UAE: Insurance Disputes and the Arbitration Agreement
The position on the validity of arbitration agreements in insurance disputes has always been an area of uncertainty in the UAE.
Although many commercial insurance policies contain arbitration agreements (whether pertaining to any dispute regarding liability, or restricted to disputes over quantum alone), in our experience many more insurance disputes are being heard by the onshore Courts (and now by the new Insurance Disputes Committee ( IDC) – see our article here) instead.
On the part of insureds this may be due to the perceived insured-friendly position of the onshore Courts. Insurers can also be content to have disputes resolved through the onshore Courts; depending on the complexity of the dispute it can sometimes be less costly to engage with the onshore Court process rather than incur the costs of arbitrators, if specific expertise in the subject area is not required. Alternatively, the dispute may ultimately not be suitable to be arbitrated.
However, even in circumstances where one or other party does want the matter referred to arbitration, arbitration agreements as currently dealt with in UAE insurance policies may not be guaranteed to produce this result. In this article we explore the reasons for this; looking at the position pre-UAE Arbitration Law (the "Old Position") and post UAE-Arbitration Law (the "Current Position").
The Old Position
The UAE Civil Procedure Code broadly provides that in the event of an insurance-related dispute, jurisdiction is vested in the Court of the Emirate in which the beneficiary is domiciled or the insured property is located (whilst this remains the case, the procedure has changed slightly now due to the creation of the IDC – see below).
This being so, historically the onshore UAE Courts have treated an agreement to arbitrate as a type of waiver of the parties' rights to access justice via the Courts. As such, they have required very clear evidence from both parties of their intentions to "waive" such access. The codified laws of the UAE set out a number of formalities designed to ensure there was sufficient evidence that both parties understood what they were agreeing to.
In the first instance, under the old (now repealed/replaced) provisions of the UAE Civil Procedure Code, certain formalities had to be complied with for all arbitration agreements, whether relating to insurance or otherwise.
One obvious example was that any arbitration agreement must be set out in writing. Another key formality was that the arbitration agreement was only valid if it was entered into by individuals (or company representatives) that had specific authority to refer the matter to arbitration. In the case of individuals signing on behalf of companies, this authority could not be assumed and evidence of the express grant of authority would be required; whether this was by way of power of attorney or by a company's incorporation documents (memorandum/articles of association).
Although this is a general requirement, the issue that arose in connection with insurance policies is that whilst it is almost guaranteed that an arbitration agreement will be in writing (i) it is unlikely that the specific underwriter issuing the policy has actual authority to refer a dispute to arbitration; and (ii) as a matter of practice, it is rare for an insured/representative of an insured company to sign the policy at all. Even where a representative of an insured company does sign the policy, it is unlikely that due consideration is given to whether that representative has authority to refer disputes to arbitration. As such, there was usually a question as to whether any arbitration agreement had been entered into by individuals with authority to do so.
In the case of insurance disputes, a further requirement was imposed under the UAE Civil Code and the UAE Code of Conduct for Insurers; namely that an arbitration agreement in an insurance policy could not be contained within the general wording/printed conditions but must be set out separately. Whilst the UAE Code of Conduct for Insurers did not prescribe any penalty for failing to do so, the UAE Civil Code clearly states that in the event of a failure to comply, the arbitration agreement would be void.
There has long been some uncertainty surrounding the application of this requirement:
- Under the UAE Commercial Code, insurance is recognised as commercial business, which means that as per the hierarchy of laws set out in the UAE Commercial Code, the terms of the contract between the parties (i.e. the insurance policy) should supersede the provisions of the UAE Civil Code, unless the provisions of the latter are mandatory. As the provisions of the UAE Civil Code are not expressed to be mandatory, then arguably the terms of the contract, including any arbitration agreement, should take precedence. In practice, however, in our experience, the onshore Courts have been more likely to give primary effect to the UAE Civil Code provisions than the terms of the agreement of the parties.
- There have been a number of reported cases considering the validity of arbitration clauses in insurance policies that have sought to distinguish between consumer and commercial insurance. In these cases the argument has been run that in instances of the former, the insurance provisions of the UAE Civil Code will apply, whereas in instances of the latter the provisions of the UAE Civil Code will not apply. Insofar as this relates to arbitration agreements, there is a logic to this; commercial businesses are (presumed to be) on a more equal footing when it comes to bargaining and negotiating terms than individuals and could be deemed more likely to have been aware of or active in the "waiver" of access to the UAE Courts in favour of arbitration. These reported cases notwithstanding, in practice the position is not clear and we are aware of a number of cases involving commercial insured entities in which the onshore Courts have not agreed with this interpretation and have simply held the arbitration agreement invalid for failing to comply with the formalities contained within the UAE Civil Code.
