Insurance Contract Law, 5741–1981

1. Nature of an insurance contract

An insurance contract is a contract between an insurer and an insured that obliges the insurer, in consideration of insurance premiums, to pay insurance benefits to the beneficiary upon the occurrence of the insured event.

2. Policy

(a) Where an insurance contract has been concluded, the insurer shall deliver to the insured a document signed by the insurer specifying the rights and obligations of the parties (hereinafter — a policy), unless it is customary in that type of insurance not to issue a policy.

(b) Until the policy has been delivered to the insured, the terms customary for that type of insurance with that insurer, as submitted to the Commissioner of Capital Market, Insurance and Savings within the meaning of the Supervision of Financial Services (Insurance) Law, 5741–1981 (hereinafter — the Commissioner of Capital Market, Insurance and Savings), under section 16 of that Law, or as submitted or permitted, as the case may be, under section 40 of that Law, shall be regarded as agreed between the parties, unless the parties have agreed to depart from those terms.

3. Duty to highlight limitations

A condition or exclusion relating to the insurer's liability or its extent shall be specified in the policy next to the subject to which it relates, or shall be indicated in it with special prominence; the insurer is not entitled to rely on a condition or exclusion that does not comply with this provision.

4. Attachments to the policy

Where the contract refers to an answer given in writing by the insured to a question put to the insured by the insurer, a copy of the answer shall be attached to the policy; the insurer is not entitled to rely on an answer of which a copy has not been attached to the policy.

5. Provision of copies

The insurer shall deliver to the insured and to the beneficiary, at the insured's request and expense, copies of the policy and its attachments.

6. Duty of disclosure

(a) Where, before concluding the contract, the insurer has put to the insured, whether in an insurance proposal form or otherwise in writing, a question concerning a matter capable of influencing the willingness of a reasonable insurer to conclude the contract at all or to conclude it on its terms (hereinafter — a material matter), the insured shall give a full and honest answer in writing.

(b) A sweeping question combining different matters without distinguishing between them does not require such an answer unless it was reasonable at the time the contract was concluded.

(c) Concealment by the insured, with fraudulent intent, of a matter that the insured knew to be material shall be treated as the giving of an answer that is not full and honest.

7. Consequences of non-disclosure

(a) Where an answer that was not full and honest was given to a question concerning a material matter, the insurer may, within thirty days of learning of this and provided that the insured event has not occurred, cancel the contract by written notice to the insured.

(b) Where the insurer cancels the contract under this section, the insured is entitled to a refund of the premiums paid for the period following cancellation, less the insurer's expenses, unless the insured acted with fraudulent intent.

(c) Where the insured event occurs before the contract is cancelled under this section, the insurer is liable only for proportionately reduced insurance benefits, according to the ratio between the premiums that would have been payable in accordance with its usual practice on the basis of the true situation and the agreed premiums, and is wholly exempt in either of the following cases:

(1) the answer was given with fraudulent intent;

(2) a reasonable insurer would not have entered into that contract, even for higher premiums, had it known the true situation; in this case, the insured is entitled to a refund of the premiums paid for the period following the occurrence of the insured event, less the insurer's expenses.

8. Exclusion of remedies

The insurer is not entitled to the remedies set out in section 7 in either of the following cases, unless the answer that was not full and honest was given with fraudulent intent:

(1) the insurer knew or ought to have known the true situation when the contract was concluded, or caused the answer not to be full and honest;

(2) the fact in respect of which an answer that was not full and honest was given ceased to exist before the insured event occurred, or did not affect its occurrence, the insurer's liability or the extent of that liability.

9. Period of insurance

(a) Unless otherwise agreed, the period of insurance begins when the contract is concluded and ends at midnight at the end of its last day.

(b) Where a period of insurance has been agreed and, no later than thirty days before its end, the insured proposes to the insurer in writing that the insurance be extended for a period specified in the proposal, the insurer shall be regarded as agreeing to the extension unless it notifies the insured in writing of its refusal within fifteen days of delivery of the proposal.

(c) Where it is stipulated that the insurance shall be extended automatically at the end of the agreed period, the insurance shall be extended from time to time for a period equal in length to the agreed period of insurance.

