In review: the essentials of insurance and reinsurance law in United Arab Emirates

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Insurance and reinsurance law

i Sources of law

In the UAE, insurance is regarded as a commercial activity and, in theory, is governed by the UAE Commercial Code.¹⁸ Under the UAE Commercial Code, the hierarchy of laws is as follows:

1. the Commercial Code;
2. the agreement of the parties (i.e., the policy);
3. rules of commercial customs and practices (with specific or local customs and practices superseding general practices); and
4. the Civil Code,¹⁹ insofar as it does not contradict the general principles of the commercial activity.

However, the substantive provisions of insurance law are contained in the Civil Code²⁰ and therefore, in practice, the insurance provisions of the Civil Code²¹ are generally given greater attention than the Commercial Code.

Marine insurance law in the UAE is set out in the Maritime Code.²² It can be helpful to consider these provisions in the context of non-marine insurance in the event that the Civil Code and the other insurance laws do not address a particular issue.

Many policies written in the UAE still incorporate London market wordings. In the event that UAE law is completely silent on a point, it can be instructive to consider the relevant English law on the basis that it may represent commercial custom, although the extent to which a UAE court will be guided by English law is limited.

Further, the principles of shariah law can also be relevant when considering insurance law. Although there is a presumption that where there is a codified provision of UAE law dealing with an issue, that provision is considered to be compliant with Islamic shariah, courts may nevertheless look to shariah principles for guidance in interpreting and applying the law.

ii Making the contractEssential ingredients of an insurance contract

Under UAE law, insurance is a contract whereby the insured and insurer cooperate in addressing an insured risk or event. The insured pays to the insurer a specified sum or periodical instalments (i.e., the premium) and, in return, if the specified risk materialises, the insurer is bound to make payment (i.e., the claim).²³ The general provisions in relation to formation of contracts under the Civil Code²⁴ will apply to insurance contracts, insofar as they do not contradict those specific provisions in the insurance sections of the Civil Code.

Although not explicitly stated, there must also be a fortuity (i.e., an element of risk or uncertainty) present in an insurance contract.

Transfer of risk when the uncertain event occurs

The policy will typically specify that there will be a transfer of risk when the uncertain event occurs. However, as a basic principle, in first-party insurance, the transfer of risk will occur when the risk or the event set out in the contract 'materialises'.²⁵

In the case of liability insurance, the obligations of the insurer only arise when the injured third party makes a claim against the insured.²⁶ The precise meaning of 'claim' is unclear from the legislation. 'Claim' can include a legal judgment awarded against the insured but it has been held in certain cases that this is not strictly required.²⁷

Requirement of insurable interest

There is no express concept of insurable interest within UAE law; however, Article 1026(1) of the Civil Code does reference the sharing of insured risks between insurers and the insured.

Further, the Maritime Code contains a prohibition on anyone benefiting from a policy of insurance unless they have a 'lawful interest' in the peril not occurring.²⁸ It is likely that this provision would apply equally to non-marine insurance.

Also, taking out a contract of insurance without an insurable interest, albeit undefined, would be akin to gambling, which is prohibited under shariah law.

Good faith

Parties to an insurance policy are obliged to perform their obligations in a manner consistent with the requirements of good faith.²⁹ There is also an express obligation on an insurance company to carry out its business on the basis of good faith.³⁰

In cases of non-marine insurance, if the insured misrepresents or fails to disclose matters, or fails to carry out an obligation under the policy, and the insurer can prove that the insured did so in bad faith, the insurer is entitled to retain the premium in addition to requiring that the policy be cancelled.³¹

In cases of marine insurance, the position is the same as in non-marine if the insurer can prove bad faith of the insured. However, even if bad faith cannot be proved (but misrepresentation, for example, can be proved) in relation to a marine insurance policy, an insurer is still entitled to retain half of the premium, as well as requiring that the policy be cancelled.³²

To give a degree of protection to insureds, there is an obligation on the insurer to include all of the necessary questions relating to material facts, required by the insurer to assess the risk, within the proposal form. The proposal form must also set out the consequences on coverage of giving incorrect or inaccurate information.³³

Recording the contract

A contract of insurance is recorded by way of a written document. Insurance policies in the UAE are required to be in Arabic although they may be accompanied by a translation. In the event of a discrepancy between the translations, the Arabic version will prevail. Notwithstanding this rule, the Director General may exempt some insurance policies from being written in Arabic, such as:

1. marine hull, and the related machinery, their missions, equipment and the related liabilities insurance;
2. aviation hull insurance and the likewise, and the related machinery, their missions, equipment and the related liabilities insurance;
3. oil insurance, including all insurance that is normally considered oil insurance; and
4. insurance policies of an international nature, which are required to be written in the English language.³⁴

As a result of the enactment of the Electronic Transactions and E-Commerce Law,³⁵ contracts between parties can be executed electronically; for example, contracting by 'click-to-accept' (where an insurer indicates their consent to the insurance contract by ticking a box online). The Electronic Transactions and E-Commerce Law permits such electronic documentation as evidence.

