UAE Law and Practice Contributed by: Raghad Hammad and Huda Al Zein, BLK Partners
8. Interpreting an Insurance Contract 8.1 Interpretation of Insurance Contracts and Use of Extraneous Evidence Onshore UAE (Civil Law) In the mainland UAE, insurance contracts are gener- ally interpreted according to the same codified prin- ciples as other civil and commercial agreements, pri- marily under the UAE Civil Code. The courts aim to identify the “common intention” of the parties. However, because insurance policies are often standard-form contracts, any ambiguity is strictly interpreted in favour of the insured (contra pro- ferentem), especially regarding terms that restrict the insurer’s liability. The position is significantly more protective for con- sumers. Under the 2025 Law and CBUAE regulations, specific formatting rules apply: exclusion clauses, warranties and terms resulting in the “arbitrary” for- feiture of rights must be printed in bold and in different colours to be enforceable. Onshore courts rely heavily on the literal, written text of the contract. While a court may consider the “cir- cumstances in which the contract was placed” to clar- ify a genuine ambiguity, evidence of prior negotiations or “usual practice” typically holds less weight than the codified statutory provisions and the mandatory Arabic version of the policy. DIFC and ADGM (Common Law) In the DIFC and ADGM, the interpretation of insurance contracts follows English-style common-law princi- ples, which are distinct from the onshore regime. Contracts are construed based on what a “reasonable person” with the background knowledge available to the parties would have understood the language to mean. The courts prioritise “commercial common sense” in business-to-business transactions. There is a clear regulatory distinction between Retail and Professional clients. For consumers (Retail), insur- ers must comply with strict “Conduct of Business” rules that mandate clarity and transparency in all communications. For commercial parties, the courts
satisfies the legal definition of reinsurance – includ- ing a genuine transfer of risk and an insurable interest – it is generally treated as a reinsurance contract for solvency purposes. • Solvency Credit: For a UAE insurer to receive sol- vency credit (ie, a reduction in its Solvency Capital Requirement) for a foreign ART transaction, the contract must be legally enforceable in the UAE and the provider must be an “Eligible Reinsurer”. • Non-Reinsurance ART: If a foreign ART transaction does not meet the technical definition of insurance (eg, if it lacks a specific “indemnity” trigger and behaves more like a financial hedge), it may be viewed as a derivative or investment instrument. In such cases, it would be regulated under the CBUAE’s investment limits rather than as a reinsur- ance asset, potentially leading to less favourable capital treatment. DIFC and ADGM (Common-Law Jurisdictions) The financial free zones take a more international, “substance over form” approach to foreign ART trans- actions. • Recognition: The DFSA and FSRA generally recog- nise ART transactions written in other jurisdictions as reinsurance, provided they are structured as such in their home market. These jurisdictions are modelled on international standards (such as the UK’s FSMA) and prioritise the commercial intent of the risk transfer. • Solvency and Capital: For solvency purposes, both the DIFC and ADGM allow companies to recognise risk mitigation from foreign ART transactions if they can demonstrate that the risk has been effectively transferred to a creditworthy counterparty. • Regulatory Scrutiny: The primary difficulty for foreign ART in these zones is ensuring the “legal certainty” of the payout. Regulators will scrutinise whether the foreign contract might be recharac- terised as a “gaming or wagering” contract if the payout trigger is purely parametric and not tied to an actual loss, though most modern ART struc- tures are designed to avoid this issue.
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