Ruby Modare Senior Associate
Success with subrogation in the UAE
Insurers often perceive subrogated recoveries as challenging and uncertain in this region and that can be true to some extent. However, we have seen a number of successful recoveries in the UAE and we believe the key to success is to recognise that there are differences between the UK and UAE law and procedure and to prepare the recovery action accordingly.
Article 1030 of the Civil Code recognises the concept of subrogation in the context of insurance. However, despite the Civil Code’s recognition of insurers’ right to subrogate, the laws relating to insurance and subrogation are considered relatively unsophisticated. The UAE is a civil law jurisdiction whereby one cannot rely on case law as precedent to iron out uncertainties or gaps in the statute. That is not to say however that recoveries cannot be successful. We set out some examples of issues to consider and best practices below.
Order of priority
The UAE statute does not deal with issues such as the order of priority in respect of a subrogated recovery. The position in the UK has been clarified by the case of Napier and Ettrick (Lord) v R F Kershaw Ltd and Others  1 All ER 385 whereby the principle of “pay up and recover down” was set out. According to the “pay up recover down” rule, following a recovery, the insured is first paid in respect of its uninsured losses only and the insurer is then paid second in respect of the indemnity. The surplus, if any, is put towards the insured’s excess.
Since the position regarding the order of recovery is not addressed in the UAE statute (and in the absence of case law acting as precedent) insurers will need to agree in advance the order of priority for payment of the recovery. Ideally, the policy terms would stipulate the order of priority for payment of the subrogation proceeds. In the absence of any direction from the policy, insurers should seek to agree the order of priority with the insured in a separate agreement. Note that the Civil Code states that an agreement between two consenting parties will be upheld unless it is contrary to a mandatory provision of law.
Loss Adjuster evidence
Insurers often understand that they are able to rely on the loss adjuster’s report as evidence of the extent of loss in subrogation claims. In England, recent case law has confirmed the position that the loss adjuster’s report will be evidence of the loss unless there is good evidence to demonstrate that the sum was not in fact reasonable. (Brit Inns Limited v BDW Trading Limited  EWHC 2143.) The court explained that:
“Although not strictly a principle of recovery of damages, it is right to note that where… the scope of the works and their cost were the subject of scrutiny by a third party (the insurers and the loss adjusters acting on their behalf) with a clear incentive to ensure that the sums paid out were kept to a minimum, the court is likely to attach significant weight to the reasonableness of the sums paid out.”
According to the letter of the law in the UAE, a loss adjuster’s report is not admissible evidence and is generally considered bias. This is very different to the position in England where the loss adjuster is considered independent. In practice, we find that the UAE court experts are certainly keen to review the content of the loss adjuster’s reports. The court will often rely on the loss adjuster report insofar as it documents the facts of the case or insofar as it attaches documents in support of quantum.
That is not to say however, that the court will necessarily agree with the sum paid in respect of the loss – i.e. the court might disagree with what has been regarded as a reasonable expenditure in calculating the indemnity paid. The court will often appoint a court expert and ultimately make its own conclusion in respect of quantum and insurers should take this into account when considering their level of likely recovery.
We have highlighted some examples of issues to bear in mind when considering subrogated recoveries in the UAE. When considering the level of quantum likely to be recovered and in order to maximise the chances of success, insurers should:
- consider whether the order of priority for recovery payments has been sufficiently agreed with the insured (within the policy or otherwise);
- review the basis of the indemnity in light of the local court’s approach to calculating losses;
- ensure that the relevant quantum documents have been preserved and organised in a manner which will be accepted by the local courts.
There are a number of further elements to preparing a successful subrogated recovery action in the UAE. For further advice on subrogated recoveries in the UAE, please contact Senior Associate, Ruby Modare.