The content of insurance policies is primarily governed by the Code of Conduct, which sets out a number of requirements, including that the policy must clearly describe the subject matter, the insured sum, the extent of cover and the claim procedure. In addition, the policy must include all terms and conditions governing the contract, be bound in such a way that does not permit the removal of pages and must set out page numbering in the policy and any attachments.³⁶

The Maritime Code also contains certain specific requirements for the content and recording of marine insurance policies, including that the insurer or a representative must sign the policy.³⁷

iii Interpreting the contractGeneral rules of interpretation

The starting point for interpreting a policy is that clear words will be given their direct meaning with no scope for any other interpretation.³⁸ If the words are clear, they cannot be departed from.³⁹

However, where there is ambiguity or scope for interpretation, enquiries can be made into the intentions of the parties.⁴⁰ Any doubt arising in cases of ambiguity will be resolved in favour of the obliging party.⁴¹ This is caveated in the case of contracts of adhesion (e.g., standard form insurance policies) and it is not permitted to construe ambiguity against the 'adhering party' (i.e., the insured).⁴²

Finally, there is a presumption of contractual interpretation in UAE law that a specific or special condition, or term, will override or supplement a standard or general clause.

Incorporation of terms

As a general rule, an insurance policy must contain all of the terms and conditions that pertain to it.⁴³ However, there are a number of notable terms that have additional requirements.

For example, clauses in the policy exempting the insurer from liability must be written in bold characters, in a different print colour and initialled by the insured.⁴⁴

The following provisions in an insurance policy are void:

1. any provision excluding cover for a breach of the law, other than a felony or deliberate misdemeanour;
2. a late notification provision where there is a reasonable excuse for the delay; and
3. any arbitrary provision, breach of which was not causative of the occurrence of the incident insured against.⁴⁵

Finally, a party's obligations under the contract (i.e., the policy) can extend beyond what is expressly contained within the contract to include an obligation to also do that which is related to the contract via law, custom, or the nature of the transaction.⁴⁶

Types of terms in insurance and reinsurance contracts

UAE law does not specifically distinguish between types of terms in the same way as may be found under English law (e.g., conditions, terms, innominate terms), nor are conditions precedent or warranties expressly recognised.

The applicability and enforceability of a term under UAE law will depend upon its effect. Any term that purports to permit an insurer to avoid cover will be subject to the formalities for exclusion clauses (i.e., in a different font or colour).⁴⁷

Likewise, any arbitrary term, breach of which would have had no effect on the cause of the incident insured against, will also be void. In that regard, breach of a warranty in a policy will not automatically allow an insurer to avoid cover. The breach of the warranty must have been causative of the loss.

iv Intermediaries and the role of the brokerConduct rules

There is no legal requirement under UAE law to conduct insurance or reinsurance business through an insurance broker. Where an insurance broker is involved, insurance brokers in the UAE must be licensed and registered with the Regulators.⁴⁸ They must also comply with the Broker Regulations and other relevant regulatory requirements.

Agencies and contracting

Under UAE law, a broker is an independent intermediary that intermediates insurance or reinsurance contracts between the insured and insurer or the reinsured and reinsurer, which is paid a commission by the insurer or reinsurer. UAE law does not distinguish between placing brokers and producing brokers.

UAE insurance law distinguishes between a broker and an agent. The first acts independently as an intermediary; the latter acts directly and exclusively as intermediary for one insurer or reinsurer. Both categories are separate and a broker cannot act as agent and vice versa.⁴⁹

A new form of intermediary, namely an insurance producer, has recently been introduced into UAE law. Insurance producers can only act for one insurance company and cannot act for insurance brokers.

How brokers operate in practice

The primary piece of regulation governing insurance brokers in the UAE is the Broker Regulations. The Broker Regulations contain provisions dealing with licensing and registration, claims handling and brokers' duties.

A broker in the UAE is not permitted to act as both insurance broker and reinsurance broker for the same customer and the same transaction.⁵⁰ A reinsurance broker's functions and duties will typically be determined by the contractual arrangements between it and the reinsured, a producing broker or the reinsurer, as the case may be.

v ClaimsNotification

The procedure for providing notice of a claim will usually be set out in the insurance policy itself. The Code of Conduct provides that insurers must set out a clear mechanism for processing claims, including documentation requirements and time periods.⁵¹

Currently, there are no specific consequences for late notification in relation to insurance contracts. Instead, the general principles relating to breach of contract will apply. However, a term in the insurance policy that permits insurers to avoid the policy in the event of late notification will be void under UAE law, provided the insured has a reasonable excuse for the delay.⁵²

The limitation period for issuing legal proceedings under insurance contracts is three years from the occurrence of the incident, or from the date of the insured having knowledge of that occurrence.⁵³ The limitation period in respect of marine insurance is generally two years from the date of the incident (with specific provisions dealing with claims in relation to vessels and cargo), or where a third party makes a claim against the insured.⁵⁴ Further, limitation is suspended under marine insurance by 'registered letter or delivery of other documents relating to the claim',⁵⁵ or a 'legal excuse'.⁵⁶

Good faith and claims

Parties to contracts (including insurance contracts) governed by UAE law are subject to the obligation to perform the contract in good faith; this includes an obligation on the insurer to exercise good faith in paying claims.⁵⁷ It follows that it may, theoretically, be possible for the insured to claim damages for breach of this duty of good faith when adjusting and settling claims (i.e., this would be similar to the punitive 'bad faith' claims), to claim damages for consequential losses flowing from the insurer's breach, or both.