News

In a recent judgment (Case No. 440 of 2024, Civil Arbitration), the Dubai Court of Cassation has confirmed the position on the enforceability of arbitration clauses embedded in general terms of insurance policies. This ruling highlights critical considerations for insurers, policyholders, and legal practitioners dealing with arbitration clauses in the UAE.

Factual Background

The dispute arose when the insured, who operated a business affected by COVID-19 restrictions in Bahrain, sought compensation from their insurance provider under a multi-risk insurance policy covering a specified period from January 1, 2020, to December 31, 2020. Following the pandemic-induced business closures, the appellants suffered substantial financial losses and sought compensation with 12% annual interest.

The insurance company rejected the claim, invoking a dispute resolution clause that required arbitration. The appellants initially approached the insurance dispute resolution committee (applicable at the time), which refused to entertain the complaint due to the presence of the arbitration clause.

Subsequently, the insured filed a lawsuit in the Dubai Court of First Instance.

Both the Court of First Instance and the Dubai Court of Appeal upheld the validity of the arbitration clause and dismissed the case.

The insured then escalated the matter to the Dubai Court of Cassation.

Key Issues

The central legal issue revolved around the validity of the arbitration clause. Specifically, whether an arbitration clause embedded in the general printed terms of an insurance policy could bind the parties without a separate, special agreement.

Court of Cassation Findings

The Court of Cassation overturned the lower courts’ rulings, holding that the arbitration clause was invalid. The key findings included:

The Arbitration Clause did not satisfy the Requirements of applicable UAE Law

The court referred to Article 1028 of the UAE Civil Transactions Law, which mandates that arbitration clauses in insurance contracts must be part of a separate, special agreement. If the clause appears solely within the general printed terms of the policy, it is deemed invalid.

Courts retain jurisdiction

Since the arbitration clause in this case was not part of a separate agreement but was embedded in the standard terms and conditions, it did not meet the legal requirements. Consequently, the clause could not bar the appellants from pursuing their claim in court.

Remand for a New Trial

As the arbitration clause was invalid, the court ruled that the dispute should be decided on its merits by the Dubai Court of First. The Court of Cassation annulled the previous judgments and remanded the case for retrial.

Key points

Although not a groundbreaking decision, this judgment serves as an important reminder for parties drafting or reviewing insurance policies in the UAE.

It underscores the concept behind Article 1028 of the UAE Civil Transactions Law which is that insurance policies are generally unilaterally drafted documents that differ in their structure with a bilateral contract.

Hence an arbitration clause or agreement (which should be expressly entered into between two parties) cannot exist solely within a policy.

Rather, it should reside on a bilateral contract, i.e. a separately drafted document specifically referring to the policy or attached to it.

As such, this Dubai Court of Cassation’s decision reinforces the UAE’s legal stance on the formal requirements for arbitration clauses in insurance policies as an essential prerequisite for their enforceability.