UAE Courts Interpretation of Insurance Policy Coverage – Covid 19 & Climate Changes
Transport & Insurance Focus
The COVID-19 pandemic and the government-mandated closure orders that followed have had a profound impact on businesses worldwide, forcing many to halt operations, adapt quickly, and face significant financial challenges.
Law Update: Issue 376 – Transport & Insurance
Sakher AlaqailehSenior Counsel, Transport & Insurance
Dana DakwarParalegal, Transport & Insurance
The COVID-19 pandemic and the government-mandated closure orders that followed have had a profound impact on businesses worldwide, forcing many to halt operations, adapt quickly, and face significant financial challenges. These closures have caused widespread disruption, much like the business interruptions triggered by extreme weather events such as heavy rain, flooding, or other climate-related incidents. Just as the pandemic caused sudden and unforeseen shutdowns, climate change-induced weather patterns are increasingly affecting businesses in similar ways, forcing them to confront the reality of environmental disruptions. The comparison between the COVID-19 crisis and climate change highlights how both have revealed vulnerabilities in business continuity, emphasizing the need for companies to prepare for unexpected closures and adapt to a rapidly changing world.
The year 2020 and the subsequent years brought forth numerous claims related to business interruptions caused by the Covid-19 pandemic, presenting a significant challenge for the insurance sector in the UAE. In addition to these pandemic-related issues, climate change and its consequences are introducing new hurdles for insurers, particularly regarding claims related to heavy rainfall and flooding.
This article will examine the UAE courts' approach to resolving insurance disputes connected to these issues, focusing on how the courts interpret coverage under relevant policies.
Covid-19 pandemic, Climate Change extreme events, UAE courts Interpretation of Insurance Policy Coverage, and policyholders’ interest, shaped the new courts direction and approach in their rulings related to insurance claims.
As a consequence of the Covid-19 pandemic, competent authorities implemented official measures that mandated the closure of leisure facilities, commercial malls, and retail shops to help control the spread of the virus. In addition, to capacity restrictions imposed by relevant authorities. These closures and decisions resulted in significant financial losses for businesses due to direct interruptions in their operations. Although fully recovering from the pandemic's impact may be nearly impossible, some policyholders sought to mitigate their losses by filing business interruption (BI) claims under their existing insurance policies against the insurers. It is essential to understand that the success of these claims heavily depended on the type of policy held by the insured, the extent of coverage provided, and the court's interpretation of the policy and its coverage.
In several cases handled by us for different policyholders, who were covered under different Multi-Risks policies that covered them for, among other things, business interruption “as a consequence of loss, destruction and damage related to material damage”. Another head of cover provided indemnity for business interruption loss under different clause (the “Extra Benefits under Business Interruption Clause”) of the policy. This cover included several extensions such as denial of access, infectious disease and actions of competent authorities. The issue was whether these losses (drop of revenue/profits) sustained due closure decisions and later capacity restrictions on the policyholder businesses fell for cover under the Extra Benefits under Business Interruption clause.
The Dubai Court of Cassation recently ruled in favor of policyholders by adopting an interpretation of insurance policy coverage under the Extra Benefits under Business Interruption Clause that it extends to cover such risks. It is also worth to mention that while the courts have the full authority to interpret contracts, they have also the authority to appoint and refer the cases to technical experts whenever there are technical elements involved. Given the technical nature of such claims there was a significant role for the appointed experts in aspects related to quantum and liability.
As result, the court in the above-mentioned cases has adopted that the policy coverage under the Extra Benefits under Business Interruption clause extends to cover the losses sustained by the policy holder as result of the business interruption with taking in consideration a valid point related to the exclusions that pandemics including COVID-19 does not fall under any exclusion within the relevant policies. As highlighted in judgments mentioned below:
In Cassation No. 380/2024 – Civil Cassation, the court decision in its reasoning held that:"The appellant is liable to compensate the respondents for the losses they incurred as a result of the interruption of their business activities due to the outbreak of COVID-19, given that the scope of insurance coverage under the insurance policy at issue includes losses arising from business interruption or interference, including loss of gross profit resulting from the occurrence of a notifiable infectious disease within a radius of 25 miles from the premises. This is in accordance with the additional coverage provided under the policy’s supplementary benefits, specifically under the 'Infectious Diseases Clause,' or as a result of the respondents being denied access to their premises pursuant to orders from local authorities as a direct consequence of the risk.”
