Filing Insurance Claims for Force Majeure Events: What You Need to Know
Force Majeure is a legal concept commonly included in economic and commercial contracts, which exempts parties from liability in the event of unforeseen natural disasters or incidents that disrupt the expected course of events, preventing them from fulfilling their contractual obligations. In essence, if a party is unable to perform its duties due to circumstances beyond its control—rendering performance undesirable, commercially impractical, illegal, or impossible—the obligation is automatically terminated. Force majeure can encompass natural disasters, such as earthquakes and floods, as well as human-induced events, including wars.
From the previous definition of force majeure, we can identify three conditions that must be met for liability to be excluded:
1. Impossibility of Predicting the Incident: This condition is objective and requires that the event be entirely unforeseeable, not just from the perspective of the debtor but also from the viewpoint of the most cautious and careful individual.
2. Impossibility of Preventing the Incident: The event must not only be unpredictable but also impossible to prevent. It must result in the absolute impossibility of fulfilling the obligation. If the debtor could prevent the incident but fails to do so, he cannot be exempted from liability, even if the incident was unforeseen.
3. The Incident Must Be External: This means that the defendant is not at fault for causing the event. If the defendant either causes or contributes to the occurrence of the incident, it does not qualify as force majeure, even if the first two conditions are met, and the defendant will not be exempted from liability. Additionally, if the incident is internal to the obligation or situation, it does not qualify as force majeure.
Does Force Majeure Have any Effects?
The occurrence of force majeure leads to the suspension or extension of the legally prescribed deadline for completing an action. In terms of establishing liability—whether tortious or contractual—three key elements must be present: error, damage, and a causal link between the two. If an external cause intervenes and disrupts the causal link, liability may not be established. External causes include: (1) force majeure or unexpected accidents, (2) the fault of the injured party, and (3) the fault of a third party. If a party can prove that the damage was caused by an external factor beyond their control, they are not liable for compensating the damage.
Regarding the performance of contractual obligations, force majeure exempts the obligor from fulfilling their obligation. In relation to the application of binding legal rules, the principle that “ignorance of the law is no excuse” means that once a law is published, all individuals are presumed to be aware of it. Therefore, ignorance of a legal rule cannot be used as a justification to avoid compliance or adherence to its provisions.
Legislations on Insurance
In insurance policies, a force majeure clause may excuse one or both parties from fulfilling their obligations under specific circumstances, thereby relieving them of liability for non-performance caused by unforeseen events.
If a force majeure event is not covered in the insurance policy, the insurance company may not be liable to cover the damages. Article 287 of the UAE Civil Transactions Law states that “If a person proves that the loss arose out of an extraneous cause in which he played no part such as a natural disaster, unavoidable accident, force majeure, act of a third party, or act of the person suffering loss, he shall not be bound to make it good in the absence of a legal provision or agreement to the contrary.”
Also, Article 249 of the same Law states that “If exceptional circumstances of a public nature which could not have been foreseen occur as a result of which the performance of the contractual obligation, even if not impossible, becomes oppressive for the obligor so as to threaten him with grave loss, it shall be permissible for the judge, in accordance with the circumstances and after weighing up the interests of each party, to reduce the oppressive obligation to a reasonable level if justice so requires, and any agreement to the contrary shall be void.”
Further, Article 273 of the same Law states that “1. In contracts binding on both parties, if force majeure supervenes, which makes the performance of the obligation impossible, the corresponding obligation shall cease, and the contract shall be automatically cancelled. 2. In the case of partial impossibility, that part of the contract that is impossible shall be extinguished, and the same shall apply to temporary impossibility in continuing contracts, and in those two cases it shall be permissible for the obligee to cancel the contract, provided that the obligor is so aware.”
Additionally, in a 2021 ruling, the Court of Cassation affirmed the application of force majeure in insurance claims. The court emphasized that for a party to be exempted from liability, force majeure must be the sole cause of the damage.
It is important to highlight the circulars issued by the UAE Central Bank to address the impact of the adverse weather conditions happened in April 2023 in the UAE. The Central Bank issued the following two circulars:
1. On March 5, 2024, the Central Bank of the United Arab Emirates launched a new portal called (Sanadak) to register complaints against licensed financial institutions and insurance companies in the event of any dispute with insurance companies regarding compensation for rain damage.
