United Arab Emirates: Insurance Disputes In The UAE – Some Useful Pointers

Handling disputes in a foreign jurisdiction can prove to be a challenge and more so in a unique jurisdiction like the UAE, which boasts different sets of laws for onshore and offshore (freezone) companies. We provide below a brief snapshot of the basics for insurance disputes in the UAE as well in the Dubai International Financial Centre (DIFC), the most sought after offshore location in the UAE for Insurers/Reinsurers. For a detailed view on any of the following, or to ascertain how a dispute will fair within the current statutory framework, please feel free to contact us.

What remedies are available for breach of an insurance policy?

Insurer

Pursuant to Article 1033 of the Civil Code, an insurer may terminate a policy for breach of disclosure obligations under the contract, but can only retain the premium if the insured acted in "bad faith". In the case of life insurance, pursuant to Article 1052 of the Civil Code, if the assured provides erroneous information, so that a lower premium is paid by the assured, the insurance must be proportionately reduced.

Pursuant to Article 161 of the DIFC Law of Obligations, the insured/cedant has a duty of disclosure similar to the that under English Law, providing that material breach of the duty of disclosure allows for the avoidance of the contract by the other party in addition to any other remedies that may be granted by the DIFC courts.

Insured

Pursuant to both the Civil Code and the Insurance Authority Code of Conduct, an insurer owes a general duty of good faith when dealing with their insured and must inform its staff about this and the other obligations in the Code of Conduct.

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 extent of actual damage along with interest. Under Life Insurance, if too high a premium was paid, there must be a refund to the insured.

Are there special procedures or venues for dealing with insurance or reinsurance complaints or disputes?

There are no specific/dedicated venues or procedures dealing with insurance or reinsurance complaints or disputes. The disputes arising out of insurance/reinsurance contracts would ordinarily go to UAE or DIFC Courts. Individual customers can complain to the UAE Insurance Authority for any grievance with regard to the insurance contract. The parties to an insurance contract may resolve their disputes through arbitration assuming they have entered into a valid arbitration agreement.

Are arbitration clauses in insurance and reinsurance agreements enforceable?

Article 1028 of the Civil Code provides that if the parties to an insurance contract wish to resolve disputes through arbitration they must enter into a separate arbitration agreement independent of the insurance contract.

Whilst there is no specific reference to reinsurance contracts, it is safe to assume that for a valid arbitration agreement, it too must be independent of the reinsurance contract. No such requirement applies to arbitration clauses contained within DIFC insurance policies.

Are choice of forum, venue and applicable law clauses in an insurance or reinsurance contract recognised and enforced?

The UAE courts tend not to recognise choice of forum or venue clauses and usually such clauses would not be enforceable in an insurance/reinsurance contract. While it is possible to stipulate the applicable law as foreign law, procedurally, this is often not practical as it is very difficult to adduce evidence and conduct proceedings under foreign law in a form that may be generally acceptable to UAE courts (i.e. in the Arabic language and in conformity with UAE public morals).

The entities in DIFC may stipulate choice of forum, venue and applicable law clauses in their insurance/reinsurance contracts.

Is there a time limit outside of which the insured/reinsured is barred from making a claim?

Under the Insurance Law, 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 Civil Code allow for limitation periods to be suspended in the event of a lawful excuse, (usually the incapacity of a party) or otherwise owing to circumstances outside of 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. Within the DIFC there is no specific time limit for insurance claims. Accordingly the limitation period for disputes arising out of an insurance contract is the same as that of contracts generally, being six years from the date of the accrual of the cause of action.

Can the original policyholder or other third party enforce the reinsurance contract against a reinsurer?

Unless provided in the reinsurance policy or assigned by the insurer, under the Civil Code, an insured/third party generally cannot directly claim against a reinsurer. There is a possibility though that a UAE Court may allow a reinsurer to be joined in a claim by a policyholder against the insurer, especially in scenarios involving a cut-through clause. The position would be similar where the insurer is insolvent/cannot provide coverage.

As previously mentioned, there is no substantive insurance/reinsurance law within the DIFC. Therefore, DIFC Law No. 6 of 2007, the Contract Law can be applied to the insurance context. Pursuant to Article 104 the Contract Law, an original policyholder [or third party] may only enforce directly against the reinsurer when there is a right allowing them to do so contained within the policy contract. The contract must also identify that party either expressly by name, by class or through description. There are no equitable governmental schemes which would otherwise compensate a policyholder/third party unable to claim.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.