(d) Where no period of insurance has been agreed, either party may cancel it at any time by written notice to the other party; the insured is entitled to a refund of the premiums paid for the period following cancellation of the insurance.

10. Cancellation of the contract

(a) Where the insurer gives notice of cancellation of the contract under its terms or under this Law, the contract is cancelled fifteen days after the day on which the notice of cancellation is delivered to the insured.

(b) Where the insured gives notice of cancellation of the contract under its terms or under this Law, the contract is cancelled three days after the day on which the notice of cancellation is delivered to the insurer.

11. Who is a beneficiary

(a) The insured is also the beneficiary unless another beneficiary has been designated.

(b) A beneficiary shall be designated in a manner that enables that beneficiary to be identified.

(c) Provided that the insured event has not occurred, the insured may, by written notice to the insurer, designate a beneficiary other than the insured, and may revoke the designation and designate another beneficiary; however, the designation shall be irrevocable if this is provided for in the contract or in a written notice from the insured to the insurer.

(d) A beneficiary may be designated in respect of only part of the insurance benefits.

12. Status of the beneficiary

(a) Where a beneficiary other than the insured has been designated, the right to the insurance benefits shall belong to the beneficiary; this provision does not derogate from the insured's right to require the insurer to pay the insurance benefits to the beneficiary.

(b) A defence that the insurer may raise against the insured shall also be available against the beneficiary, and the insurer may set off against the insurance benefits premiums due to it under the same contract.

13. Rights of the insured and the beneficiary

(a) Designation of a beneficiary other than the insured does not prevent the insured from transferring or charging the insured's rights under the contract, or prevent the insured's creditors from attaching those rights, in each case provided that the insured event has not occurred; however, where the beneficiary's designation is irrevocable, transfer or charging of the insured's rights shall require the beneficiary's written consent, and the insured's creditors may not attach those rights.

(b) The beneficiary's right cannot be transferred, charged or attached before the insured event occurs, unless the beneficiary's designation is irrevocable.

14. Time for payment

(a) Premiums shall be paid when the contract is concluded or within a reasonable time thereafter, and, if fixed for specified periods, at the beginning of each period.

(b) Where the insurance is for several years and the premiums have been fixed as an aggregate amount, they shall be paid in equal annual instalments at the beginning of each insurance year.

15. Delay in payment

(a) Where the premiums or any part of them are not paid when due and remain unpaid for fifteen days after the insurer has demanded payment from the insured in writing, the insurer may notify the insured in writing that the contract will be cancelled after a further twenty-one days unless the overdue amount is paid before then.

(b) Where a beneficiary other than the insured has been designated irrevocably, the insurer may not cancel the contract unless it has notified the beneficiary of the arrears in writing and the beneficiary has failed to pay the overdue amount within fifteen days of the day on which the notice was delivered.

16. Risk that has ceased

(a) An insurance contract covering a risk that had already ceased when the contract was concluded, or an insured event that had already occurred at that time, is void.

(b) Where the insured event becomes impossible after the contract has been concluded, the contract terminates automatically and the insured is entitled to a refund of the premiums paid for the period following termination.

17. Duty to notify an increase in risk

(a) Where the insured learns that a material change has occurred, the insured shall immediately notify the insurer of it in writing.

(b) For the purposes of this Article, a “material change” is any of the following:

(1) a change in a material matter about which a question was put to the insured before the contract was concluded, occurring after the answer to that question was given;

(2) a change occurring after the policy was delivered to the insured in a subject expressly identified in the policy as a material matter;

(3) something revealing that an answer to a question concerning a material matter was incorrect and that this substantially increases the insurer's risk.

18. Consequences of an increase in risk

(a) Within thirty days of the day on which notice of a material change was delivered to the insurer or the day on which it otherwise learned of the change, whichever is earlier, and provided that the insured event has not occurred, the insurer may cancel the contract by written notice to the insured.

(b) Where the insurer cancels the contract under this section, the insured is entitled to a refund of the premiums paid for the period following cancellation, unless the insured acted with fraudulent intent; where the insurer does not cancel the contract, it is regarded as consenting to its continuation despite the change.

