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Tariq Idais - Senior Associate
This article provides an overview of a judgment by Abu Dhabi Court of Appeal (Appeal Number 148/2021 Commercial) in relation to a maritime insurance claim.
The question before the Abu Dhabi Court of Appeal was to determine whether the Assured was under an obligation to notify the insurers of risks occurring during the validity of the Insurance Policy that would increase the risks borne by the Insurers within three days of the day the Assured becomes aware of said risk.
Al Tamimi & Company represented the insurers in this matter.
On 08 May 2019, a general trading company (the ‘Assured’, ‘Claimant’) procured, via its insurance broker, a port risk insurance policy with an insurance company (the ‘Insurer(s)’, ‘Defendant’) to cover damages sustained by the Assured’s drilling platform rig (the ‘Rig’) during its dismantling at Musaffah Port in Abu Dhabi for a period of 90 days commencing from 08 May 2019 to 06 August 2019. The insurance policy covers the total loss of the Rig, wreck removal, pollution and third party’s liabilities (the ‘insurance Policy’).
The insurance value for the Rig amounted to US$2,600,000 in case of complete and total loss, and an amount of US$5,000,000 on all liabilities towards third parties, wreck removal value, and pollution.
Furthermore, the Insurance Policy included an express warranties clause which stipulated that: “Warranted no hot work unless approved by warranty surveyor and all relevant permits are obtained” (the ‘Express Warranties Clause’).
In concluding the Insurance Policy, the Assured agreed to adhere to the Express Warranties Clause under the Insurance Policy not to conduct any hot work on the Rig during the validity of the Insurance Policy, unless approved by a warranty surveyor and all relevant permits had been obtained.
At the end of July 2019, the Assured’s broker requested to extend the Insurance Policy for an additional thirty days, until 5 September 2019. The Insurers’ agent agreed to extend the Insurance Policy on the condition that the Assured would confirm that there were no known or reported losses on board the Rig as of 5 August 2019. The Assured confirmed that there were no known or reported losses sustained by the Rig as of 5 August 2019. Therefore, on 5 August 2019, the Insurance Policy was extended until 5 September 2019 (the ‘Extended Insurance Policy’).
On 28 August 2019, the Insurers were advised that the Rig sank on 17 August 2019 while it was being decommissioned, as a result of high tide. Therefore, the Assured submitted a formal claim towards wreck removal expenses. The Insurers conducted an investigation on the Assured’s claim and found that a fire broke out on the Rig on 22 July 2019 twice (the ‘Fire’) which ultimately led to the sinking of the Rig on 17 August 2019.
On 26 July 2020, the Assured filed an insurance claim before the Abu Dhabi Court of First Instance claiming that on 17 August 2019 and during the dismantling of the Rig at Musaffah Port in Abu Dhabi, the Rig sank as a result of high tide and was completely damaged, qualifying as a total loss. Therefore, the Assured claimed the sum of US$7,600,000 for the total loss of the Rig, as well as for the liabilities towards third parties, wreck removal and pollution.
The Insurers filed their defence with the Court and mainly argued the following:
Hence, the Assured’s claim must be dismissed based on the basis it breached the Express Warranties Clause under the Insurance Policy and did not obtain the required approvals from the warranty surveyor and the relevant authorities prior to conducting hot works on the Rig.
Alternatively, this claim must be dismissed based on Articles 385, 388 and 389 of the Maritime Commercial Law (the ‘Law’), as the Assured failed to inform the Insurers of the Fire on the Rig during the effective term of the Insurance Policy and/or when the Assured requested the extension of the Insurance Policy.
Article 385 (c) of the Law states:
“The insured shall be obliged as follows:
…to notify the insurer during the currency of the contract of any increase in the insured risks so far as he knows of the same.”
Article 388 of the Law states:
“1. It shall be permissible for the insurer to require that the contract of insurance be rescinded if the insurer has given him any incorrect particulars, even though there has been no fraud, or if he has deliberately remained silent about matters which he should have revealed, and such silence is such as to cause the insurer to underestimate the risks.
