Our Haifa apartment is insured for far less than it is worth. What happens if we make a claim?

A pipe fails in an empty flat in Haifa and the repair bill comes to NIS 300,000. The policy limit is NIS 1,000,000, so the owner in Vancouver expects to be paid in full. The insurer pays half. The reason is a provision most foreign owners have never heard of: Section 60 of the Insurance Contract Law 5741-1981 reduces the insurer's liability in proportion to the shortfall between the sum insured and the actual value of the property, and it applies to every claim, not only to total losses.

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Detailed Answer

Israeli law calls this bituach chaser, under-insurance, and Section 60 states the rule directly: where at the time the contract was made the sum insured was less than the value of the insured property, the insurer's liability is reduced in the same proportion. The arithmetic is unforgiving. An apartment worth NIS 2,000,000 that is insured for NIS 1,000,000 is insured to 50%, so a NIS 300,000 claim yields NIS 150,000. Notice what the section keys off: the value at the time the contract was made, not the value on the day of the loss, which matters in a market that has moved as much as Israel's has. Section 58 covers the mirror image of over-insurance and lets the sum insured be reduced where it unreasonably exceeds the property's value, which is why paying for cover you cannot claim is not a safe hedge either. The correct figure for a building policy is the reinstatement cost of the structure rather than the market price of the apartment, because the land under a Tel Aviv flat is not what burns, and owners who insure at the purchase price often find they have bought over-insurance and under-insurance in the same policy across the building and contents sections.

The reason absentee owners drift into this is that nothing forces a review. Israeli apartment policies renew automatically at the sum insured chosen years earlier, the premium adjusts by a small index figure, and a landlord in Canada who bought in 2016 and has not looked since is now insured at perhaps 55% of current reinstatement cost. Two habits fix it. Ask the insurer in writing for the basis of the sum insured on the building section and confirm it is reinstatement cost, and have the figure reviewed by an Israeli appraiser or the insurer's own surveyor every three or four years. Our answer on home insurance for Israeli property owned by a non-resident covers the vacancy clauses that sit alongside this problem and produce most of the outright refusals.

In Practice: Section 60 of the Insurance Contract Law 5741-1981 reduces the insurer's liability in the proportion the sum insured bears to the value of the property, so partial losses are cut just as total losses are. Section 27 of the same Law requires insurance proceeds to be paid within 30 days of the insurer holding the information and documents needed to assess the claim, and Section 31 limits a claim to three years from the insured event. A dispute goes first to the public enquiries unit of the Capital Market, Insurance and Savings Authority, which is free and typically responds within 60 to 90 days, and a residential building and contents policy on a Tel Aviv apartment runs roughly NIS 1,200 to NIS 2,500 a year, so correcting the sum insured usually costs less than the shortfall on a single medium claim.

Distance also affects proof rather than only pricing. When a loss adjuster values the property retrospectively, the owner who can produce the original purchase contract, the renovation invoices and a dated appraisal has an argument about the correct value at inception. The owner who left the flat with a tenant and has no Israeli paperwork is arguing against the adjuster's number with nothing.

When to Consult a Lawyer

• The insurer has applied a proportional reduction and you believe it valued the property at the wrong date or on a market basis rather than a reinstatement basis, since Section 60 turns entirely on the value at the time the contract was made.
• The apartment is let and the tenancy agreement obliges you to insure to full value, because a shortfall then creates exposure to the tenant as well as a reduced payout.
• The claim was refused outright rather than reduced, which usually means a vacancy or disclosure clause is being invoked and is a different argument requiring a different response within the three year limitation period.

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Speak With an Israeli Attorney

We review Israeli policies for owners abroad before a loss rather than after one, challenge proportional reductions applied on the wrong valuation basis, and take refusals to the Capital Market Authority where that is faster than court.

Contact us for a confidential initial consultation.