Intrductuion To UAE Insurance part 1
This is the introduction to UAE Insurance that, from the front desk of U.S Auto Insurance 360 that you ought to know. And front next week, there is going to be another version which is the part 2 of this post concerning the Introduction to Insurance titled, The Introduction to UAE Insurance 2 giving more insight about insurance.
I INTRODUCTION
i The nature of the UAE insurance and reinsurance market
The United Arab Emirates (UAE) insurance market is the largest in the Gulf Cooperation Council (GCC) and one of the best performing insurance markets in the region.2 While the UAE Insurance Authority was established in 2007 and is still relatively new, the insurance market is becoming increasingly regulated. There is generally low insurance penetration, although motor insurance and health insurance in certain emirates are compulsory.
Only licensed insurers can write business ‘onshore' in the UAE and there is currently a moratorium on the issuing of new onshore licences. Therefore, significant additional capacity is provided by way of reinsurance. There are effectively two separate insurance jurisdictions: the onshore UAE market; and the Dubai International Financial Centre (DIFC). There is also, separately, the Abu Dhabi Global Market (ADGM), which is largely made up of wholesale ‘offshore' reinsurance centres. The onshore insurance market is largely dependent on reinsurers and significant capacity is now available in the DIFC, since Lloyd's opened there in 2015. The DIFC has its own legal framework and court system based on common law.3
There are no express legal provisions restricting insurance fronting transactions in the UAE. Therefore, as long as the insurer is in compliance with applicable prudential limitations in local regulations, there is no provision preventing it from ceding 100 per cent of a given written risk (i.e., fronting the risk), either to a local reinsurer or a foreign reinsurer. In practice, however, reinsurers may impose stricter terms and conditions. In the recent renewal period, global reinsurers in the property insurance market are now requiring that local property insurers retain at least 30 per cent of the risk of the gross written premium following a high number of fires in the region.
ii The legal landscape for insurance and reinsurance disputes
The Insurance Authority will generally require insurance policies issued in the UAE to be governed by UAE law. In the case of reinsurance policies, the parties are free to choose the law applicable to the contract. The parties can also choose arbitration as the method of dispute resolution.4
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 the doctrine of jurisprudence constante does apply, meaning that decisions of higher courts can be persuasive on lower courts.
In insurance disputes, the court will typically appoint an expert to investigate the facts and the technicalities of the case, meet with the parties, gather evidence and prepare a report, and the findings and recommendations in the report are usually followed by the court.
There is no pre-action protocol or procedure. Although, for civil, commercial and labour claims in Abu Dhabi, it is mandatory that the claim is first filed with the Abu Dhabi Settlement and Reconciliation Committee. Similarly, in Dubai, all claims must first be filed with the Centre for Amicable Settlement of Disputes (save for a few categories of claims that are exempt).5 The purpose of the Committee and the Centre is to allow the parties an opportunity to reach an amicable settlement.
The doctrines of reservation of rights or without prejudice correspondence are not expressly recognised under UAE law. There is also no general doctrine of privilege (whether legal advice privilege or litigation privilege), although the impact of this is minimised by the absence of any obligation of mandatory disclosure. However, the laws governing lawyers' conduct in the UAE prohibit lawyers from disclosing confidential information provided by their clients without the client's consent or other limited circumstances.
II REGULATION
i The insurance regulator
The onshore UAE insurance market is regulated by the Insurance Authority, which oversees all insurance business in the country (i.e., insurers, brokers and other insurance service providers). In addition to the Insurance Authority, there are separate regulators for the health insurance sector in some of the individual emirates; at present, these are the Dubai Health Authority and the Health Authority Abu Dhabi (HAAD).
ii Position of non-admitted insurers
UAE law prohibits non-admitted insurance and any insurer conducting insurance business in the UAE must be licensed by the Insurance Authority. This prohibition applies to all types of insurance business and is contained in the UAE Insurance Law (Federal Law No. 6 of 2007).6
iii Position of brokers
Brokers operating in the UAE are also required to be licensed by the Insurance Authority.
iv Requirements for authorisation
In order to undertake insurance activities from or within the UAE, an insurer must be licensed by the Insurance Authority and must be established as either: (1) a locally incorporated public joint-stock company, listed on a UAE stock exchange and with UAE nationals owning at least a 75 per cent stake in the company; or (2) a branch of a foreign insurance company. Insurers are required to hold regulatory capital pursuant to the Insurance Authority's regulations.
v Regulation of individuals employed by insurers
Certain activities are controlled functions in that the Insurance Authority must approve any individual working in that role. Broadly, these roles include directors, chief executive officers, compliance officers, finance officers and money laundering reporting officers of an insurer or broker.
