Leak into the neighbours' flat: insurer must indemnify the policyholder, wartime limitation suspension saves the claim

A home insurance policyholder sued her insurer to recover sums paid after a sewage leak into the neighbours' flat, after the insurer rejected her requests and argued limitation and failure to notify. The court held that part of the claim was time-barred, but ordered the insurer to pay ILS 24,660 plus interest and costs.

What happened

In 2020 the policyholder's son bought a flat in Safed. The mortgage was registered in the mother's name, and so was the home insurance policy. Another of her sons, who lived nearby, looked after the flat in practice. A few months after the purchase, neighbours complained that sewage water was seeping into their flat. The son contacted the insurer, and two professionals sent by it visited the flat, in November 2020 and in February 2021. According to the family, they were told the leak came from pipes forming part of the common property, so it was not covered.

Two sets of proceedings followed. The first, a claim by the neighbour himself filed in 2020, was struck out after the neighbour was compensated by his own insurer; the family says it paid ILS 15,000 in legal fees. The second, a subrogation claim filed by the neighbour's insurer in September 2021, ended in a settlement under which the son paid ILS 24,660. In neither case did the family tell its own insurer, because it understood there was no cover. Only when it learned that the insurer of another neighbour, sued in the same proceedings, had paid her share did the policyholder demand indemnity; when that was refused, she filed a claim for ILS 37,700, including distress.

The insurer's arguments

The insurer argued that the claim was time-barred, since more than three years had passed since the insured event. On the legal fees, it said payment had not been proved and that the family should have asked for costs when the claim was struck out. On the settlement, it said it was never notified of the proceedings or brought in as a third party, and so was denied the chance to defend.

The decision

Limitation. Under section 31 of the Insurance Contract Law, a claim for insurance benefits is time-barred three years after the insured event. But in liability insurance, section 70 of the Law provides that the claim against the insurer does not become time-barred as long as the third party's claim against the insured has not, and case law holds that once the third party sues, a fresh three-year period begins. The neighbour's claim was filed in 2020, so the costs relating to it were time-barred. The subrogation claim was filed on 14.9.2021 and the present claim on 31.10.2024, more than three years later. However, section 15A of the Limitation Law, a temporary provision enacted because of the "Swords of Iron" war, excludes the period from 7.10.2023 to 6.4.2024 from the limitation count, and it applies to the Insurance Contract Law as well. That part of the claim was therefore not time-barred.

Failure to notify. Sections 22 and 24 of the Law require the insured to notify the insurer of the insured event immediately. If the insured did not, and notice would have allowed the insurer to reduce its liability, the insurer pays only what it would have paid had it been notified, unless the failure was justified. The court understood the family's frustration after being turned away twice, but held that once claims backed by an expert opinion were brought against it, it should have gone back to its insurer. The failure to notify was therefore not justified.

That left the question of whether the failure increased the liability. On the legal fees, the court thought the insurer would have paid less, and that with better handling costs might have been awarded, so on this ground too there was no indemnity. On the settlement the conclusion was the opposite: the burden of proving that the payment would have been lower lies with the insurer, and it brought no evidence and did not address the expert opinion finding that the pipes served only the flat and neighbouring flats. A court expert had been appointed in those proceedings, the family paid about a third of what the neighbour's insurer had paid, and the insurer even saved defence costs, since the son was represented by legal aid.

The outcome

The insurer was ordered to pay the policyholder ILS 24,660 plus interest from 31.10.2024 until the date of judgment, and ILS 1,750 in costs, including the court fee, within 30 days. Because of the failure to notify, no compensation for distress was awarded. An application for leave to appeal may be filed with the Jerusalem District Court within 30 days.

This article summarizes a published Israeli court decision in plain language and is not legal advice. Every case depends on its facts. The parties' names have been omitted. This is a first-instance decision and may be appealed.