(c) Where the insured event occurs before the contract is cancelled under this section, the insurer is liable only for proportionately reduced insurance benefits, according to the ratio between the premiums that would have been payable in accordance with its usual practice in the situation following the change and the agreed premiums, and is wholly exempt in either of the following cases:

(1) notice under section 17 was not given, and this was done with fraudulent intent;

(2) a reasonable insurer would not have entered into that contract, even for higher premiums, had it known that the situation was as it is following the change; in this case, the insured is entitled to a refund of the premiums paid for the period following the change.

19. Exclusion of remedies

The insurer is not entitled to the remedies set out in section 18 in any of the following cases:

(1) the change ceased to exist before the insured event occurred, or did not affect its occurrence or the insurer's liability or its extent;

(2) the change resulted from a measure taken with the insurer's consent;

(3) the change resulted from a measure taken to prevent serious bodily injury or damage to property, provided that the insured notified the insurer in writing of the measure immediately after taking it or learning of it.

20. Reduction in risk

Where the premiums were fixed in view of circumstances that increased the insurer's risk, and after they were fixed those circumstances ceased to exist or to affect the insurer's risk, the insured is entitled to a reduction of the premiums, excluding the insurer's expenses, for the period after the insured notified the insurer of the change, and to their being set at the amount that would have been payable in accordance with the insurer's usual practice at the time the premiums were fixed in the absence of those circumstances.

21. Measures to reduce risk

Where it is stipulated that the insured or beneficiary shall take a measure to reduce the insurer's risk substantially, and that measure is not taken within the time fixed for it, sections 18 and 19 shall apply, with the necessary modifications.

22. Notice of the occurrence of the insured event

Where the insured event occurs, the insured shall notify the insurer immediately after learning of it, and the beneficiary shall notify the insurer, immediately after learning of it, of the occurrence of the event and of the beneficiary's right to the insurance benefits; notice by either of them releases the other from that duty.

23. Investigation of the insurer's liability

(a) Once notice of the occurrence of the insured event and a written claim for payment of the insurance benefits have been delivered to the insurer, the insurer shall immediately do what is necessary to investigate its liability.

(b) The insured or beneficiary, as the case may be, shall provide the insurer, within a reasonable time after being required to do so, with the information and documents needed to investigate liability, and, if these are not in that person's possession, shall assist the insurer, as far as possible, to obtain them.

24. Obstruction of the investigation of liability

(a) Where a duty under section 22 or section 23(b) was not performed on time, and its performance would have enabled the insurer to reduce its liability, the insurer is liable for insurance benefits only to the extent that it would have been liable had the duty been performed; this provision shall not apply in either of the following cases:

(1) the duty was not performed, or was performed late, for justified reasons;

(2) non-performance or delay did not prevent the insurer from investigating its liability and did not make the investigation more difficult.

(b) Where the insured or beneficiary intentionally does something capable of preventing the insurer from investigating its liability or making the investigation more difficult, the insurer is liable for insurance benefits only to the extent that it would have been liable had that thing not been done.

25. Fraud in a claim for benefits

Where a duty under section 22 or section 23(b) is breached, or an act referred to in section 24(b) is done, or the insured or beneficiary provides the insurer with false facts or conceals facts from it concerning the insured event or the insurer's liability, and this is done with fraudulent intent, the insurer is exempt from its liability.

26. An intentionally caused event

Where the insured event is intentionally caused by the insured or beneficiary, the insurer is exempt from its liability.

27. Time for payment of insurance benefits

Insurance benefits shall be paid within thirty days of the day on which the insurer possessed the information and documents needed to investigate its liability; however, insurance benefits that are not disputed in good faith shall be paid within thirty days of the day on which a claim under section 23(a) was delivered to the insurer, and may be claimed separately from the remaining benefits.

27A. Method of payment of insurance benefits

Insurance benefits shall be paid by bank transfer, unless the insured or beneficiary, as the case may be, has chosen to receive them in another manner.

28. Linkage and interest

(a) Linkage differentials shall be added to the insurance benefits from the day of the insured event, and linked interest from the end of thirty days after delivery of the claim; the provisions of the Adjudication of Interest and Linkage Law, 5721–1961, concerning linked interest and linkage differentials shall apply with the necessary modifications; in this Law, “linkage differentials” and “linked interest” have the meanings given to them in the Adjudication of Interest and Linkage Law, 5721–1961; this provision does not derogate from the court's power under that Law.