In addition, an insurance company regulated by the Insurance Authority must circulate the Instructions Concerning the Code of Conduct and Ethics to be Observed by Insurance Companies Operating in the UAE7 to its employees, as well as develop internal professional codes of conduct for the company and its employees.8
vi Distribution of products
Insurance products should only be distributed in the UAE by insurers licensed by the Insurance Authority (i.e., direct sales), insurance brokers and consultants licensed by the Insurance Authority, or banks licensed in the UAE via bancassurance arrangements between a locally licensed insurer and the bank.9
vii Compulsory insurance
In the UAE, third-party liability insurance in respect of motor vehicles is compulsory. Health insurance is also compulsory in the emirates of Dubai and Abu Dhabi.
viii Compensation and dispute resolution regimes
The Insurance Authority mandates that each insurance company must maintain a register of complaints from its clients, and should investigate each complaint within 15 days of the date of its submission. Any decision should be stated in the Complaint Register.10 The Insurance Authority inspectors have access to the Complaint Register to verify the information recorded therein. Each complainant (whether it is the insured or the beneficiary) may appeal decisions to the Insurance Authority if their complaint is rejected by the insurance company.
ix Taxation of premiums
Although no federal taxation currently exists in the UAE, each of the individual emirates has issued corporate tax decrees that theoretically apply to all businesses established in the UAE. However, in practice, these laws have not been applied to date. The UAE will implement value added tax (VAT) at the rate of 5 per cent on 1 January 2018. Strictly speaking, insurers and reinsurers based in the UAE are not liable to pay tax on premiums at present. At the time of writing, it is not clear whether VAT will apply to insurance premiums.
However, an annual fee is payable to the Insurance Authority11 that is calculated as a percentage of the total subscribed annual premiums underwritten minus locally applicable reinsurance premiums underwritten by an insurance company as follows:
a life and capital insurance: 0.2 per cent of annual premium;
b health insurance: 0.4 per cent of annual premium; and
c property and liability insurance: 0.5 per cent of annual premium.
x Proposed changes to the regulatory system
The UAE has one of the most developed life insurance markets in the region and it is continuing to grow. The Insurance Authority has proposed Draft Regulations for the life insurance market. These Draft Regulations are intended to secure market conduct with the various entities that provide and facilitate the provision of life insurance products in the UAE. In the Draft Regulations, the Insurance Authority places significant focus on regulating the commission structure, disclosure obligations owed to the client and protecting policyholder values. The Draft Regulations are currently at the consultation stage.
xi Other notable regulated aspects of the industry
The Financial Regulations for Insurance Companies determine the limits of distribution and allocation of invested assets permitted for insurance companies by setting a ceiling limit for overall exposure in certain asset classes.12 For example, for real estate assets and UAE equity instruments, the ceiling is 30 per cent; for non-UAE equity instruments, the ceiling is 20 per cent. The ceilings for government debt securities are significantly higher, at 100 per cent for UAE emirate debt securities and 80 per cent for debt securities for A-credit rated foreign countries.
It is notable that the Insurance Authority's solvency margin is based on the assumption that the company will continue to operate as a going concern.13 The Insurance Authority, when considering the licensing of an entity, places great emphasis on this aspect. Solvency capital requirements are applied to each company to ensure that potential risks are provided for and must cover underwriting, market, liquidity, credit and operational risks.14 The purpose behind these requirements is to ensure that companies maintain funds higher than their minimum capital requirement, solvency capital requirement and minimum guarantee fund.15 Companies are required to inform the Insurance Authority should capital fall below these set minimum amounts.
III 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.16 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); and (4) the Civil Code,17 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 Code18 and therefore, in practice, the insurance provisions of the Civil Code19 are applied by the UAE courts, despite the hierarchy of laws in the Commercial Code.