In Cassation No. 240/2024 – Civil cassation, the court decision in its reasoning held that:"The policy covers losses from business interruption or interference, including total profit or revenue loss, fines and penalties, fixed charges, or increased operating costs due to loss, destruction, or damage covered under Section One. It also covers business interruption following inventory loss or damage to third-party warehouses or storage facilities affecting sales in outlets.
Losses due to business interruption or interference—including profit or revenue loss, fines, penalties, fixed charges, or increased costs resulting from external damage or incidents in neighbouring areas—are included under the policy’s annex titled "Extra Benefits for Business Interruption".
The policy also covers damages and losses from closures and business interruptions caused by epidemics, infectious diseases, actions of competent authorities, and the local authorities’ clause, with a coverage limit of two months and a mandatory four-day waiting period.”
In Cassation No. 205/2024 – Civil Cassation, the court decision in its reasoning held that:“The appellant company is liable to compensate the respondents for the losses they sustained as a result of business interruption caused by the outbreak of the COVID-19 pandemic, in accordance with the provisions of the insurance policy issued by the company.
This period begins from the date the event occurred and ends no later than the maximum indemnity period—two months—which, in this case, starts on 25/03/2020 and ends on 23/05/2020.
Based on this, the court ruled that the respondent companies are covered under the insurance policy forming the basis of the dispute, which includes business interruption coverage under the section for 'Additional Coverages and Benefits'—specifically the 'Infectious Diseases Clause.'
It also covers unforeseen damage and losses resulting from business interruptions due to orders issued by local authorities."
As result of climate change, countries in the region have experienced several extreme weather events, notably heavy rainfall and widespread flooding. These events have resulted in substantial losses across various sectors, including business interruption, property damage, and extensive vehicle damages caused by floodwaters. In the UAE, the insurance committees and courts interpretation for the insurance policies and it coverages played a crucial role in mitigating losses sustained by the policyholders, this was evident in several cases related to motor vehicle claims.
In such cases, policyholders holding "Comprehensive Coverage" policies, faced rejection of their claims by the insurers on the basis that the floods constituted a ‘natural disaster’—an event explicitly excluded under the terms of the policy. However, insurance committees and courts approach was against applying the exclusion of the natural disaster as no a formal (official) declaration of such a disaster has been issued by the competent authority. As highlighted din judgments below:
In Cassation No. 1132/2024 – Commercial Cassation, the court decision in its reasoning held that:“Since the classification of a natural disaster is only established upon an official declaration by the competent authority recognizing a specific event as such, and given that no such declaration was issued by any official body, nor has the appellant company provided any evidence proving that the rainfall in the city of [location] constituted a natural disaster as per a decision issued by the relevant authority, the said rainfall, which caused damage to the vehicle, does not fall under the classification of a natural disaster.”
As pandemics and the climate change factors continues to reshape the global and regional risk exposures, Recent court decisions clearly demonstrate that the UAE courts are steadfast in protecting policyholders' interests, aiming to reduce their financial burdens caused by such events and ensure they receive the full benefits of their insurance policies if this is applicable under such policies.
Having said that, it is important to note that, as per the legal precedents, the determination of the insured risks by courts refers to what is stated in the insurance policy concluded between the two parties regarding the conditions/terms that define these risks and the exclusions from insurance coverage.
While the court has the authority to interpret the insurance policy and its terms as long as it does not deviate from the apparent meaning of the clear terms and conditions of the policy and what the contracting parties intended. But in cases of ambiguity in interpretation, the interpretation shall be in favor of the insured. According to Article 1034 of the Civil Transactions Law, the insurer is obligated to pay the indemnity or the amount due to the insured or the beneficiary in the agreed-upon manner upon the occurrence of the risk or the maturity of the date specified in the contract.
For further legal guidance on insurance claims and climate change liabilities, our firm remains committed to assisting our clients in navigating this evolving legal terrain.
For further information,please contact Sakher Alaqaileh and Dana Dakwar.
Published in April 2025
