Professional Indemnity Insurance: Judicial Insights for CEOs and Shareholders and managers.
Transport & Insurance Focus
The Commercial Company Code introduced significant changes regarding managerial liability. Article 22 outlines the duties of company administrators, requiring managers to act with due care, preserve the company’s rights, and operate within the scope.
Law Update: Issue 376 – Transport & Insurance
Sakher AlaqailehSenior Counsel,Transport & Insurance
Nazly Sadik Paralegal,Transport & Insurance
Dana DakwarParalegal,Transport & Insurance
Professional indemnity insurance, commonly known as professional liability insurance, plays a critical role in in protecting professionals, including CEOs, shareholders, and managers, from claims arising due to negligence, errors, or omissions in the performance of their duties. Following the introduction of Federal Decree Law No. (32) of 2021 on Commercial Companies (the “New Commercial Company Code”) which came into force on 2 January 2022 and replaced Federal Law No. 2 of 2015, there has been increased accountability for Chief Executive Officers (“CEO”s), shareholders, and Managers. This article explores professional indemnity insurance, judicial insights on managerial liability, and the evolving role of insurance companies in covering losses resulting from managerial negligence.
The UAE’s legal framework for professional indemnity is primarily governed by the l Federal Law No. (5) of 1985 (as amended) concerning the issuance of the Civil Transactions Law (the "Civil Code"). While the New Commercial Company Code does not directly address insurance, it establishes clear obligations for company managers and directors, creating a legal environment in which indemnity insurance becomes increasingly relevant.
Professional indemnity insurance, commonly known as professional liability insurance, plays a critical role in the United Arab Emirates (UAE) legal landscape, particularly in protecting professionals, including CEOs, shareholders, and managers, from claims arising due to negligence, errors, or omissions in the performance of their duties
The Commercial Company Code introduced significant changes regarding managerial liability. Article 22 outlines the duties of company administrators, requiring managers to act with due care, preserve the company’s rights, and operate within the scope of their authorized powers. Article 51 holds managers liable for damages resulting from the violation of the company’s Memorandum of Association, their appointment contracts, or negligence in fulfilling their duties. Similarly, Article 90 states that supervisory board members are not liable for managerial errors unless they were aware of such errors and failed to disclose them in their reports to the general assembly of partners.
In addition to the Commercial Company Code, the Civil Code provides further clarity on professional liability. Article 383 establishes the standard of care expected from professionals, mandating that an obligor fulfils their duty by exercising the level of care that a reasonable person would, with liability arising only in cases of fraud or gross negligence. Article 196 voids any condition aiming to exempt liability for harmful acts, applying to both contractual and tortious claims. Articles 291 and 292 address the extent of liability and compensation, respectively, stating that compensation should reflect the actual harm suffered, including loss of profit, provided the harm is a natural consequence of the wrongful act.
Following the implementation of the Commercial Company Code, recently UAE courts have increasingly held managers accountable for damages incurred by companies due to negligence or failure to fulfil their professional duties. This trend has had significant implications (given the high amounts involved) for insurance companies, which are now frequently held liable under professional indemnity policies.
Several judicial decisions have emphasized that CEOs and shareholders can no longer rely solely on the corporate veil for protection. If managerial negligence leads to financial losses or third-party claims, UAE courts are likely to hold both individuals and the company responsible, with insurance policies being the first line of financial recourse.
For instance, in cases where CEOs or shareholders were found to have neglected safety protocols, mismanaged company assets, or violated contractual obligations, courts have imposed liability not only on the company but also on the individuals responsible. As a result, insurance companies have faced increased claims under professional indemnity policies, further complicating the risk landscape for insurers.