Marine insurance law in the UAE is set out within the Maritime Code.20 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 are still written on or using 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 Islamic shariah 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.
Takaful insurance is an alternative system of cooperative Islamic insurance that is also found within the region. Takaful insurance is primarily subject to the same UAE laws as non-takaful insurance, although there are some differences, for example relating to policy content, as set out in the Insurance Authority Board Resolution No. 4 of 2010.21
ii Making the contract
Essential ingredients of an insurance contract
Under UAE law, insurance is a contract whereby the insured and insurer cooperate in facing 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.22 The general provisions in relation to formation of contracts under the Civil Code will apply to insurance contracts, insofar as they do not contradict those specific provisions in the insurance sections of the Civil Code.23
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'.24
In the case of liability insurance, the obligations of the insurer only arise when the injured third party makes a claim against the insured.25 This can include a legal judgment awarded against the insured but it has been held in certain cases that this is not strictly required.26
Although not explicitly stated, there must be a fortuity (i.e., there must be an element of risk or uncertainty).
Requirement of insurable interest
There is no express concept of insurable interest within UAE law. However, 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.27 It is likely that this provision would apply equally to non-marine insurance.
It is also worth noting that taking out a contract of insurance without an ‘insurable interest', albeit undefined, would be akin to gambling, which is prohibited under shariah law.
Utmost good faith
Parties to an insurance policy are obliged to perform their obligations in a manner consistent with the requirements of good faith.28 There is also an express obligation on an insurance company to carry out its business on the basis of absolute good faith.29
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.30
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 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.31
To give a degree of protection to insureds, there is an obligation on the insurer to include all of the necessary queries 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.32
Recording the contract
A contract of insurance is recorded by way of a written policy. As a result of the enactment of the Electronic Transactions and E-Commerce Law,33 contracts between parties can be executed electronically; for example, contracting by ‘click-to-accept' means 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 governed by the Insurance Authority Board Resolution No. 3 of 2010, 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 removal of pages and must set out page numbering in the policy and any attachments.34 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.35
Insurance policies in the UAE are required to be in Arabic although may be accompanied by a translation. In the event of a discrepancy between the translations, the Arabic version will prevail.36 Failure to issue a policy in Arabic can result in a fine37 as well as uncertainty as to how the terms will be interpreted.
iii Interpreting the contract
General 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, exclusion clauses (or any clause that relates to a circumstance leading to the avoidance of the contract or the lapse of the rights of the insured) must be shown ‘conspicuously'.44 This has been further defined as printing the clause in another font or in another colour.45 Arguably, any such clause should also be countersigned by the insured.46
An arbitration agreement is void unless it is contained within a special agreement, separate from the general printed conditions of the policy.47
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 in the event that 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.48
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.49
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, although as a matter of practice, both UAE practitioners and courts are familiar with these terms.
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 (e.g., a condition precedent) will be subject to the formalities for exclusion clauses as referred to above and may be void if it does not comply.
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 broker
Conduct 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 authorised by the Insurance Authority, which prohibits insurance companies from dealing with brokers in respect of UAE insurance business not licensed by them.50
Agency/contracting
Under UAE law, a broker is an independent intermediary who mediates insurance or reinsurance contracts between the insured and reinsured, and the insurer and reinsurer, and is paid a commission from the insurer and 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.51
How brokers operate in practice
Brokers that are established and authorised in the UAE must comply with the UAE Insurance Authority's Brokers Regulations. 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.52 Reinsurance brokers are not directly regulated under UAE law, provided they do not carry on business activities in the UAE (i.e., their business activities are conducted outside the UAE). Therefore, generally, a reinsurance broker's functions and duties will be determined by the contractual arrangements between it and the reinsured, a producing broker or the reinsurer, as the case may be.
v Claims
Notification
The procedure for providing notice of a claim will usually be set out in the insurance policy itself. The Insurance Authority Directive provides that the procedures the insured has to follow upon the occurrence of the risk have to be clearly indicated on the policy.53
Under UAE law, there are no specific consequences for late notification in insurance contracts; rather, the general position as regards breach of contract will apply (see below). 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).
This is the part 1 of the Introduction to UAE Insurance and I believed there is going to be another one titled, The Introduction to UAE Insurance 2 for more details or the continuation of this post.
