|The Court`s Attitude towards Prerequisites in a Policy|
Plaintiff was a jewels dealer who purchased all risk insurance policy (including stock taking) at Menorah Insurance Co. Ltd. (the Insurer). In the course of an armed robbery, Plaintiff`s stock was stolen. The Insurer declined coverage alleging that Plaintiff had breached the policy prerequisite by carrying the goods without an armed companion. The Insurer further contended that in view of Plaintiff`s non compliance with the policy prerequisite, the insurance contract is void.
The court ruled that despite the fact that the insured (Plaintiff) did not comply with the policy prerequisite, he is entitled to insurance benefits under the policy.
In its ruling, the court referred to the provisions of section 21 of the Insurance Contract Law – 1981 (the Law) – "Measures to Mitigate the Risk". According to this section, an insurer will be discharged from liability, in two eventualities: (a) the insured`s non compliance with the policy conditions was made with fraudulent intent, or (b) the insurer proves that no other reasonable insurer would have issued a policy to this specific insured even in consideration of higher premium. The court ruled that the Insurer did not prove either of the two.
The court also rejected the Insurer`s contention that since Plaintiff did not comply with the policy prerequisite, the insurance contract is void. The court ruled that this condition in the policy can not be construed as a prerequisite but rather as a condition to mitigate the risk. A prerequisite is an external condition to a contract and is not intended to regulate the performance of the contract by the parties. A condition in the policy according to which the Insured should carry the goods with an armed companion is intended to regulate the performance of the contract by the parties, thus may not be considered a prerequisite. Therefore, the Insured`s non compliance with this condition in the policy is subject merely to the remedies provided in Section 21 of the Law.
Despite the fact that this is a Magistrate`s court ruling, we hold the view that it has a great significance, mainly in view of the court`s reasoning. TAs a result of this ruling, insurers should take care to properly draft the policy prerequisites and exclusions. Moreover, in order to give a prerequisite a more substantial effect, insurers should consider drafting it as an exclusion, rather than a prerequisite.