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Preliminary and jurisdictional considerations in insurance litigation
In what fora are insurance disputes litigated?
In the UAE, the general rule is that parties are free to agree upon the forum for disputes, subject to the following conditions.
First, UAE law provides that the UAE courts (as opposed to a foreign court) have jurisdiction over claims brought against UAE nationals (ie, a UAE individual or legal entity) or foreign legal entities with a domicile or place of residence in the UAE (Federal Law No. 11 of 1992 (the Civil Procedures Law), article 20). Any agreement to the contrary is void under UAE law (article 24).
Second, articles 31 to 41 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. Article 37 relates specifically to insurance: where a dispute relates to insurance, jurisdiction is vested in the court where the beneficiary has its residence or of the location of the property. On a broad reading, this clause gives jurisdiction to any UAE court where the beneficiary of the policy or the insured property is located.
Third, arbitration clauses are recognised by UAE law. In June 2018, Federal Law No. 6 of 2018 on Arbitration (the Arbitration Law) came into force, which repealed and replaced articles 203 to 218 of the Civil Procedure Law. The Arbitration Law respects the rights of parties to arbitrate. Article 8 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 the court 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 (ie, 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 before the conclusion of their contract (ie, 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.
In relation to 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.
Causes of action
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 (the Civil Code), article 1026(1)).
In respect of 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 in respect of marine insurance is generally two years from the date of the incident or where a third party makes a claim against the insured (Federal Law No. 26 of 1981 (the Commercial Maritime Code), 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 (although previous court decisions may be indicative and persuasive).
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 (Issuance of Evidence), 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 (Issuance of Evidence articles 7 and 8).
There are no mandatory disclosure obligations before the UAE courts. A party will therefore only disclose those documents on which he or she relies. Although the court-appointed expert may request that a party 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 a regular litigation procedure before the local UAE courts.
Where causes of action are based on documentary evidence and there is a dispute about the validity of a document, the original documents must be produced (Civil Procedure Law article 45).
Other than nominal costs (such as court fees, expert’s 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. 3 of 2018 on the Amendment of Certain Provisions of Federal Law No. 6 of 2007 sets out the process by which insurance claims are to be handled internally by insurers. Insurers are obliged to adhere to the following procedures, in accordance with applicable legislation and the provisions of insurance policies:
- insurers must issue a decision in relation to all insurance claims in accordance with the IA Resolution;
- if a claim is refused, insurers must provide written reasons for the rejection of the claim to the insured;
- in the event of a dispute between the insurer and the insured, an insured may submit a written complaint to the Insurance Authority, which may request further clarification from the insured; and
- in the case of an objection by the insured to the clarifications provided by the insurer, the insured may seek to refer the matter to a specialised insurance committee.
The Dubai Court of First Instance has confirmed that, in accordance with article 110(3) of Federal Law No. 3 of 2018, insurance-related disputes will not be accepted by the local UAE courts unless such disputes have first been considered by the specialised committees set up in accordance with article 110(2). However, the Insurance Authority Disputes Committee has yet to be launched (see ‘Update and trends’). Article 110(2) empowers the Insurance Authority to form specialised dispute resolution committees that will settle disputes arising out of insurance contracts. Either party may appeal the decision of the Insurance Authority committee to the Court of First Instance within 30 days. However, once this period has elapsed, the decision of the committee becomes final and binding (article 110(4)).
What remedies or damages may apply?
Article 1034 of the Civil Code requires insurers to pay the indemnity or sum due to the assured 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 for breach of contract against insurers if they consider that a claim has been mishandled, or possibly incorrectly or wrongfully declined.
In relation to the late payment of claims, article 9(2) of the Insurance Authority Code of Conduct and Ethics, as set out in the IA Resolution, states that insurers must ‘[s]ettle 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 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 case to case.
In addition, interest may also be applicable to the late payment of insurance claims. Where the insurer delays payment of a claim, it shall be bound to pay to the insured compensation for the delay, unless otherwise agreed (Federal Law No. 18 of 1993 (the Commercial Transactions Law), article 88). Where a policy stipulates the rate of interest and the debtor delays payment, the delay interest shall be calculated on the basis of the agreed rate until full settlement (the Commercial Transactions Law article 77).
In relation to 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. An insured’s duties do not end there: article 1032(c) also provides that an insured has an ongoing duty of disclosure, post-contract, to notify insurers of any matters occurring 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, and article 3(2) of the IA Resolution).
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 (ie, 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 so we are not aware of any cases where a court has awarded damages for breaching the duty of good faith under UAE law.
Interpretation of insurance contracts
What rules govern interpretation of insurance policies?