(b) Where the insurance benefits or any part of them were calculated at their value on a date later than the occurrence of the insured event, linkage differentials shall be added to them or that part, as the case may be, from that date only.

(c) Where the insurer is obliged to refund premiums to the insured or beneficiary, linked interest and linkage differentials as referred to in subsection (a) shall be added from the day on which the obligation arose.

(d) Subsection (a) shall not apply to insurance benefits paid in foreign currency or in Israeli currency calculated according to the value of a foreign currency; however, interest at a rate prescribed under section 37A of the Supervision of Financial Services (Insurance) Law, 5741–1981, shall be added to such benefits from the end of thirty days after delivery of the demand to the insurer.

28A. Special interest

Where an insurer under personal insurance has not paid insurance benefits that were not disputed in good faith by the times at which it was required to pay them under section 27, the court shall order it, and in the case of such an insurer under insurance other than personal insurance the court may order it, to pay special interest at a rate not exceeding twenty times the linked interest; in the case of an insurer under long-term care insurance, the court shall order payment as aforesaid at a rate not less than ten times that interest, unless the court decides to set a lower rate for special reasons to be recorded. The special interest shall be calculated on those insurance benefits and on the linkage differentials added to them under section 28, from the dates on which the insurer was required to pay them until actual payment. The special interest shall be paid in addition to the interest referred to in section 28. For this purpose, “personal insurance” means life insurance, personal accident insurance, insurance against illness and hospitalisation, insurance meeting the requirements of the Motor Vehicle Insurance Ordinance [New Version], 5730–1970, motor vehicle insurance (property), and insurance of dwellings and their contents, but excludes liability insurance.

29. Special relief

Where the insurer's liability or its extent is conditional under law or under the contract, whether positively or negatively, on an act or omission of the insured or beneficiary that did not substantially affect the insurer's risk, the court may, if it considers it just in the circumstances, order the insurer to pay all or part of the insurance benefits even though the condition was not fulfilled or was breached.

30. Repetition of the insured event

The insurer is liable for insurance benefits even if the insured event occurs more than once during the period of insurance, provided that it shall not be liable in total for more than the sum insured within the meaning of section 56.

31. Limitation

The limitation period for a claim for insurance benefits is three years after the insured event occurred, and, in the case of life insurance, insurance against illness and hospitalisation and long-term care insurance, five years after the insured event occurred; where the cause of action is disability caused to the insured by illness or accident, the limitation period shall be counted from the day on which the insured's right to claim insurance benefits under the terms of the insurance contract arose; for this purpose, “life insurance” means insurance in which the insured event is the death of the insured or another person.

“The limitation period for a claim for insurance benefits is three years after the insured event occurred; where the cause of action is disability caused to the insured by illness or accident, the limitation period shall be counted from the day on which the insured's right to claim insurance benefits under the terms of the insurance contract arose.”

31A. Notice of the end of the limitation period and its running

(a) Without derogating from the Commissioner of Capital Market, Insurance and Savings' instructions on this matter, where an insured or beneficiary has notified the insurer of the occurrence of the insured event under section 22, the insurer shall state clearly and conspicuously in its response to that notice, and thereafter in every notice concerning the demand for benefits arising from that insured event:

(1) what the limitation period under section 31 is;

(2) that delivery of the claim to the insurer does not stop the running of the limitation period.

(b) Where an insured or beneficiary has given notice as referred to in subsection (a), the insurer shall warn the insured or beneficiary in writing, twelve months before the end of the limitation period under section 31 and in a further notice three months before the end of that period, of the significance of the limitation period ending, even if negotiations are taking place between them.

32. Definition

In this Article, “insurance agent” means a person engaged in arranging insurance between insureds and insurers.

33. Agency in relation to the contract

(a) For the purposes of negotiations towards conclusion of the insurance contract and of its conclusion, the insurance agent shall be regarded as the insurer's agent, unless the agent acted as the insured's agent at the insured's written request.

