First-step analysis: bringing insurance litigation proceedings in United Arab Emirates

Preliminary and jurisdictional considerations in insurance litigation

In what fora are insurance disputes litigated?

Following the implementation of the UAE Insurance Authority (IA) Resolution No. 33 of 2019 concerning the Regulation of the Committees for the Settlement and Resolution of Insurance Disputes amended by Board of Directors Decision No. 9 of 2020, a new Insurance Disputes Committee (IDC) has been established to hear disputes between UAE licensed insurers, insureds and beneficiaries of a UAE insurance policy.

The Dubai Court of First Instance has confirmed that in accordance with article 110(3) of Federal Law No. 6 of 2007 on the Regulation of Insurance Operations, insurance-related disputes will not be accepted by the local UAE courts unless they have first been considered by the IDC (although there are caveats).

The IDC is not authorised to adjudicate the following types of claims:

• claims for summary relief or attachment orders;
• insurance disputes that began before the Decision came into force;
• insurance disputes that are subject to a (valid) arbitration clause;
• subrogated claims bought by an insurer against: (1) a third party causing damage for which the insurer is liable; or (2) the insurance company of the third party causing damage for which the insurer is liable;
• claims between insurance companies which relate to the adjustment of financial balances; and
• claims between insurance-related professionals and insurance companies.

If the matter can be heard before the IDC but cannot be resolved through reconciliation within 15 working days from the date of the request, the IDC will proceed to treat the matter through its dispute resolution procedures. The IDC will hear each party, consider the evidence and hand down a decision within 20 days of the end of the hearing (although the IDC can extend this period).

Parties wishing to challenge the IDC decision can appeal to the local courts. There is a deadline of 30 days within which to do so. If neither party challenges the decision within this period, it will be considered final and enforceable.

If the dispute is appealed to the onshore UAE courts, or if the matter cannot be heard by the IDC and must be heard in the first instance by the onshore UAE courts, then the following points apply:

First, UAE law provides that the UAE courts (as opposed to a foreign court) have jurisdiction over claims brought against UAE nationals (i.e, a UAE individual or legal entity) or a foreign legal entity with a domicile or place of residence in the UAE (Federal Law No. 42 of 2022 on Civil Procedures (the Civil Procedures Law), article 19). Any agreement to the contrary is void under UAE law (article 23, Civil Procedures Law).

Second, articles 33 to 43 of the Civil Procedures Law include a series of circumstances that will determine which court within the UAE has jurisdiction over, for example, the conclusion of a contract or the performance of a contract. This includes a provision in article 39 stipulating that disputes relating to insurance shall be heard in the beneficiary's place of domicile or the 'place of the insured money'.

Third, UAE law recognises arbitration clauses. In June 2018, Federal Law No. 6 of 2018 on Arbitration (the Arbitration Law) came into force. The Arbitration Law respects the rights of parties to arbitrate, and article 8 of the Arbitration Law states that the court, before which an action was commenced regarding a dispute in respect of which an arbitration agreement exists, shall dismiss the action unless it finds that the arbitration agreement is void or unenforceable. In addition, article 7(6) of the Insurance Authority Code of Conduct and Ethics (as set out in Board Resolution No. 3 of 2010) (the IA Resolution) states that non-compulsory insurance policies may incorporate an arbitration clause as a means to settle any dispute arising between the parties subject to the arbitration clause being printed as a separate agreement from the general terms and conditions incorporated in the policy (IA Resolution, article 7(2)(b)).

Fourth, the UAE also has a series of free zones, including the Dubai International Financial Centre (DIFC) and the Abu Dhabi Global Market (ADGM), which have their own ‘civil’ (i.e. non-criminal) laws and their own courts to administer those laws. Both the DIFC and ADGM operate as a common law legal system, predominantly based on English common law and substantive civil law and procedure. Parties are free to choose DIFC or ADGM law to govern their contracts.

As a result of Dubai Law No. 16 of 2011, article 5(a)(2), parties situated outside the DIFC can now opt into the DIFC courts’ jurisdiction to hear disputes, exclusively or non-exclusively, either prior to the conclusion of their contract (i.e. before any potential dispute arises) or after the dispute has arisen by jointly agreeing in writing to refer a dispute to the DIFC courts. Parties contracting with a DIFC entity may fall within the DIFC courts’ jurisdiction (rather than the local (non-DIFC) courts) even without a choice of court clause in favour of the DIFC courts if their dispute falls within one of the exclusive jurisdictional gateways laid down by article 5(a) of Dubai Law No. 12 of 2004. This generally includes tort and contract claims partly or wholly connected with the DIFC. If parties wish to opt out of the jurisdiction of the DIFC courts in favour of the local courts, they are entitled to do so under article 13(1) of DIFC Law No. 10 of 2005, but in light of recent cases, this requires careful wording.

Regarding the ADGM, section 16(2)(e) of the ADGM Courts, Civil Evidence, Judgments, Enforcement and Judicial Appointments Regulations 2015 (the ADGM Courts Regulations) states that the ADGM Court of First Instance shall have jurisdiction as is conferred on it by any request, in writing, by the parties to have the ADGM Court of First Instance determine the claim or dispute.

When do insurance-related causes of action accrue?

The cause of action in respect of insurance contracts arises when the risk or event materialises (Federal Law No. 5 of 1985 on Civil Transactions (the Civil Code), article 1026(1)).

Regarding liability claims, the cause of action arises when a third party makes a claim against the insured (Civil Code, article 1035) or when a judgment is awarded against the insured.

