UAE Law and Practice Contributed by: Farida Safwat, Elham Mobini and Ramy George, NHB Legal
5.2 Shifting Risk Landscape In the UAE, the risk landscape for insureds is shifting due to different forces, most importantly technology, AI, and regulatory changes. AI and automated deci- sion-making systems are being extensively deployed in companies (especially in the financial services, health-care and e-commerce sectors), which creates new liability exposures where not expected while arranging insurance programmes. For example, an algorithm that mistakenly denies credit applications, or misdiagnoses medical conditions can generate claims that push the boundaries of traditional profes- sional indemnity or errors-and-omissions coverage. Furthermore, insureds’ breaches for disclosure com- pliance and the new ESG reporting obligation required under climate change regulation, might expose them to both regulatory penalties and third-party claims, since these are the new focal points of the CBUAE, and the Securities and Commodities Authority. In addition, the technology sector generates claims arising from consumer protection actions against digital platforms, and regulatory enforcement actions against fintech companies for operational failures. Besides this, traditional insurance products are strug- gling due to the existence of gaps around AI-generat- ed losses, algorithmic bias liability, and the difference between insurable negligence and systemic design deficiency, causing insurers to be reluctant to cover risk beyond the categories of risk they understand well, while insureds are seeking broader policy lan- guage. 5.3 Defence Costs and Litigation Complexity The defence costs incurred in disputes against insureds are gradually increasing, due to the structural complexity of modern insurance disputes, and the multi-jurisdictional nature of the UAE, which requires parties to navigate between Dubai courts, DIFC and Abu Dhabi Global Market (ADGM) courts, and arbi- tration, each with its own distinct procedural require- ments, evidentiary standards, and cost regimes. This means that a single dispute may engage multiple forums, requiring parallel legal teams and duplicated preparations.
In addition, although the mandatory referral of dis- putes to Sanadak and IDSRC is intended to promote efficiency, it creates extra cost when matters proceed to the courts on appeal. It is also worth noting that high-value and technical disputes always require expert opinions, which contribute significantly to the defence strategy and evidence. Therefore, insurers tend to spend on consultancy expert-report prepara- tions to influence the court’s appointed expert opinion, as this carries considerable weight in proceedings. Emerging litigation funding in the UAE – which is still in its early stages, particularly for local litigation – is changing the economics of claims. This means that insureds who have financial backing are more easily able to fund disputes, which limits the early discon- tinuance or favourable settlement for well-resourced defendants. Accordingly, insurers and insureds usual- ly experience a full trial on the merits, with associated cost implications. Therefore, proactive case manage- ment, early evidence gathering, and realistic defence cost budgeting have become essential elements of effective defence management. 5.4 Cost Risk Management and Funding Solutions There are several recognised mechanisms for manag- ing cost risks within the UAE, reflecting the influence of international dispute resolution practices and the market’s increasing sophistication. Such mechanisms are: • Third-party funding – this is considered a major trend especially in the DIFC and ADGM as it is expressly permitted, and insureds tend to favour it because funders provide non-recourse capital in exchange for a share of the recovery amounts, enabling insureds to pursue meritorious but expen- sive claims, without incurring any costs. • After-the-Event (ATE) insurance – this is available in the DIFC and ADGM, where adverse cost orders are common, limiting an insured’s exposure to the opponent’s costs if the claim fails. Conversely, adverse costs orders are less frequent in onshore proceedings, meaning ATE is less commonly used, but still available, for cross-border disputes with costs exposure in foreign jurisdictions. Additionally, Before-the-Event (BTE) legal expenses insurance is
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