Over the past two years, there have been various developments in the laws and regulations for insurance in the United Arab Emirates ("UAE"). Most recently, the UAE Insurance Authority ("IA") issued a regulation (following a change in UAE law) that formed specialist committees for the resolution and settlement of insurance disputes.
In this note, we briefly set out the position taking into account the various applicable regulations, our experience on some recent cases and the potential impact on reinsurance.
In summary, this note highlights that:
- On 15 July 2019, the UAE IA issued Resolution No (33) of 2019 forming specialist three-member IA Committees that would be the first layer in the resolution of disputes between UAE licenced insurers and insureds and/or beneficiaries of a UAE insurance policy;
- The IA Committees Regulation provides tight deadlines for Insurers;
- The IA Committees have wide discretion on procedure, including summoning parties to meetings and appointing their own experts;
- The IA Committees Regulation also allows third party claimants who may be entitled to cover under a policy to also claim directly against the Insurer, including commencing proceedings before the IA Committees against the Insurer;
- Reinsurance contracts are not mentioned but might be included;
- The IA Committees however do not have jurisdiction if there is a valid arbitration agreement. A "valid" arbitration agreement for insurance and reinsurance contracts should be: (i) in writing; (ii) outside the terms of the insurance policy; and (iii) agreed by authorised persons within the respective parties; and
- A way around for reinsurance contracts could be to make them subject to the jurisdiction of the DIFC Courts.
The New Insurance Law
- On 1 May 2018, UAE Federal Law No (3) of 2018 "on the Amendment of certain Provisions of Federal Law No. (6) of 2007 Concerning the Establishment of the Insurance Authority & Organization of its Operations" came into force (the "New Insurance Law"). Article 110 of the New Insurance Law: (i) sets out a broad requirement by which insurers are required to handle claims; and (ii) empowers the UAE IA to form specialised dispute resolution committees (the "IA Committees") to handle insurance disputes.
Insurer's requirements in handling claims
- Under the New Insurance Law,
"Insurers" (i.e. insurance companies
incorporated and licensed in the UAE or international insurers
licensed as insurers in the UAE through a branch or an insurance
agent) are required to handle claims in accordance with the
applicable law, policy provisions, and in line with the following
- Issuing a decision concerning any insurance claim in accordance with professional rules and codes of conduct and ethics; and
- Clarifying any declinature of all or a part of a claim with reasons in writing.
- For 2(a) above, we can take guidance
from the UAE IA's Board Resolution No (3) of 2010 that contains
"Instructions concerning the code of conduct and ethics to
be observed by Insurance companies Operating in the UAE"
(the "2010 Regulations"). There are
three points of note:
- Per Article 3.8 of the 2010 Regulations, Insurers should only deal with insurance consultants and loss adjusters licensed by the UAE IA;
- Per Article 9.1, an Insurer should set a mechanism for processing claims, including (i) having claim forms in clear language, per the type of insurance business; (ii) detailing the documents that should be submitted for consideration of the claim; and (iii) specifying "reasonable time" for provision of the document and settlement of the admitted claims; and
- Per Article 9.4, Insurers should "Notify the Insured or Beneficiary when the examination of the claim is completed, whether by approval or disapproval, within 15 days as of the date of receipt of the complete documents." If further time is needed then the insured/beneficiary should be notified of the delay, and provided with reasons for the delay.
- Articles 110.2 and 110.3 of the New
Insurance Law provide:
"2. One or more committees that will be concerned with resolving the disputes arising out of insurance contracts, operations and services shall be formed. The committee(s) shall have the competency to request any official papers or documents and to counsel experts, as well as hearing of witnesses and any other alternatives that need to be used to resolve the disputes before them;
3. Cases resulting from the disputes arising out of insurance contracts, operations and services shall not be accepted, if such disputes are not brought before the committees established in accordance with the provisions of paragraph No. (2) of the article herein."1
- Following the New Insurance Law, some Courts of First Instances in the UAE started declining new insurance proceedings, instead referring claimants to the IA Committees. However, as the IA Committees had not been formed, the proceedings eventually continued in the normal Court process in the UAE Courts.
