Insurance contracts under the UAE 2025 Civil Transactions Law

Introduction
Insurance contracts in the UAE have long been governed by the Civil Transactions Law (Federal Law No. 5 of 1985) (the “Current Civil Code”), which establishes the contractual framework for the relationship between insurers and policyholders alongside the regulatory regime administered by the Central Bank of the UAE. While the existing provisions, contained in Book Two, Chapter Three (Articles 1026-1055), address core matters such as disclosure, indemnity, limitation periods, and subrogation, their practical operation has largely been shaped by standard-form policy wording and judicial interpretation, particularly in relation to forfeiture clauses, notification requirements, and technical defenses to cover.

Federal Decree-Law No. 25 of 2025 (the “New Civil Code”), which will enter into force on 1 June 2026, re-states the insurance contract provisions in Section Three (Articles 953-984) of Book Two in a more consolidated and systematic form. The substantive principles are largely preserved; however, the revised framework imposes clearer statutory controls on restrictive policy terms and provides greater precision in relation to disclosure, indemnity, and limitation periods.

In this article, we analyze the principal developments introduced by the New Civil Code and their practical implications for insurers, policyholders, and legal practitioners

Definition of Insurance
The Current Civil Code defines insurance in Article 1026 as a contract through which the insured and the insurer “cooperate” in addressing insured risks. This definition reflects the traditional doctrinal understanding of insurance as a cooperative mechanism for managing risk.

The New Civil Code reformulates the definition. Under Article 955, insurance is defined primarily by reference to the insurer’s obligation to provide compensation upon the occurrence of the insured risk.

This shift reflects a more modern contractual approach that emphasizes the insurer’s financial obligation rather than the cooperative nature of the arrangement. While the practical functioning of insurance contracts remains unchanged, the revised definition provides greater conceptual clarity and supports the development of more diverse insurance products.

Contractual Terms and Protection of the Insured
Under the Current Civil Code, the insurance provisions have generally been interpreted as protective rules. However, the legislation does not expressly prevent parties from contracting out of those provisions, leaving courts to rely on general principles of good faith when assessing restrictive policy wording.

The New Civil Code introduces a clearer safeguard. Article 954 provides that any agreement that contravenes the insurance-law provisions is void unless it operates in favour of the insured or the beneficiary. In addition, Article 958 introduces a further safeguard by allowing the court to invalidate policy conditions that are arbitrary, namely where their breach has no causal impact on the occurrence of the insured event.

Together, these provisions therefore limit the ability of insurers to rely on restrictive policy conditions that are unrelated to the insured risk and reinforce the protective character of the insurance provisions.

Insurer Liability and Indemnity
The Current Civil Code requires the insurer to pay the agreed insurance amount upon the occurrence of the insured risk. The legislation does not, however, expressly state that indemnity must be limited to the actual damage sustained.

The New Civil Code clarifies this position. Article 963 confirms that compensation may not exceed the insurance value and must be limited to the damage actually stained as a result of the insured risk. This clarification reinforces the indemnity principle and reduces the risk of exaggerated claims by linking compensation to the actual damage suffered.

Limitation Periods
Both the Current Civil Code and the New Civil Code provide a three-year limitation period for claims arising from an insurance contract. However, the Current Civil Code does not clearly identify the trigger for the commencement of this limitation period.

The New Civil Code addresses the commencement of the limitation period in more precise terms. Article 966 identifies specific trigger points, including the occurrence of the insured event and situations involving recourse by third parties. This approach reduces uncertainty as to when the limitation period begins to run and provides a more predictable framework for the resolution of insurance disputes.

Fire Insurance and Subrogation
The provisions governing fire insurance have been reorganized under Article 968-976 of the New Civil Code. While the core principles remain largely unchanged, the revised provisions provide greater clarity regarding the insurer’s liability in cases involving non-intentional fault and reaffirm the exclusion of liability where damage results from intentional acts or fraud.

In addition, Article 976 confirms the insurer’s right of subrogation against the party responsible for the insured loss, while preserving the traditional exceptions applicable to close relatives and persons living in the same household as the insured. This provides a clearer statutory basis for insurers seeking recovery after indemnifying the insured.

Takaful Insurance
One of the notable developments introduced by the New Civil Code is the recognition of Takaful Insurance (Article 967). Under this structure, participants contribute financial shares to a common fund which is invested collectively, with returns distributed among participants in accordance with the agreed terms.

The inclusion of these provisions reflects the continued development of Sharia-compliant financial structures within the UAE’s legal framework and provides a clearer statutory basis for Takaful insurance arrangements.

Removal of the Prohibition on Interest
Under the Current Civil Code, Article 1054 prohibited the inclusion of usurious interest with insurance sums. The deletion of this provision under the New Civil Code reflects the evolution of modern insurance practices and removes a restriction that previously affected certain commercial insurance structures.

Life Insurance
The provisions governing life insurance have also been reorganized under Articles 977-985 of the New Civil Code. Among the developments introduced is Article 980, which clarifies that a beneficiary who intentionally causes the death of the insured will be deprived of the insured proceeds. This provision reinforces existing legal principles concerning intentional acts and provides clearer statutory guidance on the treatment of beneficiary rights.

Conclusion
The New Civil Code represents an important development in the evolution of UAE insurance legislation. While preserving the fundamental principles governing insurance contracts, the revised provisions introduce clearer statutory protections, greater certainty in the interpretation of policy terms, and recognition of Sharia-compliance insurance structures through Takaful. These developments provide a more coherent framework for insurers and policyholders and are expected to influence both policy drafting and the resolution of insurance disputes going forward.

To learn more, please contact our Senior Patner, Fadi Hassoun at fadi@galadarilaw.com, and Partner, Hasan ElShafiey at hasan.elshafiey@galadarilaw.com.

 

	Fadi Hassoun Senior Partner fadi@galadarilaw.com
	Hasan ElShafiey Partner hasan.elshafiey@galadarilaw.com