Court [Civil Appeal 8044/15] – that a foreign insurer cannot submit a subrogation claim directly, since it is not registered as an “insurer” as per the Israeli Insurance Contract Law, 5741-1981 (“the Insurance Law”). At the same time, the District Court in the VIG case opined, that its ruling did not bar subrogation claims by foreign insurers entirely since they can submit claims “via” the insured “for” the insurer, in trust.

However, the District Court in the Teva case disagreed with the ruling made in the VIG case regarding the ability to submit subrogation claims “via” the insured – with the result being a complete bar on foreign insurers’ subrogation claims.

Justice Grosskopf not only reversed the District Court ruling in the specific case, but went further and detailed, that a foreign insurer has the same subrogation rights as an Israeli insurer. He ruled that the Insurance Law does not intend to bar “non-registered” insurers from being able to submit subrogation claims.

Justice Grosskopf found, that the definition of an “insurer” under the Insurance Law may be wider than the definition used in other places in Israeli legislation – wide enough to include non-registered insurers for the purposes of subrogation claims.

Justice Grosskopf further specified, that the foreign insurer may also submit, if relevant, an indemnification claim – for example if the insurance contract is governed by a law other than Israeli law – under the principles of unjust enrichment, as set out in the Israeli Unjust Enrichment Law, 5739-1979, and the Supreme Court jurisprudence developed in the interpretation of that law.

Justice Grosskopf clarified, that generally a claim should be submitted by the foreign insurer directly against the third party wrongdoer (in direct contrast to the position of the court in the VIG case), unless there is a specific bar on a direct claim, in which case the method of submission “for” the insurer may still be used. Regarding cases currently pending before Israeli courts, these may proceed in this manner or, if the relevant court sees fit, be amended to direct claims, at the parties’ discretion.

This ruling, which is a binding precedent on all lower courts, presents a material shift in Israeli jurisprudence, giving foreign insurers both legal clarity and protection with regard the ability to reclaim insurance payments for events occurring in Israel.

It should be noted, that while Justice Grosskopf clarified that lack of registration does not preclude a subrogation claim, such lack of registration could be an issue between the insurer and insured, as the insured might claim “illegality” of the contract to avoid allowing the insurer to rely on the contract. This point was not decided in the case at hand, since the parties did not raise this issue, and Justice Grosskopf mentioned further that in this case, where the provision of insurance in Israel was part of global coverage, it is unclear if such illegality even exists.

If any further specific guidance is necessary, we are more than happy to provide you with assistance.
Sincerely,

The Litigation and Dispute Resolution Department
Herzog Fox & Neeman

David Zailer | Partner
Litigation Department​zailerd@herzoglaw.co.il

Dr. Saar Pauker | Partner 
Litigation Department​paukers@herzoglaw.co.il