(b) For the purposes of the duty of disclosure on conclusion of the insurance contract, the insurance agent's knowledge of the true facts of a material matter shall be regarded as the insurer's knowledge.

34. Agency in relation to premiums

For the purpose of receipt of premiums, the insurance agent who arranged the insurance or was named in the policy as the insurance agent shall be regarded as the insurer's agent, unless the insurer has notified the insured in writing that premiums are not to be paid to that agent.

35. Agency in relation to giving notices

For the purpose of notices by the insured and beneficiary to the insurer, the insurance agent who arranged the insurance or was named in the policy as the insurance agent shall be regarded as the insurer's agent, unless the insurer has notified the insured and beneficiary in writing that notices are to be sent to another address.

36. Application of the Agency Law

The provisions of the Agency Law, 5725–1965, shall apply, with the necessary modifications, to agency as referred to in sections 33–35.

37. Giving notices

(a) A notice from the insurer to the insured or beneficiary shall be given at their last address known to the insurer.

(b) A notice from the insured or beneficiary to the insurer shall be given, at the notifying person's choice, to the insurer at the address of its place of business, to the insurance agent referred to in section 35, or to another person in Israel whose address is specified in the policy or of whom the insurer has notified them in writing.

(c) Where the insurer has no place of business in Israel and no address of another person in Israel has been given, the insurer is not entitled to rely on the failure of the insured or beneficiary to give notice, or on its late delivery.

38. Exclusive remedies

The insurer's remedies under sections 7, 15, 18, 24 and 25 exclude, in the matters dealt with by those sections, its remedies under any other law.

39. Restrictions on contracting out

(a) The provisions of sections 2–4, 21, 25, 26, 33(b), 34, 35 and 38 may not be contracted out of.

(b) The provisions of sections 5–8, 9(c), 13, 15, 17, 18, 19, 22–24, 27, 27A, 28, 31, 31A and 37 may not be contracted out of except in favour of the insured or beneficiary.

40. Application

The provisions of this Chapter apply to all types of insurance, unless another Chapter of this Law or another law contains special provisions concerning the matter in question.

41. Nature of the insurance

In life insurance, the insured event is the death of the insured or another person, their reaching a specified age, or another event in their lives, excluding accident, illness and disability.

42. Insurance of a person other than the insured

(a) Where the insured event is the death of a person other than the insured, the contract requires that person's written consent, and, where that person is a minor or legally incapacitated, the consent of that person's representative within the meaning of the Legal Capacity and Guardianship Law, 5722–1962.

(b) This section does not apply to life insurance of a group of persons whose composition may change during the period of insurance and whose beneficiaries are those persons or their heirs.

43. Restriction on remedies

The insurer is not entitled to the remedies set out in section 7 after three years have elapsed from conclusion of the contract, unless the insured or the person whose life is insured acted with fraudulent intent.

44. Beneficiaries

(a) Where the insured's spouse is designated as beneficiary without being named, the person who was the insured's spouse when the insured event occurred is entitled to the insurance benefits; where relatives were designated, the relatives alive when the event occurred are entitled; where children or descendants were designated, this includes an adopted child and a person born within three hundred days after the event occurred.

(b) Where several beneficiaries were designated and their shares were not specified, they shall share the insurance benefits equally.

(c) Where a beneficiary other than the insured dies before the insured event occurs, the beneficiary's spouse or descendants shall be entitled to the insurance benefits in accordance with the rules of distribution on intestate succession; in the absence of such survivors, or where the beneficiary renounced the right before the insured event occurred, the right to the insurance benefits shall belong to the insured.

44A. Change of an irrevocable beneficiary

Where an institutional lender is irrevocably designated as beneficiary under a policy connected with a housing loan (in this section — the first beneficiary), the insured may, notwithstanding sections 11(c) and 13(a), revoke that designation without obtaining the first beneficiary's consent, provided that the insured designates an institutional lender as another beneficiary under the same policy in connection with a new housing loan; however, that replacement of the beneficiary takes effect from the day on which the housing loan granted by the first beneficiary is repaid. In this section:

“housing loan” means a loan of one of the following kinds, provided that it was not granted for a business purpose:

(1) a loan secured by a mortgage over a residential dwelling or by a pledge of rights in a residential dwelling;

(2) a loan intended for the purchase or lease of a residential dwelling, or its construction, extension or renovation;

(3) a loan intended for the purchase of a plot for construction of a residential dwelling or for the purchase of a right in a residential dwelling in consideration of key money;

(4) a loan intended to finance the early repayment, in whole or in part, of a loan referred to in paragraph (2) or (3);

“institutional lender” has the meaning given to it in the Fair Credit Law, 5753–1993;

“policy connected with a housing loan” means a life insurance policy serving as security for repayment of a housing loan.

