Insurance is a global business that operates across every jurisdiction. Each jurisdiction has its own set of laws, rules, procedures and nuances. This article summarises basic points of law and procedure, relevant to onshore insurance disputes in the United Arab Emirates (UAE).
Civil law system
Importantly, the UAE operates a codified civil law system, not a common law system. That means statutes are the primary source of law. There is no precedent system. Previous decisions of higher Courts may be referred to, but have only persuasive value.
Insurance contracts are generally governed by a specific chapter and general contract provisions within the UAE Civil Code (Federal Law 5/1985).
UAE law is prescriptive as to the manner in which policies must be written. For example, Article 1028 of the UAE Civil Code provides:
‘Any of the following provisions in a policy of insurance shall be void:
b) a provision whereby the right of the assured shall lapse by reason of his delay in giving notice of the incident insured against to the parties which should be notified or to provide documents in the event that it appears that there is a reasonable excuse for the delay.
c) any printed clause not shown conspicuously, if it relates to any circumstances leading to the avoidance of the contract or the lapse of the right of the assured…’
The term ‘shown conspicuously’ is not itself defined, but insurance regulations say that such clauses should be identified by bold type or different colours/font. If a particular exclusion is not ‘shown conspicuously’, and is challenged, it is at risk of being voided by a UAE Court.
There is no equivalent of the common law doctrine of ‘conditions precedent’. An insurer seeking to rely on such condition must demonstrate a link between the breach of the condition and the loss.
UAE law requires that all direct insurance policies are (i) issued by a locally licensed insurer and (ii) ‘written’ in Arabic. They may then be translated into any other language, but in the event of any difference in interpretation between the two versions, the Arabic text prevails. Failure to issue an insurance policy in Arabic will not affect its validity, but there could be ‘translation’ risks in the event of litigation.
Duty of good faith and remedy in case of breach
The duty of ‘good faith’ is implied into every contract (Article 246 of UAE Civil code). But there is no legislative definition of what does and does not constitute good faith and no precedent to assist. Courts generally approach issues of good faith by considering whether there is evidence of ‘bad faith’. The onus of demonstrating bad faith falls on the party alleging bad faith, which generally requires proof of an intention to mislead.
With regard to insurance contracts, UAE law recognises that an insured has a responsibility to disclose all facts that are relevant to the proposed risk and (a) which may influence the underwriter’s decision to accept the risk and/or (b) the terms of acceptance, including premium. Further, the insured’s obligation continues after inception, so that if the risk changes, the insurer should inform the insurer (Article 1032 of UAE Civil Code). In assessing what constitutes a ‘material’ fact, UAE Courts often focus on what the insurer asks and what the insured provides in the proposal form.
If the insured breaches its duty, the insurer may terminate the policy, but may retain the premium only if the insured acted in bad faith (Article 1033 of UAE Civil Code). For life insurance, if an insured provides erroneous information, so that a lower premium is paid by the insured, the insurance cover must be proportionately reduced (Article 1052 of the Civil Code).
An insurer owes a general duty of good faith when dealing with its insured. Theoretically, it may be possible for an insured (i) to claim damages for breach of this duty of good faith when adjusting and settling claims and/or (ii) to claim damages for consequential losses flowing from the insurer’s breach. However, we have not seen/are not aware of any cases in the UAE which have considered these issues. Generally, Courts award the actual damage (ie the amount of the claim) plus interest (often calculated from the date of judgment).
Jurisdiction for insurance disputes
UAE Courts have inherent jurisdiction over UAE citizens and residents. That jurisdiction cannot be excluded, save that parties can agree to refer disputes to arbitration, or the Dubai International Financial Centre (DIFC) Courts, or the Abu Dhabi Global Markets (ADGM) Courts.
The jurisdiction of a particular Court or insurance dispute depends on the location of the insured or the insured property.
That being said, following Resolution No (33) of 2019 of the Board of Directors of the Insurance Authority on the Regulations of Insurance Dispute Settlement and Resolution Committees (the Committees Resolution), the initial jurisdiction for disputes between insurers and insureds is the Insurance Disputes Committees (IDC), formed under the regulator. Previously The UAE Insurance Authority, which from 2020 following Federal Law 25 of 2020 was merged into the Central Bank of the UAE. The IDC first tries to encourage amicable resolution, failing which it issues a decision. That decision may then be appealed to the Courts. There are three layers of Court – the Courts of First Instance, Appeal and Cassation.
Arbitration is often used as a preferred means of dispute resolution in the UAE. It acts as an exception to the IDC’s jurisdiction. Parties can only arbitrate by reference to an arbitration agreement. UAE arbitration law requires that the arbitration agreement must in writing. However, under the UAE Civil Code, arbitration agreements contained within insurance contracts are void unless they are ‘separately agreed’ by the parties (Article 1028(d) of the UAE Civil Code).
In other words, an arbitration clause, simply contained in the body of the policy, does not comply with the law and is (strictly) not valid.
There is an understanding that reinsurance contracts are subject to the same laws as insurance contracts. However, reinsurance contracts can be subject to other jurisdictions, and if the reinsurer is based in the DIFC, then DIFC Courts have jurisdiction unless the parties have explicitly agreed otherwise.
Direct claims by third parties
There is no rule or law that prevents an injured third party claimant bringing direct proceedings against the liability insurers of the defendant, and often they do.
Strictly, neither a claimant nor an insured can claim directly from the reinsurer, unless it is specifically provided in the reinsurance policy, or following an assignment by the insurer. That said, a UAE Court may allow a reinsurer to be joined as a defendant in a claim by a policy holder against the insurer, especially if the policies include a ‘cut-through clause’ and/or if the insurer is insolvent/cannot provide coverage.
Limitation period/time bar
The limitation period for claims under insurance contracts is three years from the date of the loss or the date upon which the insured first became aware of the loss. For marine insurance claims the limitation period is two years, pursuant to the Federal Commercial Maritime Law No 26 of 1981.
Provisions within the UAE Civil Code allow for limitation periods to be suspended in the event of a ‘lawful excuse’, or due to circumstances outside a party’s control. In addition, limitation periods in the UAE can be interrupted/suspended/restarted by actions of the parties, such as by acknowledgment of liability and issuance of a notarised legal notice.
Please note that the content of this article is intended to provide a general guide to the subject matter and should not be relied upon as legal advice. Specialist advice should be sought about your specific circumstances.