Formation of the Committees
- On 15 July 2019, the UAE IA issued "Resolution No (33) of 2019 of the Board of Directors of the Insurance Authority on the Regulations of Insurance Dispute Settlement and Resolution Committees" (the "IA Committees Resolution"). Pursuant to Article 27, the IA Committees Resolution would come into force three months after publication - by 14 October 2019.
- Article 3 of the IA Committees
Resolution provides for "Permanent Committees"
(i.e. more than one) for "Settlement and Resolution of
Insurance Disputes" where:
- Each IA Committee would consist of a Chairman and two or more members, and an equivalent number of reserves;
- The Chairman may be a judge, but all the members (including the Chairman) are appointed by the UAE IA;
- The members (including the Chairman) would be subject to the same controls and obligations of a UAE judge;
- The term of membership shall be one year but is renewable; and
- The IA Committees will hold sessions in Abu Dhabi and Dubai.
IA Committees' Jurisdiction
- Per Article 4 of the IA Committees
Resolution, IA Committees have jurisdiction to settle and resolve
all insurance disputes, across all types of policies, brought by
"the Insured, Beneficiaries or all affected parties who
have the capacity or interest in the Insurance Dispute against the
Company only, irrespective of the
value"2. Article 5 of the IA
Committees Regulation however says that the IA Committees do not
have jurisdiction for:
- Summary and provisional proceedings and precautionary attachments;
- Insurance disputes commenced prior to the IA Committees Regulation; and
- Insurance disputes that are subject to arbitration clauses. (We return to Arbitration later).
Third Party Claims against Liability Insurers
- Article 4 of the IA Committees Resolution refers to "Beneficiaries or all affected parties who have the capacity or interest". Kennedys Dubai have handled numerous court cases where third party claimants (i.e. not the insured) have brought proceedings in Court against an Insured and its liability Insurer. Per Article 4, it would mean that such third party claims should then fall under the jurisdiction of the IA Committees.
- However, "Insurance Disputes" under the IA Committees Regulations are defined as "Disputes arising from the complaints made by insureds, beneficiaries or affected stakeholders against the [Insurer]" and Article 4 says the IA Committees jurisdiction is for "Insurance Disputes against the Company only". In theory, the IA Committees should not be able to consider third party claims against an insured and its liability Insurer until the third party claimant has established liability against the insured, because otherwise the claim would be against the insured and the Insurer and not just the Insurer.
- But, Article 14 of the IA Committees Regulation allows the joinder of "any party who can be litigated upon initiating the Dispute", as a result of which the third party claimant could claim against the insured and its liability Insurer. An issue then arises as to whether the IA Committees could consider a non-insurance contractual or tortious liability claim.
- On a general level, we could draw reference from the approach taken by the Committee for Rental Disputes (the "Rental Disputes Committee") formed in Dubai in 2013, following Dubai Decree No (26) of 2013. The Rental Disputes Committee has jurisdiction to consider all disputes arising out of a tenancy agreement. In 2014, Kennedys Dubai were involved on behalf of a landlord's insurer in a claim brought by a tenant against its landlord and the landlord's insurer following damage to the tenanted premises. The Dubai Court of Cassation3, on its own accord, issued a decision saying that the underlying dispute was essentially between landlord and tenant and so should be before the Rental Disputes Committee4. In 2015 Kennedys Dubai were involved in another claim before Dubai Courts brought by a landlord against its tenant and the tenant's liability insurer, relating to damage to the tenanted property following a fire. A jurisdictional challenge was raised, and based on the 2014 Cassation Decision, the Dubai Court of First instance and Dubai Court of Appeal found that the Rental Disputes Committee had jurisdiction. However, when appealed to the Dubai Court of Cassation, the Cassation Court decided that only the Dubai Civil Courts, and not the Rental Disputes Committee, had jurisdiction, as the dispute between the landlord and tenant was a claim in tort, which falls under the jurisdiction of the Dubai Civil Courts5. Since then, all such liability claims have been decided by the Dubai Courts and not the Rental Disputes Committee, and often involve the claimant or the defendant joining the defendants' liability Insurers in the proceedings. It is possible that a similar approach may be applied in respect of the IA Committees but that remains to be seen.