45. Cancellation of the contract

(a) The insured may cancel the contract at any time by written notice to the insurer.

(b) Where a beneficiary other than the insured has been designated irrevocably and the insured cancels the contract under this section, the insurer shall immediately notify the beneficiary in writing, specifying the provisions of this subsection; the beneficiary may, no later than thirty days after receiving the insurer's notice, adopt the contract with its rights and obligations by written notice to the insurer. Where the beneficiary gives such notice, the contract shall remain in force or, if it has meanwhile been cancelled, shall be revived, with the beneficiary replacing the insured.

(c) Where a beneficiary other than the insured has been designated irrevocably and the contract is cancelled otherwise than as referred to in subsection (b), the insurer shall immediately notify the beneficiary in writing.

46. Conversion and surrender

(a) After premiums have been paid for two years, the insured may require, by written notice to the insurer, conversion of the insurance to paid-up insurance or surrender of the policy.

(b) Where the insured requires conversion to paid-up insurance, the insurance benefits shall be reduced, from the end of the current period for which premiums are payable, in accordance with the amount fixed for this purpose in the policy, and the duty to pay premiums shall cease from that time.

(c) Where the insured requires surrender of the policy, the insurer shall pay the surrender value fixed for this purpose in the policy within thirty days of the day on which the demand was delivered, or within a longer period specified by the insured in the demand, which shall not exceed ninety days; linkage differentials shall be added to the surrender value from the day on which the demand was delivered or the day specified in it, and linked interest shall also be added from the end of thirty days after that day.

(d) The insured may limit the demand to part of the insurance.

(e) Where a beneficiary other than the insured has been designated irrevocably, the insured's demand requires the beneficiary's written consent.

47. Conversion and surrender despite cancellation of the contract

Cancellation of the insurance by the insurer does not derogate from the insured's right to surrender of the policy, and cancellation for non-payment of premiums also does not affect the right to conversion of the insurance, provided that the demand for conversion is made within thirty days after delivery of the insurer's notice of cancellation.

48. The policy as security for a loan

Where the insured has pledged to the insurer the rights under a policy capable of surrender as security for a loan granted by the insurer, and the loan is not repaid when due, the insurer shall not set off the loan against the policy's surrender value unless it has demanded in writing that the insured repay the loan within the period in which the insurer is required to pay the surrender value, and the loan remains unpaid within that period.

49. Restriction on the application of provisions

Sections 17–19 shall not apply to life insurance.

50. Suicide of the person whose life is insured

In life insurance, insurance benefits are payable even if the person whose life is insured dies by suicide one year or more after the contract was concluded.

51. Adoption of the contract

(a) Where a beneficiary other than the insured has been designated and the insured dies while the person whose life is insured is alive, the insurer shall notify the beneficiary in writing, and the beneficiary may, within thirty days of that notice, adopt the contract with its rights and obligations by written notice.

(b) Where a beneficiary other than the insured has been designated and a bankruptcy order or winding-up order is made against the insured, the beneficiary may adopt the contract as referred to in subsection (a), except that, if the beneficiary's designation was not irrevocable, the beneficiary shall pay to the trustee in bankruptcy or liquidator, as the case may be, the surrender value of the policy at the time the order was made.

52. Restrictions on contracting out

(a) The provisions of sections 42, 44A, 49 and 51 may not be contracted out of.

(b) The provisions of sections 43, 45–48 and 50 may not be contracted out of except in favour of the insured or beneficiary.

53. Nature of the insurance

In accident insurance, the insured event is an accident occurring to the insured or another person; in illness insurance, an illness contracted by that person; and in disability insurance, a disability sustained by that person.