This is the introduction to UAE Insurance that, from the front desk of U.S Auto Insurance 360 that you ought to know. And front next week, there is going to be another version which is the part 2 of this post concerning the Introduction to Insurance titled, The Introduction to UAE Insurance 2 giving more insight about insurance.
I INTRODUCTION
i The nature of the UAE insurance and reinsurance market
The United Arab Emirates (UAE) insurance market is the largest in the Gulf Cooperation Council (GCC) and one of the best performing insurance markets in the region.2 While the UAE Insurance Authority was established in 2007 and is still relatively new, the insurance market is becoming increasingly regulated. There is generally low insurance penetration, although motor insurance and health insurance in certain emirates are compulsory.
Only licensed insurers can write business ‘onshore' in the UAE and there is currently a moratorium on the issuing of new onshore licences. Therefore, significant additional capacity is provided by way of reinsurance. There are effectively two separate insurance jurisdictions: the onshore UAE market; and the Dubai International Financial Centre (DIFC). There is also, separately, the Abu Dhabi Global Market (ADGM), which is largely made up of wholesale ‘offshore' reinsurance centres. The onshore insurance market is largely dependent on reinsurers and significant capacity is now available in the DIFC, since Lloyd's opened there in 2015. The DIFC has its own legal framework and court system based on common law.3
There are no express legal provisions restricting insurance fronting transactions in the UAE. Therefore, as long as the insurer is in compliance with applicable prudential limitations in local regulations, there is no provision preventing it from ceding 100 per cent of a given written risk (i.e., fronting the risk), either to a local reinsurer or a foreign reinsurer. In practice, however, reinsurers may impose stricter terms and conditions. In the recent renewal period, global reinsurers in the property insurance market are now requiring that local property insurers retain at least 30 per cent of the risk of the gross written premium following a high number of fires in the region.
ii The legal landscape for insurance and reinsurance disputes
The Insurance Authority will generally require insurance policies issued in the UAE to be governed by UAE law. In the case of reinsurance policies, the parties are free to choose the law applicable to the contract. The parties can also choose arbitration as the method of dispute resolution.4
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 the doctrine of jurisprudence constante does apply, meaning that decisions of higher courts can be persuasive on lower courts.
In insurance disputes, the court will typically appoint an expert to investigate the facts and the technicalities of the case, meet with the parties, gather evidence and prepare a report, and the findings and recommendations in the report are usually followed by the court.
There is no pre-action protocol or procedure. Although, for civil, commercial and labour claims in Abu Dhabi, it is mandatory that the claim is first filed with the Abu Dhabi Settlement and Reconciliation Committee. Similarly, in Dubai, all claims must first be filed with the Centre for Amicable Settlement of Disputes (save for a few categories of claims that are exempt).5 The purpose of the Committee and the Centre is to allow the parties an opportunity to reach an amicable settlement.
The doctrines of reservation of rights or without prejudice correspondence are not expressly recognised under UAE law. There is also no general doctrine of privilege (whether legal advice privilege or litigation privilege), although the impact of this is minimised by the absence of any obligation of mandatory disclosure. However, the laws governing lawyers' conduct in the UAE prohibit lawyers from disclosing confidential information provided by their clients without the client's consent or other limited circumstances.
II REGULATION
i The insurance regulator
The onshore UAE insurance market is regulated by the Insurance Authority, which oversees all insurance business in the country (i.e., insurers, brokers and other insurance service providers). In addition to the Insurance Authority, there are separate regulators for the health insurance sector in some of the individual emirates; at present, these are the Dubai Health Authority and the Health Authority Abu Dhabi (HAAD).
ii Position of non-admitted insurers
UAE law prohibits non-admitted insurance and any insurer conducting insurance business in the UAE must be licensed by the Insurance Authority. This prohibition applies to all types of insurance business and is contained in the UAE Insurance Law (Federal Law No. 6 of 2007).6
iii Position of brokers
Brokers operating in the UAE are also required to be licensed by the Insurance Authority.
iv Requirements for authorisation
In order to undertake insurance activities from or within the UAE, an insurer must be licensed by the Insurance Authority and must be established as either: (1) a locally incorporated public joint-stock company, listed on a UAE stock exchange and with UAE nationals owning at least a 75 per cent stake in the company; or (2) a branch of a foreign insurance company. Insurers are required to hold regulatory capital pursuant to the Insurance Authority's regulations.
v Regulation of individuals employed by insurers
Certain activities are controlled functions in that the Insurance Authority must approve any individual working in that role. Broadly, these roles include directors, chief executive officers, compliance officers, finance officers and money laundering reporting officers of an insurer or broker.