- As such, the issue of whether or not the IA Committees hold jurisdiction in third party claims against liability Insurers, when the liability has not been first established against the insured, will develop over time. In our view, and as is the case in other jurisdictions, the claim should first be between the third party and the insured, and then following that, if the Insurer declines cover, and if the insured disagrees, it could commence proceedings against the Insurer.
- Hopefully, given the process under the IA Committees Regulation (addressed in the paragraphs that follow), the issue should be clarified soon. There is therefore potential benefit for liability Insurers (and as such its policyholders in general) as they would not need to incur unnecessary additional legal costs in defending themselves in proceedings brought by third party claimants before the insured's legal liability, and the basic requirement for considering that a liability policy responds has first been established.
Process to be followed under the IA Committees Regulation
- The New Insurance Law, and the IA
Committees Regulation, broadly set out a four step process
following the submission of an insurance claim:
- Step 1: Insurer handles the claim (see paragraphs 2 and 3 above);
- Step 2: Complaint to the UAE IA. If an insured/beneficiary disagrees with the Insurer's decision on a claim or the delay in handling the claim, it could complain to the UAE IA by providing some basic details and the relevant documents. The UAE IA then gives the Insurer 5 business days to provide an explanation;
- Step 3: Conciliation by the IA Committees. If the complainant disagrees with the Insurer's explanation in Step 2, it can ask the UAE IA to refer the matter to the IA Committees. The IA Committees can then decide their own procedure, but have 15 business days from the reference to the IA Committees to resolve the dispute in conciliation between the insured/beneficiary and Insurer. The 15 day period can be extended in agreement between the parties or by decision of the IA Committees' Chairman. If there is settlement then that is ratified by the IA Committees, otherwise we move to Step 4.
- Step 4: IA Committees' Decision. The IA Committees have discretion on the procedure including requiring attendance, or physical meetings/hearings, and documentation and information requests. But the IA Committees have 20 business days from the date of receiving all documentation and information necessary for determining the dispute to issue a decision. Again, the IA Committees can extend the 20 day period if deemed necessary.
- The IA Committees are also permitted
- Appoint experts registered with the UAE IA for determining factual issues, and assisting on technical matters; and
- Taking witness evidence in person or through videoconferencing.
Appeals from IA Committees' Decisions
- Decision of the IA Committees can be appealed to a Court of First Instance within 30 days of the notification of the decision. Beyond the 30 day period the decision shall be final and binding. Beyond the Court of First Instance, there are two further Courts of appeal – the Court of Appeal and the Court of Cassation. In effect therefore, the IA Committees have added another layer for insurance disputes. That could carry cost implications for the parties involved.
- Arbitration is often used as a preferred means of dispute resolution in the UAE and, as mentioned before, is an exception to the jurisdiction of the IA Committees. But, as in other jurisdictions, parties can only arbitrate by reference to an arbitration agreement. UAE Arbitration Law6 requires that the arbitration agreement must in writing, either in an exchange of correspondence (including electronic correspondence) or as part of a written contract. However, under the UAE law7, Arbitration Agreements contained within insurance contracts are void unless they are "separately agreed" by the parties. In other words, an arbitration clause, simply contained in the body of the policy does not comply with the law and is (strictly) not valid.
- In addition, and where the insured is
a juristic person, the UAE Arbitration Law requires that the
arbitration agreement has to be concluded by someone who is
authorised to agree the arbitration. For Public Joint Stock
Companies (i.e. publicly traded companies), Article 154 of the UAE
Companies law8 says:
"The Board of Directors shall undertake all powers determined by the company's articles of association in the exception of any powers restricted to the General Assembly by this Law or the company's articles of association. Nevertheless, it shall not be permissible for the Board of Directors to conclude loans for terms of more than three years, .... and make agreement on arbitration unless such actions are permitted by the company's articles of association or if they, by nature, fall under the purposes of the company. In other than foregoing two cases, such actions require the issuance of a special resolution by the General Assembly to be concluded."