54. Application of provisions

(a) Chapter B shall apply, with the necessary modifications, to accident, illness and disability insurance under which the insurer is obliged to pay insurance benefits at a rate agreed in advance, irrespective of the extent of the loss sustained.

(b) Sections 42, 49, 52, 56, 61, 62 and 64 shall apply, with the necessary modifications, to accident, illness and disability insurance under which the insurer is obliged to pay insurance benefits according to the extent of the loss sustained.

55. Nature of the insurance

(a) In property insurance, the insurer shall indemnify for loss sustained by the insured or beneficiary because the insured property has been lost or damaged.

(b) The insured property may belong to the insured or to another person.

56. Extent of liability

(a) The insurer's duty to indemnify shall be equal to the loss sustained, provided that it does not exceed the amount for which the insurer undertook liability under the contract (hereinafter — the sum insured); the sum insured, other than a sum insured expressed in foreign currency or in Israeli currency linked to foreign currency, shall change in accordance with changes in the Consumer Price Index published from time to time by the Central Bureau of Statistics, or another index published in that manner and agreed by the parties, between the index published immediately before conclusion of the contract and the index published immediately before the occurrence of the insured event.

(b) The contract shall not fix a sum insured expressed in foreign currency or in Israeli currency linked to foreign currency unless that currency is included in a list of foreign currencies prescribed for this purpose by the Commissioner of Capital Market, Insurance and Savings.

(c) Insurance benefits shall be calculated so as to place the beneficiary, as far as possible, in the position in which the beneficiary would have been had the insured event not occurred.

(d) Where the parties have agreed in advance on the amount of indemnity, the insurance benefits shall be as agreed, irrespective of the extent of the loss sustained.

57. Extension of liability

Insurance of property against a particular risk also covers damage caused to it because reasonable measures were taken to save it from that risk.

58. Overinsurance

Where the sum insured, at the time the contract was concluded or subsequently, unreasonably exceeds the value of the insured property, either party may, at any time during the period of insurance, demand that the sum insured be reduced to the value of the property at the time of the demand; where such a reduction is demanded, the sum insured shall be reduced and the premiums shall be reduced correspondingly from the day of the demand.

59. Double insurance

(a) Where property is insured against one risk with more than one insurer for overlapping periods, the insured shall notify the insurers of this in writing immediately after the double insurance is effected or after learning of it.

(b) Where property is doubly insured and the total sums insured unreasonably exceed the value of the property, the insured and each insurer may, at any time during the period of insurance, demand that the sums insured be reduced to the value of the property at the time of the demand; where such a reduction is demanded, the sums insured shall be reduced in proportion to one another, and the premiums shall be reduced correspondingly from the day of the demand.

(c) In double insurance, the insurers are jointly and severally liable to the insured for the overlapping sum insured.

(d) As between themselves, the insurers shall bear the burden of liability in proportion to the sums insured.

60. Underinsurance

Where, at the time the contract was concluded, the sum insured was less than the value of the insured property, the insurer's liability shall be reduced proportionately according to the ratio between the sum insured and the value of the property at the time the contract was concluded.

61. Mitigation of loss

(a) The insurer is not liable for insurance benefits for loss that the insured could have prevented or reduced, when the insured event occurred or thereafter, by taking reasonable measures or measures that the insurer instructed the insured to take.

(b) Where the insured or beneficiary, when the insured event occurred or thereafter, incurred reasonable expenses to prevent or reduce the loss, or assumed reasonable obligations for that purpose, the insurer shall indemnify them, whether or not the loss was prevented or reduced; where the expenses or obligations were unreasonable, the insurer shall indemnify to the extent reasonable in the circumstances; this applies even beyond the sum insured.

(c) This section shall not apply to insurance in which the parties have agreed on the amount of indemnity as referred to in section 56(c).

62. Subrogation

(a) Where, by reason of the insured event, the insured also has a right to compensation or indemnity against a third party other than under an insurance contract, that right passes to the insurer when it pays insurance benefits to the beneficiary and to the extent of the benefits paid.

(b) The insurer may not exercise the right that has passed to it under this section in a manner prejudicing the insured's right to recover compensation or indemnity from the third party exceeding the benefits received from the insurer.

