Insurance and Subrogation in the UAE

 The prevailing laws in the Middle East are generally based on, and utilize elements of, Shari’ah, The Koran and the Hadith together with what is termed as Latin law, influenced by Egyptian Napoleonic Code style law. The concept of insurance is not contradictory to Islam, the payment of blood money by an individual to a deceased’s family has been common through the ages. Further, the concept of risk mitigation, by using what can be termed as the law of large numbers, is common practice in Islam. One of the explanations often cited for the low uptake for conventional insurance (or what is termed as Islamic insurance or Takaful) in the Middle East is that insurance is viewed by many to be considered impermissible. It inherently contains elements of gharar (uncertainty) or, to put it into context, trading in risk, which is addressed in Shari’ah law.

 

Insurance law in the UAE was codified following the enactment of Federal Law No.6 of 2007 (the "2007 Law”), which created the UAE Insurance Authority ("IA"). The precise application of the 2007 Law is ongoing, and is adopted from Jordanian insurance law.  Currently, the 2007 Law is very grey in its application and far from an all-encompassing regulatory system for conducting insurance activities in the UAE.

 

Regarding insurance contracts, the UAE Civil Code has twenty-nine articles in its insurance section relating to, inter alia, misrepresentation and non-disclosure. The law also has a specific subrogation clause, Article 1030, which states:

 

“It shall be permissible for the insurer to take the place of the assured in respect of any indemnity paid to him for loss, in bringing the claims of the assured against the person who caused the loss out of which the liability of the insurer arose …”

 

There is no current law which sets out how the day to day business of insurance should be conducted, nor is there any concept of binding precedent in the courts, which would give insurers or insureds some certainty as to how a court would resolve conflicts.  Finally, one is not permitted to purchase insurance from a non-UAE registered entity for liability arising out of a UAE onshore risk, although reinsurance written externally is permitted. The result is that the majority of large risks are being fronted out 100%. A significant number of foreign reinsurers sit in the Dubai International Finance Centre (“DIFC”) which is an offshore financial district sitting onshore in the heart of Dubai City, together with many international financial organisations who base their ME operations there.

Overall, and because of the law’s infancy in this area, there is a significant lack of local capacity and appetite for litigation. That said, and partly because of the economic downturn, this attitude is slowly changing. 

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