- For Limited Liability Companies (LLC) however it is understood that the general manager named on the trade licence (usually the CEO) has inherent power to agree arbitration, unless restricted in the Company's articles or by special agreement.
- Therefore, to be able to arbitrate an insurance dispute, there has to be a special agreement, outside the terms of the insurance policy, agreed by authorised personnel of both the Insurer and insured.
- Reinsurers will remain interested in the process of disputes for a cedant. But what about disputes between a reinsurer and its cedant?
- Until recently, there was no specific
reinsurance law in UAE. It was understood that the insurance law
would apply to reinsurance contracts. In May 2019, the UAE IA
issued "Board of Directors Decision No 23 of 2019,
Concerning Instructions Organising Reinsurance
Operations" (the "Reinsurance
Regulations"). Article 42 of the Reinsurance
"All the provisions of the legislation governing the direct insurance business shall be applied to the reinsurance companies as far as they are consistent with the nature of the reinsurance business, including the Financial Instructions of the Insurance Companies and the Financial Instructions of the Takaful Insurance Companies."
- However, the Reinsurance Regulations apply to "Accepted Reinsurance business by a licensed insurance company registered with the Authority". The licencing and registration of reinsurers in the UAE is still under process and the application of the Reinsurance Regulations remains to be seen.
- That said, there is still an understanding that reinsurance contracts are subject to the same insurance laws. Whilst the IA Committees Regulation is geared towards policies issued by UAE licenced Insurers, there is always a possibility that a reinsurance agreement, subject to UAE law and jurisdiction, would also be subject to the jurisdiction of the IA Committees.
- Equally, the same validity requirements (as highlighted in paragraphs 18 to 21 above) would apply for any arbitration agreements contained within reinsurance contracts that are subject to UAE law.
- However, if Reinsurers are based in the Dubai International Financial Centre ("DIFC"), then in accordance with Article 5.A.1 of Dubai Law No (12) of 2011 amended by Law No (16) of 2011, the DIFC Court of First Instance should have jurisdiction to determine a dispute between the reinsurer and insurer, even if it is subject to UAE law, unless the reinsurance agreement specifically excludes the jurisdiction of the DIFC Courts. Kennedys Dubai recently acted for a DIFC reinsurer in a reinsurance claim brought by a Dubai based Insurer before the Dubai Courts. The reinsurance agreement provided for arbitration, which was disregarded by the Claimant. In a jurisdictional challenge, the Court of First Instance and Court of Appeal both found (in our client's favour) that the DIFC Courts had jurisdiction. When appealing to the Court of Cassation, the Claimant also sought to refer to Article 42 of the Reinsurance Regulations. The Court of Cassation (in an August 2019 decision) did not refer to Article 42 of the Reinsurance Regulations specifically, but found that the DIFC Courts still had jurisdiction, and specifically highlighted that Article 10 of Dubai Law No (12) of 2011 amended by Law No (16) of 2011 (which sets up the DIFC Courts and gives it jurisdiction) says "Any text in any other law to the extent that it contradicts this Law shall be repealed".
- Reinsurers not based in the DIFC can still agree to the DIFC Courts' jurisdiction, which gives them an alternative to agreeing to arbitration.
1. Translation taken from the English version of the New Insurance Law uploaded on the website of the UAE IA.
2. Translation by Thompson Reuters Westlaw Gulf.
3. The Dubai Supreme Court.
4. Case numbers 448/2013 and 14/2014.
5. Case number 154/2015.
6. Federal Law No (6) of 2018.
7. In particular the UAE Civil Code - Federal Law No (5) of 1985.
8. Federal Law No (2) of 2015.
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.