UAE Law and Practice Contributed by: Raghad Hammad and Huda Al Zein, BLK Partners
9.9 Insurers’ Rights of Subrogation Subrogation is a well-established principle in the UAE, allowing an insurer to “step into the shoes” of the insured to recover the cost of a claim from the third
In large commercial or industrial disputes, mediation is usually voluntary but highly encouraged by courts to save time and costs. 9.8 Penalties for Late Payment of Claims Onshore UAE (Mainland) The UAE legal system generally focuses on compen- sation rather than punishment. Onshore courts do not award punitive damages (damages intended to punish the insurer). If an insurer delays payment, you can claim legal interest. Following 2025 reforms, this is typically between 5% and 9% per annum, starting from the date the claim was officially filed or the date of the judgment. A claimant may also claim “moral damages” if the delay caused significant psychologi- cal distress or damage to the claimant’s reputation, though these awards are usually modest. Specific Fines and Regulatory Penalties (New for 2025) Regulators have introduced strict timelines to prevent “improper” delays: • Administrative Fines: The CBUAE can fine insurers up to AED50,000 for failing to pay compensation once a risk event has occurred. • Health Insurance Delay Fees: Under Directive PD-05-2025 (effective from late 2025), health insurers in Dubai must pay a 0.03% delay fee per day to healthcare providers if they miss settlement deadlines (typically 30–45 days). • Regulatory Scrutiny: Persistent delays can lead to the CBUAE suspending an insurer’s licence or pre- venting it from issuing new visas for employees. Offshore (DIFC and ADGM) The financial free zones follow a different, common- law approach: • Unlike the mainland, these courts may award consequential damages if you can prove that the insurer’s delay caused you a specific, foreseeable financial loss (eg, your business went bankrupt because the claim was not paid). • While still rare, the DIFC Law of Damages does allow for multiple damages in specific statutory circumstances.
party that caused the loss. The Right of Subrogation
In the UAE, this right is primarily codified under Article 1030 of the UAE Civil Code. It becomes active only after the insurer has paid the indemnity to the insured. • Scope: The insurer can pursue the third party for the exact amount paid out. If the insurer recovers more than it paid (which is rare), the excess must usually be returned to the insured. • Legal Standing: Onshore, the insurer usually files the recovery claim in its own name, citing the pay- ment of the claim as the basis for its right to sue. Key Limitations on Subrogation The UAE legal system imposes several specific restrictions to prevent unfair recovery actions, par- ticularly within family and employment relationships, as described below. 1. The “family and household” bar Under standard UAE principles and Article 1030 of the UAE Civil Code, an insurer generally cannot sub- rogate against the following people, unless the loss was caused by their intentional criminal act: • Family Members: Spouses, parents and children of the insured. • Household Staff: Domestic workers (maids, drivers, etc) living with the insured. • Relationship-Based Immunity: The law aims to prevent the policy from being “hollowed out” by having the insurer sue the very people the insured intended to protect. 2. Employment relationships Insurers are often barred from subrogating against an employee of a corporate insured if the employee caused the damage during the normal course of their work. Recovery is only possible if the employee acted with gross negligence or committed a crime.
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