- It was also not clear whether this requirement applied to reinsurance contracts, although it was often the case that foreign reinsurers would ensure that the reinsurance contract was governed by a different law and included different jurisdiction provisions. It is worth briefly noting that following the issue of Insurance Authority Board of Directors' Decision No. 23 of 2019 (Concerning Instructions Organizing Reinsurance Operations) it is likely that to the extent this requirement has survived (see below) it would apply equally to reinsurance contracts as to insurance policies.
Uncertainty aside, whether consumer or commercial, it is common for arbitration agreements in UAE insurance policies to be included within the general conditions of the policy. As such, there is a risk that these agreements are void under UAE law.
The Current Position
In 2018, the UAE issued the new, long-anticipated, UAE Arbitration Law. The UAE Arbitration Law repealed the old arbitration provisions of the UAE Civil Procedure code and implemented a new regime, intended to clarify and improve the arbitral regime in the UAE. The key question is how this has affected arbitration agreements in the context of insurance.
The first point is that whilst the UAE Arbitration Law is designed to simplify the procedure to, amongst other things, refer disputes to arbitration, the UAE Arbitration Law restates the requirements set out above from the old arbitration provisions of the UAE Civil Procedure Code. As such, the same issues arise in relation to arbitration agreements in insurance policies under the Current Position as they did under the Old Position and many arbitration agreements may still not be valid as they have not been entered into by individuals with the required authority to refer disputes to arbitration.
Second, a further area of uncertainty arises as to whether the requirements of the UAE Civil Code apply any longer at all. In addition to the express repeal of the arbitration provisions of the UAE Civil Procedure Code, the UAE Arbitration Law contains a general sweep-up article providing that any other provision contrary to those of the UAE Arbitration Law will also be repealed.
On the face it, it would appear that the insurance-specific requirements of the UAE Civil Code and the UAE Code of Conduct for Insurers have therefore been repealed. However, it is not clear that this was the intention of the drafters of the UAE Arbitration Law (and perhaps particularly not in relation to consumer insurance).
It is a broad principle of UAE law that specific laws will supersede or qualify general laws and there is a degree of flexibility as to the interpretation of this principle by the Courts. Whilst there is a potential argument that the UAE Arbitration Law is a specific law dealing with arbitration, which repeals and replaces all previous general laws relating to arbitration, there is an alternative argument that the UAE Arbitration Law itself is general, whereas the insurance arbitration provision of the UAE Civil Code is a specific provision that in fact survives and overrides the UAE Arbitration Law. At the time of writing, we are not aware of any reported case on this point and the position remains unclear.
Another issue to bear in mind is that the UAE Arbitration Law makes it clear that there must be an odd number of arbitrators otherwise the arbitration itself is null and void. It is common practice for insurance arbitration agreements to provide for two arbitrators in the first instance, with the dispute only requiring the appointment of an umpire if the initial two arbitrators cannot agree. Parties should bear in mind that under the UAE Arbitration Law a two-arbitrator arbitration would not be valid.
One final point to be aware of is that the creation of the new IDC has amended the jurisdictional position and in certain cases parties are now required to submit their cases to the IDC before filing a claim before the relevant onshore Court. However, the IDC is expressly not empowered to hear disputes where there is a (valid) arbitration clause. Given the potential for dispute over the validity of an arbitration clause, parties could now find themselves arguing jurisdictional points before the IDC (it being noted that the new UAE Arbitration Law also empowers arbitral tribunals to determine their own jurisdiction). It remains to be seen how the IDC will deal with such cases.
Relying on arbitration agreements
Insurers and insureds alike can be in a difficult position when it comes to complying with the formalities for arbitration agreements, not least because the formalities simply do not align with market practice or expectation. Additionally, in some circumstances, standard wordings means that one party may have less oversight or control of the drafting process; broker created or driven wordings can also have this effect.
Best practice would of course be to ensure that any arbitration agreement in an onshore UAE insurance policy/reinsurance contract is set out in a separate section of the policy from the general conditions and is signed by individuals on both sides with specific authority to enter into arbitration agreements (as well as providing for an odd number of arbitrators and complying with all other requirements set out in UAE law).
However, even if compliance with the formalities cannot be achieved in the insurance documentation, under the UAE Arbitration Law it is possible to cure any defects in an arbitration agreement at a later stage, even after a dispute has arisen and even after onshore Court proceedings have been commenced. Of course, by the time that happens, in many cases the parties may not be in a position to agree on anything but insurers and insureds should take comfort from the fact that this possibility remains.
For further information on the above, please contact the authors or your usual HFW contact.
T +971 4 423 0530
T +971 4 423 0515
We are working with clients across our international network to help them minimise the impact of COVID-19 on their business and to prepare for what's next. To find out more, visit our dedicated Covid-19 hub.