|Limiting the Limitation Period|
Time bar defenses are most unpopular. Most courts are heavily inclined to find ways and means to allow plaintiff his day in court, even if this necessitates bending rules and procedures, in particular the procedural barrier of prescription of claims.
Israeli courts tend to favour assureds over insurers and usually interpret insurance policies in the assureds` favour. It is therefore not surprising that when an insurer raises a time bar defense, it has little chances of having the claim dismissed on such grounds.
The Israeli Limitation Law – 1958, provides a seven year limitation period, and includes various stipulations to extend this period. The Insurance Contract Law - 1981 shortened the period for filing insurance benefits claims to three years. One of the major considerations of the legislator was to shorten the time period during which Insurers were required to maintain reserves. The three year period is mandatory and may not be shortened by insurers, even with the consent of the insured.
Israeli courts have handed down several decisions which dismissed limitation period defenses of insurers, on the grounds of bad faith and estoppel. In R.C.A 716/03 Hadar Insurance Company Ltd. v. Dahan, a fire occurred at the assured`s premises in December 1998. A loss adjuster and a fire expert were appointed by the insurer. The police also investigated the event. However, this investigation had not yet concluded by the time the three year limitation period had terminated.
A few months after the fire, the assured demanded payment of insurance benefits. In response to this demand, the insurer sent the assured a letter in July 1999, stating that its coverage position would be formed following termination of the police investigation. The assured filed the court claim in December 2002, i.e. four years after the occurrence of the fire. Insurers applied to court to dismiss the claim on the grounds that the three year limitation period had lapsed.
The Jerusalem District Court held that the various letters sent by the insurer, in which it repeated that the assured`s claim will be examined following completion of police investigation, in effect extended the limitation period. The court emphasized the significance of the last letter, which was sent after the three year limitation period had passed.
The court determined that an insurer has a duty to clarify its position, and not leave the assured in the dark. The court furthermore found that in the above circumstances, the insurer breached its duty to act in good faith.
In our opinion, Israeli courts are developing case law along the lines set out by legislators in various jurisdictions (such as New York), which oblige insurers to advise the assured regarding limitation periods. We believe insurers should take account of these developments. In cases where additional investigations and more time is required to form an opinion on cover, insurers should advise their assureds about the final date when the limitation period expires.