The aviation policy form used for small aircrafts (AVN.1C) contains an arbitration clause along the following lines:
"This Policy shall be construed in accordance with the English Law and any dispute or difference between the Insured and the Insurers shall be submitted to arbitration in London in accordance with the statutory provision for arbitration for the time being in force".
This policy is marketed in Israel by local brokers and the insured receives a schedule attaching the AVN. 1C form.
Enforcement of the arbitration clause in Israel may be problematic for a number of reasons as set out herein:
1. The policy is sold in Israel by local brokers who issue the insuring documentation to the insureds. The insureds are often not aware that the policy is underwritten by London underwriters. Furthermore, the policy predominantly covers small aircrafts which are only used for internal flights. Therefore, the insureds have a legitimate expectation that disputes will be resolved in Israel.
2. Most of the insureds are private individuals, who, purchase the policy in Israel solely for use in Israel. Courts in Israel have adopted an extremely protective approach of Israeli courts towards individual insureds and are reluctant to send such an insured to litigate the matter in a foreign country.
3. The Israeli Commissioner of Insurance has issued guidelines which prohibit insurers from determining exclusive jurisdiction of any particular court. Inclusion of a mandatory provision for arbitration only in London, may be construed as contradicting these guidelines
4. Insurance policies are usually deemed to be Uniform Contracts (unless they are subject to specific negotiations between the parties). Insureds may argue that such an arbitration clause, requiring them to litigate the matter by arbitration in a foreign country, although they purchased the insurance in Israel for use in Israel only, is a prejudicial condition in the policy that should not be enforced
5. The provision itself is not clear. The term "the statutory provision for arbitration for the time being in force" appears to be quite vague. To which statutory provision does the clause refer? Which arbitration rules should apply? – English or Israeli?
6. In many cases, the form AVN.1C is only sent to the insureds long after the inception of insurance. If the insured event happened prior to the delivery of the policy to the insureds, they may argue that they are not bound by this provision to which they never specifically agreed.
In order to avoid potential arguments by the insureds, we recommend that care is taken to ascertain that the insureds are aware of the arbitration clause at policy inception and that their consent is obtained in writing.