In the United Arab Emirates the insurance brokerage profession is regulated by Insurance Authority Board of Directors resolution No. 15 of 2013 (as amended by resolution No. 20 of 2014) (the “Regulations”) and resolution No. 58 of 2015 in respect of the execution of resolution No. 15 of 2013 (the “Execution Rules”).
A company may not practice insurance brokerage in the UAE without obtaining a license from the Insurance Authority. A license is valid for one year and renewable on a yearly basis. It expires at the end of December each year. Companies wishing to obtain a license from the Insurance Authority must meet certain requirements set by the Regulations. Among those requirements, the applicant must be a company incorporated in the UAE under the Commercial Companies Law or a branch of a company incorporated in a foreign country or in a financial free zone in the UAE provided that it is licensed to practice the same types of insurance brokerage. It should also be subject to the same level of regulatory authority and have been in practice for a period not less than five years. The Insurance Authority under the regulations has the power to set additional requirements beside those stipulated in the regulations.
The technical staff of the insurance broker should also meet certain requirements set by the Regulations. The insurance Broker must have at least a general manager, operation manager, internal auditor and at least one specialized employee for each type of insurance. The Execution Rules further stipulates specific requirements for each of the said employees and the person responsible for the branch.
The insurance broker is required to submit an unconditional bank guarantee payable on demand to the Insurance Authority chairman of the board of directors. This may be liquidated fully or partially at any time in order to guarantee the settlement of the broker’s transactions and obligations arising from his practice toward the insurance companies and his customers.
The insurance broker must obtain an insurance policy in favour of the Insurance Authority chairman of the board of directors covering the broker’s professional liability. The value of this policy must be at least AED 2 million for companies incorporated in UAE and AED 3 million for a branch of a company incorporated in a foreign country or in a financial free zone in the UAE.
The Regulations set certain obligations which the insurance broker must comply with towards the Insurance Authority, the insurance companies and the broker’s customers. The insurance broker should follow up and collect the premiums on behalf of the insurance companies except those related to life insurance and funds accumulation operation, group health insurance, marine and air transport insurance, vessels hull and petroleum insurances.
Federal Law No. 6 of 2007 (in respect of the establishment of the Insurance Authority and Regulating the Insurance Practice) (the “Law”) defines an insurance broker as:
“The person mediating independently in insurance or reinsurance operations between the insurance/reinsurance applicant on one hand and the insurance/reinsurance company on the other, and charging, for his services, a commission from the insurance/reinsurance company with which the insurance/reinsurance policy is concluded.”
The role of the insurance broker in UAE is not different from that practiced in other jurisdictions. Insurance brokers are not responsible for the default of either the insurance companies or the customers in meeting their financial obligations. The insurance broker is only liable if the broker fails to deliver premiums paid by the customers to the insurance companies, or fails to deliver recoveries paid by the insurance companies to the customers.
Despite the fact that the laws in the UAE have defined the role of insurance brokers, in a recent case which Al Tamimi was not involved but which has come to our notice, the Dubai courts held that an insurance broker in a reinsurance brokerage transaction was liable to pay recoveries due to an insurance company from a reinsurance company. The facts of the case, as we understand them, were as follows:
The court of First instance appointed an accounting expert who examined the documents including the correspondence exchanged between the Broker and the Reinsured, the accounts and the cover notes. The appointed expert concluded that:
The Broker argued that:
The Court of First Instance adopted the findings of the expert and held that the Broker was liable to pay to the Reinsured the recoveries claimed under the reinsurance contract.
The Broker filed an appeal before the Appeal Court and raised the same arguments. The court appointed an insurance expert who concluded that:
However the Appeal Court rejected the findings of the expert and upheld the Court of First Instance judgement, adopting the same reasons as those detailed in the Court of First Instance’s expert’s report.
The Broker appealed the judgement before the Cassation court. The court rejected the appeal and confirmed the Appeal Court judgment. The reinsurance contract (second cover note) was concluded between the Broker and the Reinsured. Although the Reinsurer had signed the first cover note, it was the Broker who was liable since he issued the second cover note and the signature of the Reinsurer on the first cover note did not constitute an acceptance of coverage of the insured risks.
The findings of the Dubai Courts in this case are surprising. It is likely that the court applied general rules of contract and did not take into account the nature of the reinsurance practice followed by the brokers where cover is made by virtue of a cover note. This case is the first of its kind in the UAE and so its conclusions cannot be said to have a lot of weight. Several cases of the same kind have to be heard before the UAE courts to establish a rule on the liability of the insurance brokers for reinsurance claims where reinsurance cover is made through issuing two separate cover notes. It is hoped that future decisions will depart from the findings in this case and uphold the industry practice.