In Brief:
- War, political violence, and related disruptions are commonly excluded from standard insurance policies, including marine cargo, property, and business interruption coverage, which may create unexpected gaps in protection.
- Geopolitical events can significantly impact both insurance coverage and commercial contract performance, especially concerning supply chains, transport, and counterparties.
- A thorough understanding of insurance exclusions, sanctions clauses, and contractual provisions, including UAE Civil Code articles on force majeure, is crucial for effective risk management during regional uncertainty.
With ongoing developments in the Gulf region, companies operating in the UAE are increasingly evaluating how their insurance policies and commercial contracts might respond to regional uncertainty, making a proactive review of existing coverage and contractual obligations essential to manage potential risks and maintain operational continuity.
While standard insurance policies provide a foundational layer of protection, a nuanced understanding of policy exclusions, sanctions clauses, force majeure provisions, and relevant UAE Civil Code articles is critical for effective risk management in such dynamic environments
Insurance Coverage Considerations
Many insurance policies, including marine cargo, property, business interruption, and certain liability covers, typically contain clauses excluding losses caused directly or indirectly by war, political violence, and related disruptions. These exclusions can apply in ways that are not immediately apparent
For instance, a shipment delayed or rerouted due to tensions affecting a key shipping route could lead to financial losses such as spoilage, delay penalties, or contractual liabilities, which may, in some circumstances, fall within these exclusions. Similarly, damage to property or equipment resulting from conflict-related events may also fall outside the scope of standard policy coverage. It is also important to note that some policies may exclude losses arising from cyber incidents where such events occur in connection with war, political violence and related disruptions, in addition to excluding physical damage caused by those events.
Sanctions Considerations
Furthermore, many insurance policies incorporate sanctions clauses that relieve an insurer of its obligation to provide coverage or pay a claim if doing so would violate applicable sanctions laws. For UAE companies with international operations, this creates a significant and complex risk: an otherwise covered loss may become unrecoverable if any party in the supply chain is linked to a sanctioned entity or jurisdiction. This exposure extends far beyond direct counterparties to include the vessel owner, operator, flag state, transhipment ports, or financing banks involved in the transaction.
Consider a UAE-based trading company sourcing components from a supplier in a jurisdiction that later becomes subject to sanctions. The insurer may be entitled to decline coverage for a lost shipment on the basis that payment could be viewed as facilitating a transaction involving a sanctioned entity. Insurers apply these clauses rigorously, as they face severe penalties for non-compliance themselves. This would leave the insured company to bear the full loss, despite having paid its premiums.
Consequently, companies must be prepared to demonstrate that their activities and claims are fully compliant with all relevant sanctions regimes. To reduce the risk of disputes with insurers and ensure clarity on recoverable risks, proactive due diligence and ongoing monitoring of regulatory developments are essential. This diligence must be comprehensive, extending beyond simple screening of direct counterparties to a thorough review of the entire transaction chain. It also requires navigating the complexities of overlapping and sometimes conflicting sanctions regimes from various international jurisdictions, and assessing the potential impact of secondary sanctions, which are designed to affect third parties engaging in certain transactions even without a direct link to the sanctioning jurisdiction.
Contractual Implications
Beyond insurance coverage, companies must also consider the potential implications for their commercial contracts. A thorough review of contracts is necessary to determine whether current developments may fall within the scope of force majeure provisions or engage principles under UAE law
Specifically, Article 249 of the UAE Civil Code allows courts to adjust contractual obligations when extraordinary and unforeseen events render performance excessively burdensome for one of the parties. In more severe situations, Article 273 of the UAE Civil Code provides that where a force majeure event renders performance impossible, the corresponding obligation may be extinguished, and the contract terminated
Practical Steps for Risk Management
To effectively manage these risks, businesses should undertake several practical steps. Firstly, conduct a comprehensive review of all insurance programmes and contractual obligations, paying close attention to exclusions, conditions, warranties, and any force majeure or exceptional circumstances provisions.
Secondly, engage proactively with insurance brokers and underwriters to clarify coverage, explore potential endorsements, and consider specialised products such as political risk or standalone war risk policies.
Thirdly, assess operational and contractual exposure to regional developments, including potential supply chain disruptions, shipping delays, or other conflict-related impacts.
Finally, maintain ongoing monitoring and due diligence, particularly in relation to sanctions regimes and any evolving legal or regulatory requirements.
Conclusion
In conclusion, periods of regional uncertainty underscore the critical importance of proactive and informed risk management. Assumptions about insurance coverage or contractual protections may not always hold true in complex circumstances. By diligently reviewing existing policies, understanding the implications of exclusions and sanctions provisions, and considering the potential impact on key commercial contracts, UAE companies can better assess their exposure and take appropriate steps to strengthen their operational resilience.
If you require any further information in this regard, please reach out to Rami Obeid, Partner, Dispute Resolution at r.obeid@hadefpartners.com.