Parties to contracts (including insurance contracts) governed by UAE law are subject to the obligation to perform the contract in ‘good faith’ (Civil Code article 246; see also article 3 of the IA Resolution). A party’s obligations under the contract extend beyond what is expressly contained in the contract to include an obligation to embrace that which is appurtenant to it by virtue of the law, custom, and the nature of the transaction (Civil Code article 246).
The primary rule of interpretation is that clear words will be given their direct literal meaning with no scope for any other interpretation (Civil Code articles 258(2) and 259).
Where there is doubt as to the meaning of a term, the court may give effect to the intentions of the parties over the words in the contract (Civil Code article 258(1)).
Policies issued in the UAE are to be issued in Arabic (Federal Law No. 6 of 2007 (the Insurance Law), article 28), and may be translated into any other language. If there is a difference in interpretation between the two languages, the Arabic version will prevail.
Any clause in an insurance contract that tries to give the insurer the opportunity to avoid the contract of insurance or avoid the claim must be displayed ‘conspicuously’ (Civil Code article 1028(c)). According to the IA Resolution article 7(2), such clause should be clearly displayed (eg, in a different font or colour) while article 28 of the Insurance Law stipulates that it should be highlighted in a prominent manner (eg, in a different colour or in bold characters) and must be initialled by the insured. This means that the insurer should require the insured to initial or sign next to any term discharging the insurer from liability under the policy.
This definition covers warranties, exclusion clauses and conditions precedent, although UAE law does not expressly recognise the differences between contractual terms in contracts of insurance. To the extent that a warranty, exclusion or a condition precedent is drafted in general terms and seeks to deny cover for any breach of the law, insurers will not be permitted by the UAE courts to rely on the general provision unless it seeks to exclude cover for a felony or a deliberate misdemeanour pursuant to the Civil Code article 1028(1)(a).
Any such clause where the breach is not causative of the loss is potentially invalid (Civil Code article 1028(e)).
When is an insurance policy provision ambiguous and how are such ambiguities resolved?
As per article 265(1) of the Civil Code, where the wording of a policy is clear, it may not be departed from by way of interpretation to ascertain the intention of the parties. However, should there be scope for interpretation of the policy, the court will make enquiries into the ‘mutual intentions of the parties’, as well as the nature of the transaction, and the trust and confidence that should exist between the parties (Civil Code article 265(2)).
Where there is doubt as to the meaning of a policy term, it will be construed by the court in favour of the obligor (Civil Code article 266(1)). Nevertheless, it is permissible to construe ambiguous wording in policies in a manner detrimental to the party that put it forward or the party that benefits from it if they are deemed to be contracts of adhesion (Civil Code article 266(2)).
Notice to insurance companies
Provision of notice
What are the mechanics of providing notice?
The procedure for providing notice of a claim will usually be set out in the insurance policy itself, which will typically require notice to be given in writing. Article 7(5) of the IA Resolution states that insurers must explain the procedures the insured must follow in the event the insured risk has occurred to receive the entitled compensation. The content of the notice will typically require a summary of the claim or circumstance, quantum information sufficient for insurers to assess coverage and any supporting documents.
What are a policyholder’s notice obligations for a claims-made policy?
There are no specific provisions under UAE law regarding a policyholder’s notice obligations for a claims-made policy. This will be set out in the insurance policy and will normally require notice to be provided as soon as possible.
When is notice untimely?
UAE law does not specify a time frame for notification of an occurrence, claim or circumstances under an insurance policy. However, there may be provisions in the policy with regard to notification by the insured to the insurer. If the insured has a reasonable excuse for the delay, any term that provides that late notification means an insured’s rights shall lapse under the insurance policy shall be void under UAE law (Civil Code article 1028(b)) (see question 11).
What are the consequences of late notice?
Under UAE law, there are no specific consequences for late notification in insurance contracts; rather, the general position on breach of contract will apply. In the event of a breach of contract, the insurer may seek damages or refuse to pay a claim under the policy (depending on the insurance policy itself).
Further, ‘arbitrary’ clauses are void (ie, a clause, breach of which is not connected to the occurrence of the insured risk, is potentially invalid); this could include breach of a notification provision (Civil Code article 1028(e); see question 6).
It should be noted that if an insured fails to provide all information requested by insurers following notification, this can amount to a reason to deny the claim in circumstances where such information is required to ascertain the incident or the extent of the loss (IA Resolution article 9(6)) and where the insured has no reasonable excuse for the delay (Civil Code article 1028(b)).
Insurer’s duty to defend
What is the scope of an insurer’s duty to defend?
According to UAE law, an insurer is entitled to pursue any claims that the insured can bring against third parties for the losses indemnified by the insurer. Article 9(5) of the IA Resolution states that should the insurer pay the insured the payable amount without delay, the insured shall sign a document to discharge the insurer, a subrogation or a transfer of rights when the amount of indemnity is paid.
