C.C 24088-08-13 Leibowits and Others v. Apolo Investments Ltd. and Others

In one of her last Judgments before her retirement, Judge Denia Keret-Meir from the Tel Aviv Economic District Court handed down a comprehensive and significant Judgment involving several insurance issues.

The Case –

The Claim was filed by 37 Plaintiffs who invested their life savings using the services of an investments consulting firm named Apolo.

Apolo was owned and managed by a felon who was convicted in various capital-market felonies. The felon’s involvement was concealed from Apolo’s clients. The felon instructed the investments consultant to invest Plaintiffs’ money in several fictitious fundshe owned. This way, the felon stole millions of shekels from Plaintiffs.

The Claim was filed against Apolo, the felon, Apolo’s director (who held the felon’s stocks of Apolo in escrow), and the Insurer which insured Apolo – AIG Israel Insurance Company Ltd (hereinafter: AIG).

 The Insurance Issues –

AIG denied its liability based on several arguments.

The main argument was that the existence and involvement of the felon was concealed from AIG during the underwriting and issuing of the Policy. AIG claimed that Apolo’s director filled and signed a detailed questionnaire in which he lied and withheld relevant information. AIG argued that no insurance company would have agreed to insure an investments’ consulting firm owned and managed by a convicted felon. According to Clause 6-7 of the Israeli Insurance Contract Law (hereinafter: the Law) the Insured is obligated to provide the insurer with all the relevant information. According to the law, a breach of the Insured’s disclosure duty will exempt the insurance company from liability in one of two circumstances: the insured meant to deceive the insurer or that no reasonable insurer  would have agreed to insure the insured knowing the truth. In this case, AIG claimed that both of the alternatives apply.

In addition, AIG argued that the Policy explicitly exempts coverage of any claim or loss “arising out of any dishonest, fraudulent, criminal or malicious act or omission of any director or partner of the insured”.

In her Judgment, Judge Keret-Meir thoroughly analyzed the various insurance issues raised by the parties, accepted AIG’s position, and dismissed the claim against AIG.

The Court determined that a broad disclosure  obligation lies on the Insured during the underwriting of a policy. An insurance contract – like any other contract – is subject to duties of good faith and fairness. The insurer is entitled to rely on the information provided to it by the Insured, and is not obligated to conduct additional independent investigations.

Regarding the validity of the above exemption, the Court rejected the Plaintiffs  interpretation according to which the exclusion does not apply to the liability of negligent individuals in Apolo, as they did not commit a fraud. The Court preferred AIG’s stand according to which as long as the damage was caused due to a fraud committed by a director or a partner – the exclusion will apply.

The Court determined that the reliance of third parties on the existence of the policy has no relevancy to the examination of the existence of insurance coverage.

 The Final Decision –

The Claim against Apolo and its employees (the felon, the director and the investment consultant) was accepted and the Court ordered them to pay Plaintiffs an amount of approximately NIS 2.4 million. The claim and the third party notices against AIG were dismissed and the Court ordered Plaintiffs and the defendants who filed the third party notices to pay AIG expenses in the accumulated amount of NIS 290,000.