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Reinsurers of Israeli Cedants are Subject to Jurisdiction of the Israeli Courts

The Haifa District Court ruled, in CF 293/03 British Aviation Insurance Group a Global Aerospace Underwriting Managers Ltd. et, al V. Elbit Systems Ltd. et, al., that reinsurers are subject to the jurisdiction of the Israeli courts in the facts underlying that case.

Factual Background

The facts of this case are somewhat complex, but are interesting in examining the prevailing practice in the Israeli market, where local cedants merely front the business for reinsurers, but take no part in the underlying risk.

Elbit Systems Ltd. ("Elbit"), a major Israeli aerospace company, insured itself against loss of its equipment while installed on aircrafts. The broker was Aon and its local affiliate - Aon Aminim. The insurance was placed in London with several insurers and Lloyd`s syndicates (the "Reinsurers"). Harel Insurance Company ("Harel"), a local insurance company, issued the certificate of insurance to Elbit and received a reinsurance cover note from Aon evidencing that reinsurance was effected with reinsurers. Harel did not retain any part of the risk. The reinsurance cover note did not provide for the choice of law and jurisdiction applicable to the reinsurance contract.

Reinsurers and Harel rejected a claim filed by Elbit for $3.5 Million relating to loss of Elbit`s equipment on board a MIG 21 of the Romanian air force. Thereafter, Elbit filed a court action against Harel, Reinsurers, Aon and Aon Aminim. Harel, in turn, issued a third party notice against Reinsurers, Aon and Aon Aminim, alleging that if Harel is found liable then such parties should indemnify Harel, since it merely fronted the business and did not retain any part of the risk. Since Reinsurers and Aon are not domiciled in Israel, both Elbit and Harel obtained an ex parte permission from the Court to serve the Court summons on Aon and Reinsurers out of the boundaries of the jurisdiction of the Israeli courts. In response, Reinsurers filed an objection to such service. The issue in question before the Court was whether an Israeli Court, in the above described circumstances, may assume jurisdiction over Reinsurers and Aon.

The Court`s Analysis

The Judge addressed an unclear situation. On the one hand, the documents show that Harel was the reassured and Elbit the original insured. This supports reinsurers` position that there was no direct insurance contract between Reinsurers and Elbit. On the other hand, Elbit paid 100% of the premium directly to Reinsurers and not to Harel and it was not disputed by Reinsurers that they carry 100% of the risk. Furthermore, Harel argued that it was not a party to the negotiations between Reinsurers and Elbit.

Therefore, the judge did not decide the issue of whether there is direct privity of contract between Elbit and Reinsurers. The judge based his decision on Rule 500(10) of the Rules of Civil Procedure, which provides that an Israeli Court may assume jurisdiction over a foreign defendant when such defendant is a "required" or "proper" party to an action brought against a defendant who is subject to Israeli jurisdiction (in our case - Harel). In convincing the Court that a foreign defendant should be subject to jurisdiction of the Israeli Courts, the plaintiff must show that: (i) one of the 10 alternatives of Rule 500 of the Rules of Civil Procedure was met; and (ii) that it has a prima facie good cause of action. In reaching its decision the Court placed importance on the following factors: (i) Reinsurers did not dispute that premiums were paid directly to them; (ii) reinsurers did not dispute that they carry 100% of the risk; and (iii) Reinsurers at no stage argued that the claim is unfounded or does not have good chances of success. Therefore, the Court ruled that Reinsurers are a necessary litigant. The Court ruled that it is clear that if Harel is found liable, Reinsurers will have to indemnify it for 100% of the loss (Reinsurers did not dispute this point). Therefore, a judgment against Harel will have a huge impact against Reinsurers and thus they should be a party to the proceedings in Israel.

In the context of Harel`s application to subject reinsurers to Israeli jurisdiction, the Court stated that it would be unreasonable to require Harel - the reassured - to litigate the dispute with Elbit, the original insured, in Israel under Israeli law, while Reinsurers, who are bound by the same terms of insurance, will be subject to English law and jurisdiction in their dispute with Harel.

With respect to Aon it was held that since it has very close ties to Aon Aminin, its local affiliate, then service of summons on Aon Aminim should be deemed as service on Aon.

Comment

In this case reinsurers carried 100% of the risk and received premiums directly from the assured. However, the judge`s statements, in the context of the dispute between Harel and reinsurers could have broader implications for reinsurers. The judge`s reasoning might be used by local cedants to require reinsurers , in all cases where the reinsurance documents do not clearly provide for a foreign choice of law and jurisdiction, to be subject to the same law and jurisdiction as that of the underlying insurance policy. Should reinsurers wish to prevent this consequence, the reinsurance documents should clearly provide for choice of law and exclusive jurisdiction of the chosen forum.

 



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