The UAE has introduced mandatory professional indemnity insurance requirements for certain professions to mitigate potential liabilities. In 2022, three Federal Decree-Laws mandated professional indemnity insurance for private notaries, court-appointed experts, and translators. These are: Federal Decree-Law No. 20/2022 concerning the regulation of the notarial profession, Federal Decree-Law No. 21/2022 on the regulation of expertise before judicial authorities, and Federal Decree-Law No. 22/2022 on the regulation of the translation profession. The implementing regulations for these laws were subsequently issued under Cabinet Decisions No. 16/2024, 17/2024, and 18/2024, respectively.. Ministerial Decisions issued on May 15, 2024, further specified coverage requirements, including a minimum coverage of AED 1 million for individual experts and AED 5 million for translation houses.
While professional indemnity insurance typically covers civil liabilities resulting from professional negligence, it often excludes criminal liabilities, such as defamation or gross misconduct. This creates significant exposure for professionals, as certain negligent actions can attract criminal charges under UAE law. Most professional indemnity insurance policies in the UAE exclude coverage for wilful misconduct, fraud, or gross negligence. In such instances, both the company and the individual at fault may be held liable for damages exceeding the policy limits.
The most common forms of professional indemnity insurance in the UAE are industry-specific. Professional indemnity insurance covers professionals across various sectors, ensuring protection against claims arising from negligence, errors, or omissions. Directors’ and officers’ (D&O) insurance specifically protects CEOs, managers, and shareholders from personal liability arising from their managerial decisions. Errors and omissions (E&O) insurance is typically offered for brokers, consultants, and lawyers, covering claims related to professional mistakes. Construction professionals, such as architects and engineers, often secure professional indemnity insurance tailored to project risks. Similarly, accountants, auditors, and financial consultants rely on such coverage to protect against professional liability claims. Medical malpractice insurance is also prevalent, covering doctors, specialists, and hospitals.
Additionally, third-party liability insurance plays a crucial role in indemnifying companies against claims filed by external parties for damages caused by the actions of their employees, managers, or shareholders. This type of insurance protects the company from financial loss resulting from third-party claims, ensuring that the company is not solely burdened with the costs of defending itself or paying damages.
It is important to distinguish between policies that cover the company as an entity and those that protect individual managers or shareholders. Policies such as general liability insurance and third-party liability insurance primarily protect the company itself from claims arising due to operational risks, while directors' and officers' (D&O) insurance specifically covers individual managers and shareholders against personal liability. Professional indemnity insurance can also extend to both the company and the individual, depending on the policy terms. Understanding the distinction between entity-based and individual-based coverage is essential for ensuring adequate protection for both the company and its leadership.
The evolving legal framework has introduced significant challenges for insurance companies, as courts increasingly hold them liable for indemnifying insured companies under professional indemnity policies. This has led to increased legal and financial burdens on insurers, particularly when managerial negligence is established.
For CEOs and shareholders, the key takeaways include increased accountability under the Commercial Company law. CEOs, shareholders, and managers can now be held personally liable for professional negligence, with insurance acting as a safety net. Given the exclusions in standard policies, it is essential for professionals to ensure that their indemnity coverage aligns with the UAE’s unique legal landscape. Regularly reviewing insurance policies, implementing robust compliance programs, and adhering to corporate governance standards can further mitigate potential liabilities.
For insurance companies, the primary challenges include increased claims arising from managerial negligence. As courts continue to affirm insurance companies' liability, insurers face increased financial exposure. To address this, insurers must carefully draft policy terms to clarify coverage limits and exclusions, particularly concerning gross negligence and criminal liability. Collaborating with policyholders to promote risk management practices can further reduce the likelihood of claims arising from managerial negligence.
The Commercial Company Law has significantly reshaped the corporate landscape, increasing accountability for CEOs, shareholders, and managers while amplifying the role of professional indemnity insurance. As UAE courts continue to enforce stringent liability standards, professionals and insurance companies must remain vigilant, ensuring comprehensive coverage and adherence to best practices.
In light of evolving judicial trends, professionals must proactively manage their risks by securing adequate insurance coverage, while insurers must adapt to the changing landscape by refining policy terms and promoting risk mitigation strategies. Ultimately, the balance between accountability and protection will shape the future of professional indemnity insurance in the UAE.
For further information,please contact Sakher Alaqaileh, Nazly Sadik and Dana Dakwar.
Published in April 2025