(c) Where the insured receives from the third party compensation or indemnity that would have been due to the insurer under this section, the insured shall transfer it to the insurer; where the insured makes a compromise, waiver or other disposition prejudicing the right that has passed to the insurer, the insured shall compensate the insurer for it.

(d) This section shall not apply where the insured event was caused unintentionally by a person from whom a reasonable insured would not claim compensation or indemnity because of a family relationship or an employer–employee relationship between them.

63. Insurance of debts

In insurance against non-payment of a debt, the insured's right against the debtor passes to the insurer when it pays insurance benefits to the insured and to the extent of the benefits paid, and section 62(b) and (c) shall apply with the necessary modifications.

64. Restrictions on contracting out

The provisions of sections 56, 57, 59(a)–(c), 61 and 62 may not be contracted out of except in favour of the insured or beneficiary.

65. Nature of the insurance

In liability insurance, the insurer shall indemnify in respect of a monetary liability that the insured may owe to a third party; the insured event occurs on the day on which the cause of that liability arises.

66. Extent of the insurer's liability

Liability insurance also covers reasonable legal expenses that the insured must bear because of the insured's liability, even beyond the sum insured.

67. Application of provisions

Sections 56, 59, 61 and 62 shall apply, with the necessary modifications, to liability insurance, and may not be contracted out of, other than section 59(d), except in favour of the insured or the third party.

68. Status of the third party

In liability insurance, the insurer may, and at the third party's request shall, pay the third party the insurance benefits that the insurer owes to the insured, provided that it notifies the insured in writing thirty days in advance and the insured does not object within that period; however, a defence that the insurer may raise against the insured shall also be available against the third party.

69. Bankruptcy or winding-up of the insured

(a) Where one of the events specified below occurs in respect of the insured under liability insurance, and before or after that event the insured incurs towards a third party a liability covered by the insurance, the insured's rights against the insurer in respect of that liability shall not form part of the insured's assets but shall pass to the third party, who may sue the insurer under those rights; however, a defence that the insurer may raise against the insured shall also be available against the third party.

(b) Those events are:

(1) the insured is adjudicated bankrupt or reaches a compromise or arrangement with creditors in bankruptcy proceedings;

(2) the insured dies and an order is made for administration of the estate in bankruptcy;

(3) where the insured is a corporation, a winding-up order is made against it, a receiver or manager is appointed over its business or undertaking, or a resolution for voluntary winding-up is passed, other than a voluntary winding-up for restructuring or merger with another corporation.

70. Qualification of limitation

In liability insurance, the claim for insurance benefits is not time-barred so long as the third party's claim against the insured is not time-barred.

71. Restriction on contracting out and on acts

(a) The provisions of sections 66 and 68–70 may not be contracted out of.

(b) An act of the insured, insurer, trustee in bankruptcy, liquidator, receiver or manager cannot derogate from the third party's rights under sections 68 and 69.

72. Restrictions on application

(a)(1) The provisions of this Law, other than section 62, shall not apply to reinsurance;

(a)(2) The provisions of this Law, other than sections 62 and 69, shall not apply to marine insurance and aviation insurance.

(b) The Minister of Justice may, with the approval of the Knesset Constitution, Law and Justice Committee, prescribe by order classes of transactions to which all or some of the provisions of this Law shall not apply.

73. Saving of laws

The provisions of this Law shall apply where the Motor Vehicle Insurance Ordinance [New Version], 5730–1970, or another law contains no special provisions concerning the matter in question.

74. Repeals

The following are repealed:

(1) the Ottoman Insurance Law of 1323 (1904);

(2) the Assurance of Insurance Benefits to a Third Party Law, 5737–1976.

75. Commencement and transitional provision

(a) This Law commences on 6 Tevet 5742 (1 January 1982); however, section 28(a) commences three months after publication of this Law in Reshumot.

(b) The previous law shall continue to apply to an insurance contract made before the commencement of this Law; for the purpose of application, renewal of an insurance contract shall be regarded as making it.

Passed by the Knesset on 28 Shevat 5741 (2 February 1981).

Menachem Begin — Prime Minister

Moshe Nissim — Minister of Justice

Yitzhak Navon — President of the State