Law Review: The Validity of Arbitration Agreements in Insurance Policies
December 09, 2020
Rashid Abdul Zahir Bashiri
Since the introduction of the new Federal Law No. 6 of 2018 on Arbitration (Arbitration Law) – there has been some uncertainty regarding the applicability of Article 7(2)(a) of the latter law in insurance policies and the validity of the written arbitration agreements within insurance policies per se.
Commentators within the legal industry have opined on written arbitration agreements within insurance policies and their validity when commencing arbitration proceedings, should a dispute arise. Several commentators were of the strong opinion that an arbitration agreement is valid and enforceable as long as it is provided within the insurance policy. However, a recent Dubai Court of Cassation judgment in June 2020 has shed light on the validity of such agreements. This article will briefly touch on the law, the findings of the Court of First Instance (CFI), the Court of Appeal (COA), and the Court of Cassation (COC).
A civil claim was made by the insured at Dubai’s CFI major circuit claiming AED 13,200,409 and 12% legal interest from the date of legal claim until full payment. The basis of the claim arises from a contractual obligation that the underwriter (Defendant) had towards the insured (Claimant). The Claimant had an insurance coverage for 14 credit payment transactions as a result of several commercial dealings. The 14 Clients of the insured failed to meet the repayments of their credit transactions. This failure has left the insured with no option other than to recourse for legal proceedings to obtain compensation from the available insurance policy coverage that encompasses the commercial dealings.
Court of First Instance
The Claimant filed a civil claim before Dubai’s CFI requesting the appointment of an expert. The Defendant argued that the claim should be dismissed for two fundamental reasons. Firstly, due to the availability of an arbitration clause and non-jurisdiction of the Dubai Court to hear the matter. Secondly, the claim is time-barred, hence, it should not be heard in accordance with Article 1036 of the Federal Law No. (5) of 1985 On the Civil Transactions Law of the United Arab Emirates (Civil Code). However, the CFI decided to judge in favor of the insured and awarded AED 13,200,409.667 in addition of the legal interest of 9%.
Court of Appeal
In short, the COA found that the CFI was incorrect in its application of law, hence, decided to adjudicate ab initio based on the facts presented. Finally, it elected to overturn the decision for a number of surprising grounds, inter-alia:
- As the Claimant is a Limited Liability Company and the Defendant an insurance company, the relationship between the parties is deemed to be a commercial relationship due to the commercial nature of the transaction.
- Article 1028(d) of the Civil Code does not apply to the current scenario. This is because when two traders are entered into a commercial transaction, the relevant law that should oversee the transaction is the Commercial Transactions Law No.18 of 1993 (Commercial Law) and not the Civil Code. Thus, the provisions of the Civil Code shall be avoided, as it does not have any relevance to the matter presented.
- The Commercial Law does not explicitly nor implicitly imply that arbitration agreements in an insurance policy is null and void.
- The policy was signed by the parties, and the arbitration clause in the policy was clearly evident. In addition, it was under separate heading titled ‘arbitration’. Therefore, any arbitration agreements within an insurance policy is valid and enforceable.
Claimant’s arguments before the Court of Cassation
The Claimant argued before the COC that the COA has erred in electing to overturn the decision of the CFI for the following reasonings:
- The Commercial Law does not set out provisions to oversee insurance related matters. This requires scrutinising the provisions of the general law (Civil Code).
- Article 1028(d) of the Civil Code states the invalidity of the arbitration agreement if not provided in a separate agreement from the insurance policy per se.
- The arbitration agreement in this matter is included in the general provisions of the insurance policy article (23). Therefore, it is rendered null and void.
The Court of Cassation
The COC was not satisfied with the reasonings and findings of the COA. Thus, opted to overturn the COA’s decision. The reasonings of the COC, inter alia, are as follow:
- As a general principle of Article (1) and (2) of the Commercial Law, it is not permissible to apply the provisions of the Civil Code on commercial transactions except in the case of absence of provisions in the Commercial Law that regulate the commercial transaction.
- The Commercial Law does not set out provisions to regulate an insurance contract and insurance related matters as the Civil Code sets out. Hence, it is required to apply the provisions of the Civil Code on insurance contracts, with the adherence to the other provisions set out in the Commercial Law.
- Article 1028(d) of the Civil Code is as follow:
“Any of the following provisions appearing in a policy of insurance shall be void: (d) an arbitration clause unless contained in a special agreement separate from the general printed conditions in the policy of insurance; and”
- Hence, due to the importance of arbitration agreements in insurance contracts, the legislature has deliberately stated the nullity of arbitration agreement if not provided in a separate individual standing agreement from the insurance policy. This is a general principle that is to be applied on all insurance policies whether it be a civil or commercial matter
- The COA were unreasonable in their dismissal of the appealed case. Therefore, it must be returned once again to the COA to be adjudicated ab initio.
The interplay between the UAE’s Insurance Law, Arbitration Law, and the Commercial Law
As a general principle of law, it has always been the fact that special provisions of law (lex specialis) supersede the general provisions (lex generalis). Hence, prior to the above judgement, legal commentators argued the fact that the Arbitration Law is a special law that overrides the Insurance Law, whilst others argued that the insurance arbitration provision of the UAE Civil Code is a special provision itself that overrides the Arbitration Law. It was all unclear and ambiguous until the recent judgment shed light on the above.
It is likewise important to note that the Commercial Law deems an insurance transaction between parties a commercial transaction, therefore, the latter law should oversee the transaction. However, in cases where the Commercial Law does not set out provisions to deal with arbitration in insurance matters or in general, it must be reverted back to the general law (Civil Code). Yet, both the Arbitration Law and the Civil Code provide provisions to oversee arbitration matters. However in accordance with the latest Arbitration Law and the recent COC judgement, it can be construed that the Arbitration Law is a general law that regulates arbitration matters. Whereas the provisions of arbitration set out in insurance law within the Civil Code is a special provision which therefore overrides it. Thus, it can be inferred that any provision relating to arbitration in any code is construed to be a special provision which overrides the general provisions set out in the Arbitration Law.
Why does the legislature oblige insurance arbitration agreements to be separate?
Parties to an insurance contract have different inequitable powers. For instance, in an insurance policy, typically the bargaining power of the insured is weak. Those kinds of contracts where an imbalance of power exists, are called contracts of adhesion (عقود الإذعان). Hence, in order for the legislature to protect the weaker party, it has obliged the parties to an insurance contract to separate the arbitration agreement from the insurance policies.
The Scholar Abdul Razzaq Al-Sanhoori states that the invalidation of arbitration agreements is effective, even if the insured is in knowledge of the arbitration agreement within the policy per se. This is to protect the weaker party, the insured, due to the low bargaining power that it usually carries. Yet, under the old Egyptian Civil Code, an arbitration agreement in insurance policies did not have to be set out separately in order for it to be effective. However, post-amendment of its Civil Code, arbitration agreements are required to be set out individually.
In light of the above and the recent Dubai Court of Cassation judgement, it is vital for parties to ensure that an arbitration agreement is always set out separately from the insurance policy in order for it to be effective.
Therefore, on a domestic level, the COC has affirmed the principle of validity of arbitration agreements in insurance policies. In spite of the above, the UAE’s onshore Courts do not recognise the system of binding precedent, but yet the principle can be exhausted as a persuasive argument in future proceedings.
 (book name: al-Wasit fi Sharh al-Qanun al-Madani) 2d Ed, Volume 7. (publisher, Dar Ihya al-Turath al-Arabi, Beirut) page 1152
 Ibid , page 1154