In addition, an insurance company regulated by the Insurance Authority must circulate the Instructions Concerning the Code of Conduct and Ethics to be Observed by Insurance Companies Operating in the UAE7 to its employees, as well as develop internal professional codes of conduct for the company and its employees.8
vi Distribution of products
Insurance products should only be distributed in the UAE by insurers licensed by the Insurance Authority (i.e., direct sales), insurance brokers and consultants licensed by the Insurance Authority, or banks licensed in the UAE via bancassurance arrangements between a locally licensed insurer and the bank.9
vii Compulsory insurance
In the UAE, third-party liability insurance in respect of motor vehicles is compulsory. Health insurance is also compulsory in the emirates of Dubai and Abu Dhabi.
viii Compensation and dispute resolution regimes
The Insurance Authority mandates that each insurance company must maintain a register of complaints from its clients, and should investigate each complaint within 15 days of the date of its submission. Any decision should be stated in the Complaint Register.10 The Insurance Authority inspectors have access to the Complaint Register to verify the information recorded therein. Each complainant (whether it is the insured or the beneficiary) may appeal decisions to the Insurance Authority if their complaint is rejected by the insurance company.
ix Taxation of premiums
Although no federal taxation currently exists in the UAE, each of the individual emirates has issued corporate tax decrees that theoretically apply to all businesses established in the UAE. However, in practice, these laws have not been applied to date. The UAE will implement value added tax (VAT) at the rate of 5 per cent on 1 January 2018. Strictly speaking, insurers and reinsurers based in the UAE are not liable to pay tax on premiums at present. At the time of writing, it is not clear whether VAT will apply to insurance premiums.
However, an annual fee is payable to the Insurance Authority11 that is calculated as a percentage of the total subscribed annual premiums underwritten minus locally applicable reinsurance premiums underwritten by an insurance company as follows:
a life and capital insurance: 0.2 per cent of annual premium;
b health insurance: 0.4 per cent of annual premium; and
c property and liability insurance: 0.5 per cent of annual premium.
x Proposed changes to the regulatory system
The UAE has one of the most developed life insurance markets in the region and it is continuing to grow. The Insurance Authority has proposed Draft Regulations for the life insurance market. These Draft Regulations are intended to secure market conduct with the various entities that provide and facilitate the provision of life insurance products in the UAE. In the Draft Regulations, the Insurance Authority places significant focus on regulating the commission structure, disclosure obligations owed to the client and protecting policyholder values. The Draft Regulations are currently at the consultation stage.
xi Other notable regulated aspects of the industry
The Financial Regulations for Insurance Companies determine the limits of distribution and allocation of invested assets permitted for insurance companies by setting a ceiling limit for overall exposure in certain asset classes.12 For example, for real estate assets and UAE equity instruments, the ceiling is 30 per cent; for non-UAE equity instruments, the ceiling is 20 per cent. The ceilings for government debt securities are significantly higher, at 100 per cent for UAE emirate debt securities and 80 per cent for debt securities for A-credit rated foreign countries.
It is notable that the Insurance Authority's solvency margin is based on the assumption that the company will continue to operate as a going concern.13 The Insurance Authority, when considering the licensing of an entity, places great emphasis on this aspect. Solvency capital requirements are applied to each company to ensure that potential risks are provided for and must cover underwriting, market, liquidity, credit and operational risks.14 The purpose behind these requirements is to ensure that companies maintain funds higher than their minimum capital requirement, solvency capital requirement and minimum guarantee fund.15 Companies are required to inform the Insurance Authority should capital fall below these set minimum amounts.
III 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.16 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); and (4) the Civil Code,17 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 Code18 and therefore, in practice, the insurance provisions of the Civil Code19 are applied by the UAE courts, despite the hierarchy of laws in the Commercial Code.
