First judgment denying class motion for reimbursement of company insurance premium because of Covid-19 bans – Lexology


In a ruling dated August 4, 2021, Haifa District Court denied a motion to confirm a class action lawsuit against seven insurance companies that included claims for a premium reimbursement for a business insurance for allegedly reducing the risk of national bans and restrictions following the Covid outbreak -19 were imposed.


In April 2020, entrepreneurs who purchased business insurance from seven insurance companies filed for certification of a class action lawsuit against the insurance companies following the Covid-19 pandemic. In March 2020, following the outbreak of the pandemic, a number of restrictions were placed on residents of Israel, which resulted in the closure of several companies. The remaining companies reduced their number of employees and recorded a reduction in the number of suppliers and customers.

As a result, it has been claimed that the risk to which insurers were exposed by professional indemnity insurance and public liability insurance during the embargo was significantly reduced. Accordingly, the insurers had to reduce the premiums received by the insured – in whole or in part – in the case of company insured persons who included the insurance cover for the employer and / or liability insurance for the duration of the restrictions.

With insurers continuing to collect the premium and ignoring the special circumstances created by the pandemic, the application for approval required respondents to reimburse group members for overpaid premiums – an estimated at least 81.37 million new Israeli shekels. In addition, the motion requested a court order and / or a declaratory judgment according to which a material restriction of business activity in the given circumstances required a reduction in the premium.

The applicants alleged that their claims were based on the Insurance Contract Act 1981 and on general law.


The Court ruled that the basic principle of insurance is that the premium is determined by the risk borne by the insurance company if the event occurs. Clauses 16-21 of the Insurance Contract Act deal with various situations related to changes in risk.

Applicants were referring to Clause 16 (b) of the Insurance Contracts Act, entitled "Canceled Risk". It was determined that the starting point for the interpretation of the clause is the legal language and that the legal words must not be given any meaning that they cannot bear linguistically. Clause 16 (b) of the Insurance Contracts Act is a specific formulation of the Contract Frustration Act, which regulates situations where various circumstances make it impossible to perform the contract. The provision regulates the nullity of the risk of an insured event occurring after the insurance contract has been concluded. For example, if a fire-insured asset is destroyed due to the earthquake risk, the insurance contract is automatically terminated from the day on which “the insured event becomes impossible”.

The court ruled that even if the complainants were able to demonstrate a reduction in the level of risk, one could not speak of an “impossibility” of the insured event after the conclusion of the contract. The complainants had not requested and were likely not interested in the termination of the insurance contract, which is the result of Clause 16 (b) of the Insurance Contracts Act, and therefore the clause was irrelevant.

The applicants also argued for the applicability of Section 20 of the Insurance Contract Act entitled “Risk Reduction”. This argument was rejected. The clause enables the insured to notify the insurer of a change in the level of risk, after which he is entitled to a premium reduction. The announcement cannot be made retrospectively, as the principle of insurance law is that risks are priced in advance and the premium collection is based on this pricing and not retrospectively after it is known whether the risk has occurred.

In addition, Clause 20 of the Insurance Contracts Act only relates to a situation where the premium was originally set in the light of "circumstances that increased the insurer's risk" and not to changes in circumstances. The complainants had not proven that in their case there were risk-increasing circumstances for which an additional premium for a particular risk over and above the basic premium would have been charged. Regular customer traffic before Covid-19 was not a circumstance that had increased the insured risk, but the regular standard. Therefore, the condition of Section 20 of the Insurance Contract Act that the premium is adjusted if the aggravating circumstances no longer apply does not apply. Therefore this section did not apply.

Furthermore, contrary to the obligation to notify provided for in Section 20 of the Insurance Contract Act, the complainants did not inform the insurers of the alleged change in their situation. The court rejected the applicants' allegation that the respondents did not need to be actively notified, given the knowledge of the risk reduction through state announcements. It was decided that even if respondents knew that restrictions were being imposed, this did not mean that they were aware of a reduction in the risk of one store or the other, as not all stores were closed during the period of restrictions. In the absence of notification to the insurers, the insurers could not be expected to guess which of the insured had reduced their business to what extent. Had the insurers decided on their own initiative to cut insurance coverage by half or a quarter, this cut would not have been valid.

The applicants had attached an expert opinion to their application for certification to justify their assertion that a risk reduction had occurred in the context of professional liability and liability insurance in company policies. The court ruled that the expert opinion was not convincing enough, partly because of the lack of data on the components of the company insurance premiums.

The applicants' argument that there is a connection between the number of employees, suppliers and customers visiting the establishments and the level of risk has not been established. The level of risk was not determined by the number of customers or suppliers, or the number of business days on which a store was open. The premium also did not change according to the number of hours the employee worked or whether an employee went on maternity leave, for example.

There was no basis for assuming the rate of reduction in employee attendance during the embargo period. It was possible that contrary to the decline in demand for services during the lockdown period, the demand for services increased after the lockdown. Insurers are not entitled to an additional premium because of the increased risk in one part of the year and are not required to repay the premium because of part of the normal risk in another part of the year. The calculation is made annually and takes place in advance. The insured has the right to notify the insurer of the waiver of a certain form of cover for a certain period or its reduction, which would apply from the date of notification.

In addition, people who work from home are also considered employees of the public liability insurance. In any case, the number of employees present in the company has no influence on the risk. The decline in the number of employees varied between the various employment sectors and over the course of the year. In addition, some companies increased activity due to Covid-19, while activity of others after the lock-up periods within the insurance year filled the previous gaps.

The court accepted the insurers 'claim that the applicants' attempt to infer a sharp decrease in the risk due to the pandemic by comparing the number of claims filed in a given month was unfounded. The day of filing the insurance application does not coincide with the day of the insured event, and the applicants ignored the fact that the time of filing the application varied widely. A decrease or increase in the number of claims in a given month can be influenced by a number of factors (e.g. a change in the number of policies sold or a change in customers).

Accordingly, the court rejected the complainants' action for breach of a legal obligation under Sections 16 and 20 of the Insurance Contract Act. The court also denied allegations that insurers had unlawfully enriched themselves. It was found that the insurers had not gotten rich at the expense of the applicants and the other members of the group, but had received from them the agreed insurance premiums against the agreed coverage under the policies. The defendants did not breach the insurance contracts and lawfully collected a premium. In addition, the complainants' allegations of negligence and breach of good faith were rejected.

In conclusion, it was concluded that the applicants had no cause of action and that the request to have their claim certified as a class action should be denied; the action is not suitable as a class action. This against the background of the significant differences between the individual operations in the way they had been operated during the Covid-19 pandemic, which required the implementation of individual inquiries that were not suitable for such a procedure.

In addition, there is a built-in solution in the Insurance Contract Act, according to which the insured, who is informed about the scope of the activity, can from now on notify the insurer of the reduction in insurance cover. It is not justified to manage the claims of insured persons who did not act under insurance law and did not report the reduction, but who seek to do so after the fact.

The request for certification was denied and each of the applicants was ordered to pay a cost of 8,775 new Israeli shekels to the defendant who insured them.

It is not yet known whether the applicants intend to appeal the decision.

It should be noted that additional filings have been filed with the Tel Aviv District Court to allow class action lawsuits against insurance companies. Similar arguments about auto and home insurance were made in response to these inquiries. Decisions on the applications are currently pending.

For more information on this subject please contact Tammy Greenberg or Aviv Klepner at Levitan, Sharon & Co. by phone (+972 3 688 6768), fax (+972 3 688 6769) or email ((Email protected) or (Email protected)). The Levitan, Sharon & Co website is available at

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