However, there is no requirement under UAE law in respect of an insurer’s duty to defend. The insurance policy will often set out these duties. Commonly, an insurer will agree to cover the costs of the insured to defend the claim, and there are likely to be claims control clauses enabling the insurer’s involvement in the defence of the claim.
Failure to defend
What are the consequences of an insurer’s failure to defend?
See question 12. There are no express consequences for the failure of an insurer to defend an insured’s claim under UAE law.
Where the insurer fails to defend in breach of the insurance policy, the insurer may be liable for damages. A duty to defend under an insurance policy will normally be subject to caveats such as there being no reasonable chance of success.
Standard commercial general liability policies
What constitutes bodily injury under a standard CGL policy?
Physical damage in the context of medical injuries is expressed under UAE law as ‘bodily injury’. Bodily injury is broadly defined to be anything whatsoever that affects the health of a human being. Compensation is payable under UAE law for ‘any harm caused to a person’ (Civil Code article 299). Compensation for bodily injury, pain and suffering (ie, moral damages) is recoverable under UAE law (Civil Code article 293).
What constitutes property damage under a standard CGL policy?
Articles 95 to 103 of the Civil Code defines property as any thing or right having a material value in dealing. The term includes both land and chattels. Article 97 of the Civil Code adds that property is anything ‘which can be possessed whether physically or constructively, or which may be lawfully enjoyed, and which does not by its nature or by operation of law fall outside the scope of dealing (transactions)’.
Article 300 of the Civil Code refers to the obligation of a person who ‘causes damage to or renders defective’ another property to either make such property good or pay compensation.
What constitutes an occurrence under a standard CGL policy?
These are largely market wordings that have not been ‘domesticated’ - that is, these policies have not been standardised, and coverage differs from one policy to the next.
There has been no law or case law on this issue in the UAE (unlike under English or other common law, where the meaning of ‘occurrence’ and other aggregating language has been considered in some detail).
How is the number of covered occurrences determined?
UAE law does not deal in detail with the concepts of causation and occurrences.
What event or events trigger insurance coverage?
This will often be defined in the insurance policy. In the absence of specific wording, under Civil Code article 1026(1), the insurance is triggered if the risk or the event specified in the policy ‘materialises’, which provision has also been translated to state that the insurer’s obligations are triggered ‘upon the occurrence of the risk or event specified in the contract’.
How is insurance coverage allocated across multiple insurance policies?
As per article 1042 of the Civil Code, any person who insures property or an interest with more than one insurer must notify all of them of the other contracts of insurance, the amount of each of them and the names of the other insurers. If there are several insurers, the amount of the insurance must not exceed the value of the property or interest insured.
An insurer (specifically in respect of a fire loss) is entitled to a contribution from other insurers if there is double insurance (Civil Code article 1043). For a non-fire loss, UAE law does not provide an express right to an equitable contribution.
First-party property insurance
What is the general scope of first-party property coverage?
First-party property insurance policies in the UAE generally provide coverage for a specific event or on an all-risk basis, and include cover for business interruption, property damage and fire claims. For a named peril policy, in the first instance the insured must prove that an insured peril has occurred, within the currency of the policy, leading to loss or damage. If the policy is an all-risks policy, the insured must prove that the insured property has suffered loss or damage, arising out of fortuity, within the policy period. Thereafter, the burden will shift to insurers to prove that the loss falls outside the scope of the relevant policy or that it is excluded (along with any other applicable defences).
How is property valued under first-party insurance policies?
The policy often expressly sets out a mechanism for valuation. Under the Civil Code, insurance is defined as a contract whereby the insurer, upon the risk materialising, pays the insured the sum (ie, an indemnity). The insured cannot recover more than its loss, in accordance with the principle of good faith under UAE law (Civil Code article 246).
Is insurance available in your jurisdiction for natural disasters and, if so, how does it generally operate?
Insuring against damage to property and person by reason of a natural disaster is a permitted insurable risk in the UAE. The coverage of natural disasters generally relates to civil liability under the Civil Code (article 1027) and there is no positive exclusion of these as insurable matters. Thus, there is no legal bar to their inclusion. An insured in the UAE is generally offered any or all of three common types of disaster insurance: property insurance, business interruption insurance and third-party liability insurance. As there are no specific regulations governing disaster insurance coverage, the insurer’s chosen market practice generally dictates what policy benefits are conferred.
The content of an insurance policy as it relates to fire damage is informed by the requirements of the Civil Code (article 1037). Under this article, the insurer is liable to make good all insured claims for fire damage arising out of earthquakes, lightning, storms, winds, hurricanes, household explosions and falling aeroplanes, and all other matters that are customarily regarded as within scope. The insurer is liable to cover damage that is considered a ‘certain result of the fire’, including damage sustained in salvage, or during steps taken to prevent the spread of the fire, and for the loss or disappearance of any property insured during the fire (article 1037).
