Insurance considerations for insurers and businesses following heavy UAE rainfall

Legal Issues

It is predicted that the recent flooding will lead to increased claims for motor, property and business interruption insurers in the region. 

The expected surge in claims arising from the UAE flood damage is likely to give rise to various legal issues for businesses making claims and for insurers receiving those claims. Some relevant potential issues are explored below.

Property Risk and Business Interruption Policies

Businesses suffering damage from rain are likely to make claims under property policies for costs of repair or replacement of property arising from water damage, as well as claims under business interruption loss coverage where properties were unable to be used while being repaired.

One issue that might arise is where a policyholder has failed to take sufficient precautionary measures as if the asset were uninsured. For example, if an insured has failed to take basic steps to minimise the water damage, or has engaged in a reckless course of action, insurers may have arguments about a breach of policy conditions to act prudently and/or failing to mitigate loss. Property damage insurance policies will often include express terms excluding coverage for any increased liability incurred under the policy because the insured has not taken action to prevent further damage or to minimise their losses.

A pertinent issue for potential business interruption loss claims is the deductible or waiting period applicable to the loss sought. If, for example, a business was up and running within 24 to 48 hours after the flood damage, they may not be able to satisfy the requisite waiting period so as to trigger coverage.²

Motor Polices

Insurance companies have begun receiving claims from car owners whose vehicles were damaged. Many motorists only hold third-party insurance, so will not be indemnified for any damage caused to the policyholder’s vehicle in cases of natural disasters. For those holding comprehensive insurance policies, their policies usually (but may not always) include flooding³ and businesses and insurers will need to consider carefully the basis on which the insurance was provided.

Insurance claims under motor policies may be contested if the damage resulted from the insured’s negligence or lack of care. For example, where a policyholder drove through submerged waters, with the knowledge that a certain area was flooded.

Force Majeure Event Arguments

A pertinent clause in assessing coverage for insurance claims will be the application of any force majeure exclusion clause in a policy. Such clauses usually provide that there is no cover where losses occur by way of “an act of God”.

However, property insurance policies will usually expressly cover damages resulting from rain, flood and such natural disasters.

Professional Indemnity Coverage

The flooding might also result in third party claims being pursued against building professionals, such as architects, engineers, or builders / waterproofing contractors, for a failure to comply with required waterproofing standards. For example, Parts E.7 and K.7.4 of the Dubai Building Code impose minimum standards in relation to the design of building envelopes to ensure that they effectively control moisture to protect a building. 

Where a structure has not been adequately waterproofed, water leakage and seepage will often occur, resulting in damage to walls, ceilings and floors. It is also common for moisture infiltration to lead to mould growth. This can sometimes result in adverse health impacts for occupants, who may commence personal injury proceedings.

Professional indemnity insurers can expect to see policy claims from building professionals, seeking indemnity for the defence costs, losses and damages flowing from third-party actions made against them where a waterproofing failure is alleged.

Rights and obligations after the event

UAE businesses and insurers will need to look carefully at the parties’ rights and obligations after the event, giving rise to loss that has occurred.

Policyholders may have obligations to:

• Take all steps to preserve the property from further loss;
• Inform the police and authorities in relation to certain types of loss;
• Follow the notification procedure outlined in the policy; and
• Provide evidence and information as requested by insurers.

Subrogation 

In the event of a payment, insurers would likely have rights to subrogate and progress recovery from third parties who might have caused or contributed to the loss suffered. This may become particularly relevant where multiple parties are operating in construction sites or in the maintenance of facilities, if the extent of the damage caused resulted from a failure of precautions, safeguards or breach of services by those third parties.