UAE Law and Practice Contributed by: Raghad Hammad and Huda Al Zein, BLK Partners
assume equal bargaining power and are more likely to uphold complex or technical market wordings. While the “Parol Evidence Rule” generally restricts evidence outside the written policy, the free zone courts do permit evidence of the “factual matrix”, the objective background and circumstances known to the parties at the time of placement. While subjective evidence of negotiations is usually excluded, evidence of “market practice” or “usual understanding” in the industry may be used to interpret technical or special- ised insurance terms. 8.2 Warranties Onshore UAE (Civil Law) In the mainland UAE, warranties are governed by the UAE Civil Code and specific consumer protection regulations. For a warranty (or any condition that limits or excludes the insurer’s liability) to be valid, it must be clearly and prominently displayed in the policy. Specifically, the CBUAE requires these terms to be printed in bold and in a different colour from the rest of the text. Treatment vs. other terms Warranties are treated with significant caution by UAE courts. Unlike a standard contractual term where a breach might simply lead to damages, a warranty is often viewed as a “forfeiture clause”. Consequence of breach Under Article 1028 of the UAE Civil Code, any condi- tion that results in the forfeiture of the insured’s rights is considered void if the breach had no bearing on the occurrence of the insured risk. This means if an insured breaches a warranty (eg, failing to maintain a specific alarm system) but the loss (eg, a flood) was entirely unrelated to that breach, the insurer generally cannot deny the claim. If the breach is directly related to the loss, the insurer may rescind the contract or deny the specific claim. DIFC and ADGM (Common-Law Jurisdictions) The financial free zones follow a system more closely aligned with English common law, although they have also moved away from the traditional, harsher treat - ment of warranties. Warranties do not necessarily
need to be expressly labelled “warranties”, but the contract must clearly indicate that the term is a “con- dition precedent” to the insurer’s liability. The free zones distinguish between a “Warranty” (a promise that a fact is true or a condition will be met) and a “Suspensive Condition” (which only suspends cover while the breach continues). Traditionally in common law, a breach of warranty would automati- cally discharge the insurer from liability from the date of the breach. However, the DIFC and ADGM Courts often apply a more modern approach: Similar to the mainland, there is a growing trend to require a “causal link” between the breach and the loss before allowing an insurer to fully avoid a claim, particularly in retail/consumer contexts. In cases of innocent or careless breach, the courts have the dis- cretion to award proportionate remedies – such as reducing the payout rather than total avoidance – depending on the circumstances of the breach. 8.3 Conditions Precedent UAE (Onshore) Under UAE law, conditions precedent to an insurer’s liability do not need to be expressly labelled as “condi- tions precedent”, but any clause that has the effect of excluding, limiting or suspending the insurer’s liability is subject to strict statutory controls. Pursuant to Article 1028 of the UAE Civil Code, any condition that: • results in forfeiture of the insured’s rights, • nullifies the contract, or • discharges the insurer from liability is void unless it is clearly and conspicuously set out in the policy. In addition, Article 28 of the former Insurance Law (retained in practice under the cur- rent regulatory regime administered by the CBUAE) requires such clauses to be highlighted and expressly acknowledged by the insured. Further, Article 1028 (e) renders void any condition whose breach has no causal connection to the occur- rence of the insured risk. As a result, even if a clause
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