BAHRAIN Law and Practice Contributed by: Mohamed Shaban, Mohsin Al Alawi and Qassim Al Fardan, Hassan Radhi & Associates
Reinsurance will play a significant role, particularly where domestic insurers have accumulated expo- sure across property, cargo and business interrup- tion portfolios. Disputes may therefore concern not only direct coverage but also aggregation, allocation between treaty years, notification to reinsurers and the interpretation of follow-the-settlements or claims- control provisions. 7.2 Sanctions and Payment Challenges Sanctions and payment restrictions materially affect the administration of cross-border claims. CBB-reg- ulated insurers must maintain financial crime controls and consider relevant sanctions, embargoes and blacklists when assessing the claimant, beneficiary, payment recipient, intermediary and financial institu- tions involved in the transaction. 7.3 War, Political Risk and Exclusions War, terrorism and political violence exclusions are expected to receive substantially greater scrutiny fol- lowing recent regional events. However, there is not yet a settled body of Bahraini judgments addressing all of the resulting coverage questions, and a number of claims may remain at the adjustment or early dis- pute stage. Bahraini courts will ordinarily begin with the word- ing of the policy and the general Civil Code rules of interpretation. A war or terrorism exclusion must be clear and sufficiently connected to the loss. Where the exclusion operates as a condition of forfeiture or invalidity, it must also satisfy the prominence require- ment under Article 696. A general exclusion of unlaw- ful activity may be ineffective under Article 698 unless the excluded activity is specifically identified. Likely areas of dispute include the meaning of “war”, “hostilities”, “terrorism” and “political violence”; the application of exclusions to undeclared conflict; proxi- mate and concurrent causation; the territorial scope of the exclusion; and whether state-linked cyber opera- tions fall within a war or cyber-war exclusion. 7.4 Supply Chain and Systemic Loss Events Geopolitical disruption has not necessarily created wholly new domestic insurance products or catego- ries of loss. Instead, it has produced claims under
existing property, marine, cargo, business interrup- tion, contingent business interruption, trade credit, travel and event cancellation policies. Potential losses include cargo delay or damage, addi- tional transport and storage costs, closure of trade routes, inability to obtain raw materials, interruption of exports, cancellation of travel and temporary ces- sation of business activity. Disruption to shipping through the Strait of Hormuz and to regional air travel has demonstrated how a single geopolitical event may affect several sectors and classes of insurance simul- taneously. This creates aggregation issues for both insurers and reinsurers. Disputes may arise over whether losses constitute one event or several events, the relevant duration of the occurrence, the application of waiting periods and sublimits, and whether losses resulted from physical damage, government action, closure of access or general commercial disruption. 7.5 Forward Outlook and Market Response Over the next 12–18 months, geopolitical uncertainty is likely to produce more detailed underwriting of ter- ritorial, war, terrorism, political violence, marine and supply-chain exposures. Insurers may require more information regarding the insured’s locations, routes, counterparties, contingency arrangements and dependence on critical regional infrastructure. Policy wording will likely become more precise through geographical exclusions, separate war-risk endorsements, reduced limits, higher deductibles, shorter cancellation periods and clearer provisions dealing with changes in risk. Insurers may also distin- guish more carefully between physical damage, denial of access, government action, loss of attraction and general supply-chain disruption. Dispute activity can be expected to follow once the present generation of claims has been fully quantified. The main issues are likely to be causation, the timing and classification of the event, aggregation, territorial scope, compliance with notification and declaration requirements, and the relationship between the direct policy and the insurer’s reinsurance protection.
20 I NSURANCE L I T IGATI O N 2026
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