Perhaps the most burdensome requirement is for the insurer to honour policies in relation to fire damage arising through any error of the insured (article 1038) or those working under the insured (article 1040), although there are arguments that the fire insurance provisions of UAE law should not apply in all instances.
Directors’ and officers’ insurance
What is the scope of D&O coverage?
D&O insurance is available in the UAE. There are no specific regulations governing D&O insurance coverage. D&O policies in the UAE are largely based on London market wordings.
As a result of the widening duties and liabilities of directors and officers under Federal Law No. 2 of 2015 (the Commercial Companies Law), it is unclear whether a company can legally indemnify a director or officer (such that it could claim under a Side B (corporate reimbursement) cover). In the light of this uncertainty, any director or officer should look carefully at their Side A Cover (indemnification of the director), which is likely to be the responsive cover.
What issues are commonly litigated in the context of D&O policies?
There have not, to our knowledge, been any reported claims before the UAE courts under D&O insurance policies.
However, we expect that the following issues will arise (and have arisen) in the UAE in respect of D&O policies:
- the question of allocation: that is, whether certain elements can be allocated to cover under the D&O policy, and where other elements are not covered (as well as allocation between different policies; eg, D&O and professional indemnity policies);
- whether Side A (indemnification of the director) or Side B (corporate reimbursement) cover should respond to a claim; and
- what triggers the policy cover: where the allegations are systemic (but no claims have been intimated against the directors) and whether this is a claim that should be (or can be) notified under a D&O policy.
What type of risks may be covered in cyber insurance policies?
Cyber insurance risks will either fall to be covered by first-party or third-party insurance policies, which are freely available in the UAE. While there are no regulations governing cyber insurance coverage under UAE law, the UAE has issued Federal Law No. 5 of 2012 (as amended by Federal Decree-Law No. 2 of 2018) on Combating Cyber Crimes.
Those cyber insurance policies that are available in the UAE are largely based on London market wordings.
What cyber insurance issues have been litigated?
To our knowledge, there have been no reported claims before the UAE courts under cyber insurance policies.
Is insurance available in your jurisdiction for injury or damage caused by acts of terrorism and, if so, how does it generally operate?
Specific insurance for injury and damage caused by acts of terrorism is available in the UAE. Products offered include property terrorism and sabotage insurance, terrorism and political risk insurance, and, recently, high-risk travel insurance with terrorism cover. Coverage can be extended to include interruption to business following physical loss or damage to businesses from terrorism. In relation to general property insurance cover, there is limited terrorism cover available in respect of physical loss or damage caused by or resulting from terrorism at specified locations, but there are a number of exclusions. These include exclusions for terrorism caused by nuclear materials or radiation, as well as loss resulting from actions to defend or respond against terrorism. In addition, there are also exclusions for any loss resulting from the actual cash value portion of direct physical loss or damage by fire caused by or resulting from terrorism.
Update and trends
Update and trends
Updates and trends
HFW forecast that 2019 will see the UAE finalise and implement the long-awaited life insurance regulations, promulgated by the Insurance Authority. While the regulations were originally proposed in 2016, they are due to come into effect in 2019. The regulations place significant focus on regulating indemnity commission and implementing mandatory disclosure obligations. In 2017, the Insurance Authority issued draft reinsurance regulations, which included requirements for reinsurer classifications and provisions relating to the reinsurance of takaful insurers. We understand that this is still under consultation but these may come into force in 2019. Not only will the regulatory environment become more robust, but regulators are set to become increasingly rigorous in enforcing regulations, with a focus on solvency requirements at the forefront of their regulatory agenda. This year alone, the Insurance Authority has introduced regulations concerning the financial solvency requirements of branches of foreign insurance companies (Insurance Authority Board of Directors Chairman Resolutions No. 14 of 2018) and for insurance consultants to obtain a licence they must provide a professional indemnity insurance policy (Resolution of the Insurance Authority Board Chairman No. 12 of 2018).
The proposed introduction of the Insurance Authority Disputes Resolution Committee in 2019 will see the powers of the Insurance Authority grow even further, whereby the committee will have powers to settle disputes arising out of insurance contracts. The Court of First Instance has also confirmed that in accordance with article 110(3) of Federal Law No. 3 of 2018, insurance-related disputes will not be accepted by the local UAE courts unless such disputes have first been considered by the specialised committee.
Finally, technology will be firmly at the forefront of the insurance market in 2019, dominating all aspects of the insurance industry, from operational efficiency, cyber insurance and product innovation. Paired with the introduction of business technology (ie, fintech, the increase in digitisation and the risks posed by cybersecurity), insurers will need to stay ahead of these trends, customising innovative products and services to meet the evolving demands of the modern digital economy.