Israeli Court Penalizes Insurer for Bad Faith Delay in Payout

Ayalon Insurance Company was ordered to pay a policyholder ten times the standard interest on a delayed claim due to acting in bad faith, a Krayot Magistrate's Court judge ruled this week. Judge Moty Cohen invoked an unusual clause allowing for special punitive interest when an insurer unfairly withholds undisputed payments. The case involved a student, born in 2004, who was insured by Ayalon for personal accident coverage through his regional council. He suffered injuries in three separate school-related incidents and filed a claim in 2024. An Ayalon-appointed expert determined the first accident resulted in a 10% permanent disability, while the student's expert assessed it at 19%, plus temporary disability for each incident. The student sued in April 2025 after the statute of limitations deadline passed.

Judge Cohen partially accepted the claim, finding Ayalon acted in bad faith towards both the policyholder and the court. He ruled the company should have paid the agreed-upon disability amount, as its own expert's report acknowledged the policyholder's right to payment. The law mandates that undisputed insurance payouts be made within 30 days. Ayalon failed to provide the policyholder with the disability assessment report until submitting its defense brief, six months after the lawsuit was filed.

"It is unclear why the defendant did not bother to pay the insurance benefits regarding the first accident concerning the 10% permanent disability, which was not disputed between the parties," the judge wrote. The company also refused to extend the insurance period for the first accident, a point of contention between experts. Section 28a of the Insurance Contract Law permits special interest up to 20 times the standard rate for bad-faith non-payment of undisputed claims, a measure reserved for rare and exceptional circumstances.

Judge Cohen determined that Ayalon's refusal to pay the undisputed sum, its prolonged delay in submitting the expert opinion, and its refusal to extend the statute of limitations for the first accident constituted bad-faith conduct justifying the special interest. The student is entitled to NIS 47,000 for permanent disability. The court ordered Ayalon to pay five times the standard interest for the period between the expert opinion's creation and its submission to the court, and ten times the standard interest from the submission until actual payment. This brings the total payout to approximately NIS 88,000, with NIS 41,000 attributed to the increased interest, nearly doubling the original entitlement. Ayalon was also ordered to pay NIS 23,000 in legal fees and expenses. Ayalon Insurance stated in response, "In Ayalon's opinion, an error was made in the ruling, and it is acting to cancel it."