Marine insurance law in the UAE is set out within the Maritime Code.20 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 are still written on or using 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 Islamic shariah 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.
Takaful insurance is an alternative system of cooperative Islamic insurance that is also found within the region. Takaful insurance is primarily subject to the same UAE laws as non-takaful insurance, although there are some differences, for example relating to policy content, as set out in the Insurance Authority Board Resolution No. 4 of 2010.21
ii Making the contract
Essential ingredients of an insurance contract
Under UAE law, insurance is a contract whereby the insured and insurer cooperate in facing 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.22 The general provisions in relation to formation of contracts under the Civil Code will apply to insurance contracts, insofar as they do not contradict those specific provisions in the insurance sections of the Civil Code.23
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'.24
In the case of liability insurance, the obligations of the insurer only arise when the injured third party makes a claim against the insured.25 This can include a legal judgment awarded against the insured but it has been held in certain cases that this is not strictly required.26
Although not explicitly stated, there must be a fortuity (i.e., there must be an element of risk or uncertainty).
Requirement of insurable interest
There is no express concept of insurable interest within UAE law. However, 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.27 It is likely that this provision would apply equally to non-marine insurance.
It is also worth noting that taking out a contract of insurance without an ‘insurable interest', albeit undefined, would be akin to gambling, which is prohibited under shariah law.
Utmost good faith
Parties to an insurance policy are obliged to perform their obligations in a manner consistent with the requirements of good faith.28 There is also an express obligation on an insurance company to carry out its business on the basis of absolute good faith.29
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.30
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 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.31
To give a degree of protection to insureds, there is an obligation on the insurer to include all of the necessary queries 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.32
Recording the contract
A contract of insurance is recorded by way of a written policy. As a result of the enactment of the Electronic Transactions and E-Commerce Law,33 contracts between parties can be executed electronically; for example, contracting by ‘click-to-accept' means 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 governed by the Insurance Authority Board Resolution No. 3 of 2010, 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 removal of pages and must set out page numbering in the policy and any attachments.34 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.35
Insurance policies in the UAE are required to be in Arabic although may be accompanied by a translation. In the event of a discrepancy between the translations, the Arabic version will prevail.36 Failure to issue a policy in Arabic can result in a fine37 as well as uncertainty as to how the terms will be interpreted.
iii Interpreting the contract
General 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, exclusion clauses (or any clause that relates to a circumstance leading to the avoidance of the contract or the lapse of the rights of the insured) must be shown ‘conspicuously'.44 This has been further defined as printing the clause in another font or in another colour.45 Arguably, any such clause should also be countersigned by the insured.46
An arbitration agreement is void unless it is contained within a special agreement, separate from the general printed conditions of the policy.47
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 in the event that 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.48
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.49
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, although as a matter of practice, both UAE practitioners and courts are familiar with these terms.
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 (e.g., a condition precedent) will be subject to the formalities for exclusion clauses as referred to above and may be void if it does not comply.
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 broker
Conduct 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 authorised by the Insurance Authority, which prohibits insurance companies from dealing with brokers in respect of UAE insurance business not licensed by them.50
Agency/contracting
Under UAE law, a broker is an independent intermediary who mediates insurance or reinsurance contracts between the insured and reinsured, and the insurer and reinsurer, and is paid a commission from the insurer and 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.51
How brokers operate in practice
Brokers that are established and authorised in the UAE must comply with the UAE Insurance Authority's Brokers Regulations. 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.52 Reinsurance brokers are not directly regulated under UAE law, provided they do not carry on business activities in the UAE (i.e., their business activities are conducted outside the UAE). Therefore, generally, a reinsurance broker's functions and duties will be determined by the contractual arrangements between it and the reinsured, a producing broker or the reinsurer, as the case may be.
v Claims
Notification
The procedure for providing notice of a claim will usually be set out in the insurance policy itself. The Insurance Authority Directive provides that the procedures the insured has to follow upon the occurrence of the risk have to be clearly indicated on the policy.53
Under UAE law, there are no specific consequences for late notification in insurance contracts; rather, the general position as regards breach of contract will apply (see below). 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).
This is the part 1 of the Introduction to UAE Insurance and I believed there is going to be another one titled, The Introduction to UAE Insurance 2 for more details or the continuation of this post.