The limitation period for claims under insurance contracts is three years from the occurrence of the incident or from the date of the insured having knowledge of that occurrence (Civil Code, article 1036).

The rule in respect of marine insurance claims is different. The limitation period is generally two years from the date of the incident or when a third party makes a claim against the insured Federal Law No. 26 of 1981, on Commercial Maritime (the Maritime Commercial Law), article 399(1)). Further, limitation is suspended under marine insurance by ‘registered letter or delivery of other documents relating to the claim’ (article 399(3)) or a ‘legal excuse’ (article 399(1) and (2)).

What preliminary procedural and strategic considerations should be evaluated in insurance litigation?

The UAE legal system is a civil law system and the primary source of law is a statutory code. This means there is no system of binding precedent as understood in a common law jurisdiction (although previous court decisions may be indicative or persuasive or both).

In insurance disputes, the court will typically appoint an expert to investigate the facts, meet with the parties, gather evidence and prepare a report. While the opinion of the expert is not binding on the court (Federal Law No. 10 of 1992 on the Issuance of Evidence in Civil and Commercial Transactions, article 90(i)), the court will usually follow the recommendations in the expert’s report.

In civil cases, evidence is provided by way of documentary rather than witness evidence. Significantly, the factual findings of an official document (which are those in which a public official or person employed in public service certifies what has taken place before him or her, or what he or she has been informed of by the parties concerned within the limit of his or her authority and jurisdiction, such as a police report) are binding upon a UAE court (Federal Law No. 10 of 1992, articles 7 and 8).

There are no mandatory disclosure obligations before the UAE courts. A party will therefore only disclose those documents on which it relies. Although the court-appointed expert may request a party to produce documents, there are no sanctions for failing to do so, although a negative inference may be drawn from a failure to provide them. Importantly, privilege is not a recognised concept under UAE law but, even if it was, it would most likely never need to be invoked in circumstances where disclosure does not form part of the regular litigation procedure before the local UAE courts.

Parties can rely on copies of documents and if the opposing party wishes to challenge the validity of these documents, they will have to prove the same (Cabinet Decision No. 57 of 2018, article 20). A party that attempts to deny documents by alleging they are invalid without proving the same may be fined by the court.

Other than nominal costs (such as court fees, experts’ fees and a small amount in respect of legal fees), UAE courts do not award costs.

In terms of pre-action protocol and procedure, article 110(1) of Federal Law No. 6 of 2007 sets out the process by which insurance claims are to be handled internally by insurers. In accordance with applicable legislation and the provisions of insurance policies, insurers are obliged to (1) issue a decision in relation to all insurance claims in accordance with the IA Resolution and (2), if a claim is refused, provide written reasons for the rejection of the claim to the insured. In addition, in the event of a dispute between the insurer and the insured, an insured may submit a written complaint to the IA, which may request further clarification from the insured; if the insured objects to the clarification provided by the insurer, it may seek to refer the matter to a specialised insurance committee (the IDC).

What remedies or damages may apply?

Article 1034 of the Civil Code requires insurers to pay the indemnity or sum due to the insured or beneficiary ‘in the manner agreed upon when the risk materialises or when the time specified in the contract comes’.

Insurers must be mindful that it is, in theory, possible for insureds to bring a damages claim as compensation for a civil wrong or breach of contract against insurers if they consider that a claim has been mishandled or possibly incorrectly or wrongfully declined.

Regarding late payment of claims, article 9(2) of the Insurance Authority Code of Conduct and Ethics states that insurers must: ‘Settle the claims without undue delay in accordance with the provisions of the law and the terms and conditions of the Policy.’ However, ‘undue delay’ is not further defined and, of course, arguments can be made as to whether delays are justified. Article 9 of the Code goes on to state that insurers must make a decision within 15 days of receiving a full set of documents, although, again, whether a set of documents is full may vary depending on the case.

In addition, interest may also apply to the late payment of insurance claims. Where the insurer delays payment of a claim, it shall be bound to pay the insured compensation for the delay unless otherwise agreed (Federal Law No. 18 of 1993 on Commercial Transactions (the Commercial Transactions Law), article 88). When a policy stipulates the rate of interest and the debtor delays payment, the delay interest shall be calculated based on the agreed rate until full settlement (Commercial Transactions Law, article 77).

Furthermore, an insurer can be fined by the IA under Cabinet Resolution No. 7 of 2019 Concerning Administrative Fines Imposed by the Insurance Authority for failing to pay the compensation owed to the insured under the policy (Annex Schedule No. 1).

Concerning pre-contract disclosure, article 1032(b) of the Civil Code makes it clear that an insured must disclose all information that insurers would wish to know when evaluating the risk. Article 1032(c) also provides that an insured has an ongoing duty of disclosure, post-contract, to notify insurers of any matters that occur during the policy period that would lead to an increase in risk. If an insured does not act in good faith and fails to disclose relevant information, or provides incorrect information, insurers can require that the policy be cancelled from the date of the insured’s failure to disclose the relevant information (absent express wording in the policy, cancellation likely requires an application to court) (article 1033(1) of the Civil Code).

Under what circumstances can extracontractual or punitive damages be awarded?

The insurer is obliged to exercise good faith in paying claims (Civil Code, articles 246 and 1034; IA Resolution, article 3(2)).

It follows that it may theoretically be possible for the insured to claim extra 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) or to claim damages for consequential losses flowing from the insurer’s breach, or both, in addition to the insured’s primary claim under the policy.

However, punitive damages are not generally awarded in the local courts and we are not aware of any cases where a court has awarded damages for breaching the duty of good faith under UAE law.