In view of the aforesaid, the plaintiffs request that the rulings of the trial court regarding the insurer's liability be annulled, and that the insurer be liable by virtue of the policy for all damages arising from the negligent acts and omissions attributed to the directors as detailed above.
- In its response, the insurer relied on the rulings of the trial court, and emphasized that the economic-insurance rationale underlying the exception set out in clause 4.14.3 of the policy is to allow the liquidator, receiver or authorized manager to file claims in the event of liquidation or insolvency of the insured, and thus serve as a mouthpiece for the creditors (third parties). This situation, it is claimed, is not at all similar to the circumstances of the appointment of CPA Darman, since the company was not on the verge of financial collapse prior to his appointment, and the appointment is the result of an agreement between the plaintiffs and Pinkowitz only, and not an arrangement that binds all creditors. It was clarified that CPA Darman was not the "long arm" of the court, he was not required to report to the court, the court did not serve as a guide and supervisor of his activities, and as a rule - the appointment of a CPA as an operating manager is not similar to the appointment of a licensed manager, as defined in the aforementioned legislation. It was argued that the plaintiffs were well aware that CPA Darman had never been appointed or served as a receiver or liquidator, and therefore sought to crown him with the title of "licensed manager" and thus try to enter the gates of the policy.
The insurer further argued that in any event, no claim or third-party notice was filed against it by any of the directors, and therefore it should not be liable for damages to the company.
E.2.2 Discussion and Decision
Interpretation of Section 4.14.3 of the Policy - Should CPA Derman be considered a Licensed Manager?
- As may be recalled, the trial court ruled that since the claim against the directors was dismissed by it, the claim against the insurer should also be dismissed for damages caused to the company due to the alleged negligence of the directors. However, and more than necessary, the trial court ruled that even if it had found the directors responsible for the company's damages, it would still have ruled that the claim against the insurer should be dismissed, since in the circumstances of the case, the exception set out in section 4.14.3 does not apply. Thus, in effect, the trial court adopted the insurer's interpretation of the said clause, which states, as may be recalled, that the insurer will not be liable for the payment of any monetary damage "in connection with and/or as a result of any claim filed or conducted at the initiative or at the direction of the company or any officer, except for a claim filed by a liquidator, receiver or authorized manager appointed by a competent authority" (emphases are not in the original).
In the matter at hand, I did not see fit to adopt the position of the District Court. Admittedly, in the circumstances of the case, in view of the nature of the appointment of CPA Derman and the circumstances of the appointment, the interpretation of clause 4.14.3 of the policy has become a complex matter, and there are good and weighty reasons here and there. However, and especially in view of the guiding principles that have been established in connection with the interpretation of insurance policies, I am of the opinion that the plaintiffs' position on this matter and their interpretation that includes CPA Darman's claim for insurance coverage should be accepted.
- According to case law, the principle of purposive interpretation indicates that restrictions on insurance coverage in an insurance policy should be interpreted in a narrow manner. In this context, it was held that the insurer must explicitly define in the policy the exceptions to the insurance coverage in order to determine the absence of insurance coverage in the most accurate manner (see: Civil Appeal 11081/02 Dolev Insurance Company in Tax Appeal v. Kadosh, IsrSC 62(2) 573 (2007) at paragraph 62). Moreover, it has been held more than once that, as a rule, an interpretation that sustains the insurance coverage should be preferred to one that denies it, and the insurer must show that the exception to the insurance coverage, which it claims, is the only reasonable interpretation of the exemption clause (ibid.; Civil Appeal 1051/14 Eden Health Teva Market in Tax Appeal v. National Insurance Institute, at para. 36 (August 30, 2015)). In my opinion, the insurer did not meet this burden, and as I noted above, the plaintiffs' interpretation is - at the very least - a reasonable interpretive possibility for the language of clause 4.14.3 and its purpose, if not more.
- Indeed, there is no dispute that CPA Darman was not defined as an "authorized manager" when he was appointed to his position in the framework of the settlement agreement reached in bankruptcy 528/02. The trial court ruled that prima facie this was sufficient to determine that his claim did not meet the definition set forth in clause 4.14.3 of the policy (see paragraph 192 of the trial judgment). However, the filing of the application for a stay of proceedings order, according to the application itself, stemmed from the concern of the parents of the inmates, who are also the unsecured creditors of the company, of immediate and irreparable damage to the company's continued operation, and it was intended to enable the continued management of the village and to reach an arrangement with the other creditors, who are respondents to the application. The request was accompanied by affidavits of several of the company's employees and of two of the parents of the inmates, in which it was claimed that: "In the current state of affairs... It appears that the collapse of the village is a matter of days, and it must be prevented at all costs" (see paragraph 9 of the trial judgment).