2. On April 22, 2024, the UAE Central Bank issued a circular authorizing banks and financing companies operating in the State to defer personal and car loan instalments for a period of six months to mitigate the repercussions of the weather conditions in the State, as the aforementioned circular stated the following:
“The Central Bank today issued a notice to all banks and insurance companies to allow the deferral of repayment of instalments of personal and car loans for customers affected by the repercussions of the weather condition for a period of six months. The deferral shall be without imposing additional fees, interest or profits, or otherwise increase the principal amount of the loan for the deferral of the repayment of instalments.
On the other side, the Central Bank further confirmed that the damages to vehicles and homes resulting from the heavy rains during the weather condition the country witnessed last week are covered by insurance if there is an insurance policy against loss and damage or what is normally referred to as “comprehensive insurance”. The insurance companies shall be considered responsible for indemnification.
The Central Bank further added that the same applies to homes as well. In that, owners of real states, whether homes or buildings covered by insurance are entitled to have their property repaired from damages caused by the recent rains and weather conditions. The Central Bank urges the public to carefully read and comprehend the insurance policy to protect their insurance rights, and approach SANADAK, the financial and insurance ombudsman, if they have a complaint or dispute with the insurance company.
Property owners looking to insure their property should thoroughly review the terms of the insurance policy before signing, as this will help them understand the coverage in case of natural disasters. Standard vehicle insurance documents for loss and damage usually state that the insurance company is not responsible for compensation due to natural disasters. However, the insured party may negotiate additional coverage beyond what is provided in the standard policy, through an agreement between both parties that includes extra terms to address such coverage.
Policyholders should carefully evaluate their needs and select the appropriate coverage to ensure sufficient protection against potential risks. It is equally important to review the policy’s exclusions to understand which events are not covered. Common exclusions often include acts of war, terrorism, and intentional actions.
It is important to note that the standard motor insurance policy against loss and damage, issued under the Standard Motor Vehicles Insurance Policies and based on the Insurance Authority Board of Directors Resolution No. 25 of 2016, specifies in Clause 9 of Chapter Four that “The company shall not be liable to pay any compensation for the following matters: accidents that have occurred, caused, resulted from, or are directly or indirectly related to natural disasters such as floods, tornadoes, hurricanes, volcanoes, earthquakes, or tremors.” Natural disasters, as defined in the document, refer to any widespread phenomenon arising from nature—such as floods, tornadoes, hurricanes, volcanoes, earthquakes, and tremors—that leads to extensive damage and is officially recognized by the relevant authorities in the state.
This means that coverage for damage caused by rain and storms to vehicles under most insurance policies in the UAE relies on the competent authorities officially classifying the weather conditions as a “natural disaster.” However, if an individual signs an insurance policy that explicitly includes coverage for damage caused by rain or natural disasters, the insurance company is legally required to compensate the insured for any resulting losses.
If the insurance policy includes a specific clause covering force majeure events, such as natural disasters and rain damage, the insurance company may be legally obligated to compensate the insured. However, it is important to note that insurance policies often set limits on the coverage amounts for damages resulting from such events. If the damage exceeds these limits, the insured may not receive full compensation.
While a force majeure clause can limit parties’ liability for events beyond their control, it does not relieve them of responsibility for damage arising from their own negligence. If the insured’s actions or negligence contribute to the occurrence or severity of the event, they may still be held liable for the resulting damages. For example, if a vehicle is damaged by rain and floods while in motion during adverse conditions, the insurance company may limit its responsibilities.
From the above, we can conclude that the success of an insurance claim is primarily determined by the specific wording of the policy, especially the force majeure clause, the insurable risks clause, and any exceptions listed. The precise language in these clauses acts as the key reference for determining coverage for force majeure events in the agreement between the insurer and the insured. When both parties agree to include coverage for natural disasters, the insurer is responsible for compensating damages, provided the insured is not at fault for the event.
A thorough understanding of the force majeure clause, its implications, and effective strategies for managing it can empower individuals and companies to handle unforeseen events with confidence, ensuring their interests are safeguarded and minimizing potential risks.
The article is for informational purposes only and is not intended to serve as legal or tax advice. Readers should not rely on the information provided here for making tax-related or legal decisions. For specific advice, it is essential to consult with a specialist tax and legal advisor.
For further advice please contact our Senior Counsel Hassan Tawakalna at [email protected]