2. A court may order that the contract be rescinded even though the incorrect particulars or silence have not affected the damage sustained by the items insured.”
Article 389 (1) of the Law states:
“The insured must notify the insurer of circumstances occurring during the currency of the contract which are such as to increase the risks borne by the insurer within three days from the date that he knows of the same, not counting official holidays. If notification is not given within the said period, it shall be permissible for the insurer to cancel the contract”.
The Assured responded to the Insurers’ defence arguments that it is irrelevant if the losses sustained were because of the Fire or the high tide, since the Insurance Policy covers all port risks including fires. Furthermore, the Assured’s claim is based on the original Insurance Policy, as the insured risk occurred on 22 July 2019 during the validity of the original Insurance Policy and not during the validity of the Extended Insurance Policy. Therefore, the Assured was not acting in bad faith when it requested to extend the Insurance Policy. In other words, it is irrelevant whether the Assured informed the Insurers about the Fire at the time of extending the Insurance Policy, as the Assured’s claim had occurred before extending the Insurance Policy. Furthermore, the Express Warranties Clause under the Insurance Policy is invalid based on Article 1028 (c) of the Civil Transactions Law. Moreover, even if the Assured did not inform the Insurer about the Fire according to Articles 385 and 389 of the Law, the Assured will not lose their right to claim compensation under the Insurance Policy from the Insurers. Therefore, the Court should accept their claim.
Article 1028 (c) of the Civil Transactions Law provides:
“Any of the following provisions appearing in a policy of insurance shall be void: any printed clause not shown conspicuously, if it relates to any circumstance leading to the avoidance of the contract or the lapse of the right of the assured.”
On 29 December 2020, the Abu Dhabi Court of First Instance handed down its judgment and decided to dismiss the Assured’s claim. The Court based its judgment on the following grounds:
the Fire broke out on 22 July 2019 predating the sinking incident by 25 days;
Thus, the Court decided to dismiss the claim, as the Assured failed to perform their contractual obligations under the Insurance Policy and did not inform the Insurers of the Fire by virtue of the Maritime Commercial Law.
The Assured filed an appeal before the Abu Dhabi Court of Appeal challenging the Court of First Instance’s judgment. The Assured argued the following in its appeal:
Therefore, the Assured requested from the Court of Appeal to accept its appeal and oblige the Insurers to pay the Assured the claimed amount. Alternatively, refer the claim for investigation and to hear the oral testimony of the representative of the Assured’s broker, in respect of whether he was informed/notified by the Assured of the Fire within three days or not, or appoint a marine insurance expert with the mandate of investigating whether within three days the Assured informed/notified their broker of the Fire.
The Insurers reiterated all their arguments which were raised before the Court of First Instance and confirmed that the appealed judgment was issued in accordance with the Law. Moreover, the Insurers added the following arguments:
Therefore, the Insurers requested the Court of Appeal to dismiss the appeal and uphold the judgment of the Court of First Instance.
On 24 February 2021, the Court of Appeal decided to dismiss the Assured’s appeal and uphold the Court of First Instance’s judgment. The Court of Appeal found that the Court of First Instance’s judgment was issued in accordance with the Law. Accordingly, the Court of Appeal adopted the findings of the Court of First Instance and referred to it as part of its judgment. Moreover, the Court of Appeal added the following reasons to its judgment:
Hence, the Court of Appeal decided to dismiss the Assured’s appeal.
Although the Court of Appeal’s judgment is appealable and that the Supreme Court may uphold or revoke the said judgment (if is appealed), it is advisable that the assured always acts in good faith with their insurers and informs them of the circumstances and risks which occur during the effective term of the insurance contracts immediately. Otherwise, the assured’s maritime insurance claims might be dismissed on a technicality based on Articles 385 and 389 of the Law.