- Admittedly, in retrospect, it is evident that the parents of the inmates who submitted the said application exaggerated a bit in describing the company's financial situation, and the argument that the village is on the verge of collapse and that the shelters may be homeless within a short time turned out, apparently, to be exaggerated (thus, in any event, the trial court held). It can be assumed that shortly after the application for the freezing order was filed, Pinkowitz's omissions and actions were discovered to the parents of the inmates, but the exact consequences of his actions have not yet been fully clarified. To this end, in effect, the Requesting Parents requested that Pinkowitz be removed from his position immediately and that an "Operating Manager" be appointed in his place, who, among other things, would conduct an examination of the company's situation. In any event, even if the company was not on the verge of insolvency (and so, as stated, was determined by the trial court), the opening of the proceeding by the applicants and the appointment of CPA Darman in the framework of this proceeding to clarify the company's financial situation stemmed from the harsh revelations regarding the company's high debts to its creditors and Pinkowitz's serious actions. These discoveries necessarily established a justified and reasonable concern for the fate of the company and its continued activity.
In this context, and in parentheses, I will note that the trial court's determination that the company was not insolvent at the time of filing the application was based mainly on the assumption that even after Pinkowitz's massive withdrawal of funds from the company, the company still held real estate assets that were of great value. Therefore, it was held, at most it can be said that the company faced a difficulty in "cash flow" (see paragraph 186 of the trial judgment), but its financial situation was and remains strong. However, to the extent that more than ILS 20 million was illegally transferred from the company, as the plaintiffs claim, it is clear that the severity of the damage caused to the company cannot be underestimated, and it is understandable to understand the concern of its creditors, and in particular of the parents of those who live in the village. It also appears that the realization of the company's real estate assets, on which the village itself is located, could indeed have led to the closure of the village, as feared by the parents who filed the application for a stay of proceedings order.
- In any event, it emerges from the aforesaid that the opening of the proceeding that led to the appointment of CPA Darman as an "operating manager" stemmed from the fear of some of the parents of the shelters for the fate of the company, since the fate of the shelters depended on it. In my opinion, the parents' concern was sincere and authentic, despite the fact that it turned out in retrospect that the company was not actually facing formal insolvency at the time. It has not been determined, nor has it been argued, that at the stage of filing the application for a stay order or at the stage of approving the settlement agreement in the said proceeding, the plaintiffs planned their moves only in order to cover CPA's future claim by the policy in accordance with the qualification set out in clause 4.14.3. It seems to me that attributing such planning to the plaintiffs, who at that stage were still in considerable uncertainty as to the state of the company and the conduct of its officers, is far-reaching. In addition, it can be assumed that if the filing of the application for a stay of proceedings order and the settlement agreement reached therein were the result of prior and meticulous planning, the plaintiffs would have taken care to define the role of CPA Derman as an "authorized manager" - as the policy puts it, instead of sufficing with the term "operating manager" that allows for different interpretations.
- Beyond the circumstances that led to the appointment of CPA Derman as an operating manager and the purposes of the appointment, which, as stated, in my view, at the time of the appointment were similar to the circumstances of the appointment of a liquidator or receiver, the settlement agreement itself, which was given the force of a judgment by the court, also strengthens this interpretation. As part of the settlement agreement, it was stipulated, inter alia, that the operating manager "will formulate arrangement plans for the holding of shares in the company and formulate a settlement arrangement with the company's creditors." The court gave effect to a judgment on the agreement, and ruled that the appointed officer was CPA Darman, who agreed to the said appointment.
It should be emphasized that I do not ignore the series of differences pointed out by the insurer between the appointment of CPA Darman and the "classic" appointment of a liquidator or receiver by a court. Indeed, the definition of the role of CPA Darman as an "operating manager" did not grant him the full range of powers and duties imposed on a liquidator or receiver on behalf of the court. Among other things, his rulings and decisions did not bind all the creditors, and he was only authorized to "formulate a settlement arrangement with the company's creditors." CPA Darman was not even required to report his activities to the court or to submit the report he prepared for his review. These differences show that CPA Derman was not appointed to be a liquidator of the company or its receiver.