EXCLUSION CLAUSES, CONDITIONS PRECEDENT AND WARRANTIES IN RE/INSURANCE POLICIES

Article 1028(c) of the UAE Civil Code (Federal Law No. 5 of 1985) provides that a provision in a policy of insurance is void if it: ''relates to a circumstance that leads to the avoidance of the contract or to the lapse of the right to indemnity of the assured”; and is not “shown conspicuously”.

To be valid and enforceable under UAE law warranties, conditions precedent to liability or exclusion clauses:

1. Must be “prominent” i.e. in bold font and a different colour.
2. Be endorsed by the assured.

Any clause in an insurance contract that tries to give the insurer the opportunity to avoid the contract of insurance or deny the claim must be displayed conspicuously. According to IA Resolution (article 7(2)), such a clause should be clearly displayed for example, in a different font or colour, while article 28 of the Insurance Law stipulates that it should be highlighted in a prominent manner, for example, in a different colour or in bold characters, and must be endorsed or initialed by the insured.

By way of example, the Dubai Court of Cassation, in case No. 242/2011, dismissed the case filed by an insured claiming losses from the theft of a mobile crane because the insured failed to notify the insurer within 14 days of the loss incident. In upholding the validity of the clause, the court reasoned that the clause was conspicuous enough and, meant to protect the right of the insurer to sue the party responsible for the incident. The court considered that notifying the police alone is not enough and cannot replace the notification of the insurer.

The above demonstrates that avoidance of loss through limitation of liability clauses can be achieved subject to compliance with the provisions of the law as interpreted by the UAE courts. Insurers should review their policy wordings accordingly to ensure they comply with Article 1028(c).

To the extent that a warranty, exclusion or a condition precedent is drafted in general terms and seeks to deny cover for any breach of the law, insurers will not be permitted by the UAE courts to rely on the general terms unless they seek to exclude cover for a criminal act or a deliberate wrongdoing pursuant to article 1028(1)(a) of the Civil Code. Any such clause where the breach is not causative of the loss is potentially invalid (Civil Code, article 1028(e)).