The DIFC Court of Appeal has overturned a ruling that required a reinsurer to cover defence costs in a $70 mn marine insurance dispute, while confirming that English law governs the reinsurance contract.
In Al Buhaira National Insurance Company (claimant) v Arab War Risks Insurance Syndicate (defendant), the claimant was represented by Nicholas Craig KC of 3VB, instructed by Clyde & Co. The defendant was represented by Alex Potts KC of 4 Pump Court instructed by Pinsent Masons.
The Dubai International Financial Centre Court of Appeal gave both sides a partial win in a marine war-risk reinsurance case between two Middle Eastern insurers.
The court ruled that English law applied to the contract between Arab War Risks Insurance Syndicate and Al Buhaira National Insurance Company, but it rejected an earlier finding that AWRIS had to pay potentially unlimited defence costs, ICLG stated.
Chief Justice Wayne Martin, sitting with Justices Sir Peter Gross and Patrick Keane, issued the judgment on 10 August. The court held that any implied duty requiring AWRIS to reimburse ABNIC’s defence costs clashed with the written limits in the reinsurance contract. The judges called the proposed term unreasonable.
ABNIC won a separate point on contract formation. The court found that a document setting out the reinsurance terms formed part of the agreement, even though AWRIS never signed and returned it.
Those terms mattered because they said AWRIS would follow settlements reached between ABNIC and its insured.
ABNIC, based in Sharjah, provided marine hull and war-risk cover to Dubai-based Horizon Energy and related companies, including the owner of the tanker M/T Beta. The policy insured the vessel for $70 mn. ABNIC then reinsured part of the war exposure with Bahrain-incorporated AWRIS.
Horizon said the Beta disappeared while the policies remained in force. The vessel later turned up in Iran under the name MV Makran, apparently after conversion into an Iranian Navy auxiliary vessel. Horizon argued that the disappearance triggered the war-risk policy.
In September 2024, Justice Robert French found that Horizon and the vessel owner had deliberately or recklessly failed to give ABNIC an accurate risk presentation.
They had represented the Beta as meeting required technical standards for a commercial vessel, when it did not. French held that ABNIC would not have issued the policies if it had known the true position, and allowed the insurer to treat the policies as if they had never existed.
The Horizon proceedings continued in Sharjah. ABNIC then sought rulings on AWRIS’s payment obligations under the reinsurance contract, including the legal costs ABNIC incurred in defending the claim.
At first instance, Justice Michael Black rejected most of ABNIC’s claims. Still, he found that the contract required AWRIS to reimburse ABNIC for properly incurred defence costs. He also awarded ABNIC costs of about AED 4.56 mn.
Both parties appealed.
ABNIC argued that UAE law governed the reinsurance contract. AWRIS said the contract used standard terms from the London marine insurance market, which pointed to English law.
The Court of Appeal sided with AWRIS on governing law. It found that the parties had implicitly chosen English law through their use of London marine market wording. Even without that implied choice, the court said England had the closest connection with the agreement.
ABNIC performed better on the reinsurance terms document. AWRIS argued that the document never became part of the contract because it had not signed and returned it.
The court rejected that argument. AWRIS had received the documents and premiums across four successive years without objection, which showed acceptance of the terms.
The first-instance judge had accepted expert evidence describing a Middle Eastern market practice. Under that practice, reinsurers reimburse legal expenses incurred by insurers handling claims, unless the contract says otherwise. The appeal court said the practice did not justify reading such a term into this contract.
The judges focused on the written limits of AWRIS’s exposure. The proposed implied term would have exposed AWRIS to potentially unlimited defence costs, despite the contract saying nothing clear about those costs.
That was the problem. According to Beinsure analysts, the ruling draws a hard line between market custom and written reinsurance limits, which matters for reinsurers writing regional war-risk business.
The court relied on the English Court of Appeal’s decision in Insurance Co of Africa v Scor (UK) Reinsurance Co, a 1985 case that rejected an open-ended payment obligation where the reinsurance contract expressly capped the reinsurer’s exposure.
The DIFC judges also looked at the position of other reinsurers in the chain. AWRIS passed some risk to London-market reinsurers, which might not know about an unwritten Middle Eastern practice concerning defence costs.
That gap meant AWRIS might fail to recover the same costs from its own reinsurers.
The court found it unreasonable to impose such a burden on AWRIS because it wrote business in the Middle East. It therefore overturned the defence-costs ruling, leaving English law in control of the contract and the written limits of exposure intact.
