This year marks the 45th anniversary of Royal Decree 12/79 Promulgating the Insurance Companies Law (the Insurance Law).
This law is crucial in defining the rights and obligations of parties to insurance contracts in Oman. In addition to regulating the operations of insurance entities, the Insurance Law prescribes essential protections for insureds, limiting an insurer’s ability to avoid liability in specific, codified circumstances. These protections are mandatory; they apply regardless of a policy’s wording.
It is critical for insurers, intermediaries, and insureds to grasp the scope of these statutory protections. As Oman’s insurance sector continues to evolve with changing risks, the 45th anniversary of the Insurance Law is an opportune moment to review these protections and other key provisions.
- Protection for insureds
Article 58 of the Insurance Law outlines statutory protections for insureds.[1] It prescribes five conditions which, if contained in an insurance policy, will be deemed null and void.
Importantly, these protections apply equally to individuals and corporate entities. The lack of distinction suggests a deliberate effort to ensure uniformity in the insurer-insured relationship. We explore each of these five prohibited provisions in further detail as follows.
Notably, the regulation of the insurance sector is further supplemented by the Executive Regulations to the Insurance Law and other key pieces of subordinate legislation and directives. These include circulars issued by the Financial Services Authority (previously Capital Markets Authority).
- Insured’s breach of the law
Insurance policies often exclude cover for breaches of applicable laws by the insured. However, under the Insurance Law, such exclusions are rendered null and void unless the breach was deliberate. Specifically, Article 58(1) states a provision in a policy shall be treated as null and void if it is:
‘A provision which forfeits the right in insurance as a result of violation of rules and regulations, unless such a violation includes a deliberately committed crime.’
Thus, an insurer cannot void coverage solely because the insured’s actions, which breached the law (civil or criminal), were merely negligent. Such actions must have been a deliberate crime. Notably, in a case considering this provision, the Omani Court emphasized that to enliven Article 58(1), the insured must have ‘deliberately inflicted damage to others’ or ‘deliberately achieved the insured risk.’[2]
Article 58(1) is salient in cases where the insured faces fines or prosecution by government authorities for the same acts or omissions which caused the relevant loss event. This can commonly arise in scenarios involving large scale property damage under construction all risks policies, or general liability policies. Events giving rise to claims in such circumstances often, in parallel, trigger governmental penalties, such as fines for breaches of health and safety laws.
Therefore, unless the insurer proves the insured intentionally engaged in unlawful conduct (a notably high threshold) a policy exclusion clause based solely on an insured’s breach of Omani law may not survive judicial scrutiny given Article 58(1).
- Delays in reporting and notification
Article 58(2) prevents an insurer from denying cover if the insured has not reported an incident to the appropriate authority or provided ‘the relevant documents’ due to a justifiable reason for the delay. Specifically, the provision states:
‘A provision which deprives the insured of his right on the grounds of delay on his part in reporting the accident against which he has been insured to the authorities, or a delay in submitting the documents, provided there is circumstantial evidence that the delay was caused by an acceptable reason.’
The above provision is orientated towards assisting an insured who seeks cover for loss from a peril which the insured did not immediately detect. A latent defect to building works would be a classic example of such scenario. Importantly, the requirement for an ‘acceptable excuse’ allows for judicial discretion in determining if an insured’s delay in reporting an accident was reasonable. This will require an examination of the objective facts and circumstances giving rise to the claim. Article 58(2) provision is however unlikely to benefit an insured who has not made reasonable efforts to investigate the loss event or understand its full details when it would have been reasonable to do so.
Hence and as a general principle, it remains incumbent upon an insured to promptly investigate and notify its insurer of any facts or circumstances that may give rise to a claim under its policy. Such notification should be provided irrespective of the insured’s own view of its own liability (or lack therefore) for the potential loss event.
- Highlighting policy exclusions
One of the most litigated provisions of the Insurance Law relates for the requirement for important clauses in an insurance contract to be prominently displayed.
Specifically, Article 58(3) states an exclusion will be void if it amounts to:
‘A provision which has not been printed prominently and relates to the situation that leads to nullification of the right.
This provision prevents an insurer from relying on an exclusion in the policy if it was not prominently displayed, thereby protecting insureds from having their coverage declined due to an inconspicuously displayed exclusion.
With insurance contracts commonly running to many pages in length and incorporating extensive provisions from annexures, Article 58(3) can have material consequences for all parties if the insurer seeks to invoke an exclusion.
The principles underpinning Article 58(3) will be familiar to both civil and common law lawyers. Other GCC jurisdictions, most notably the United Arab Emirates, mandate that exclusion clauses must be in written in ‘…bold characters, a different print colour and initialed by the insured.’[3]
Similarly, and in the context of English law, Lord Denning’s famous statement of the need for a ‘big red hand’[4] to draw attention to an exempting condition shares parallels with the objectives of Article 58(3).
Unlike the equivalent provision in the UAE, Article 58(3) does not specifically prescribe what must be done to prominently display an exclusion.
However, considering practices and judicial commentary from other GCC jurisdictions, displaying an exclusion in a separate square frame or in different ink or font is likely to be sufficient to discharge an insurer’s obligation to prominently display an exclusion clause as required by Article 58(3). It has been opined by the Omani Courts that displaying an exclusion clause in the general conditions of a policy (as opposed to a ‘special agreement’) would also suffice, providing such exclusion is ‘clearly visible.’[5]
Underwriters and others involved in policy drafting must carefully consider the requirement for exclusions to be prominently displayed. This is especially important when using template wording from overseas policies. Such policies, incorporating standard policy wording originating outside of Oman, may not meet the display standards required by Article 58(3) and could therefore be invalidated.
- Arbitration agreements
Insurance policies commonly specify that any disputes or disagreement are subject to resolution via arbitration. However, it does not automatically follow that such arbitration agreements will be upheld if the required formalities of the Insurance Law are not met. To that end, Article 58(4) of the Insurance Law states agreements to arbitrate will be null and void if:
‘[the arbitration agreement]…is included in the policy as part of its general printed conditions and not in the shape of a special agreement, separate from the general conditions.’
Hence and as with policy exclusions, an arbitration agreement cannot be simply embedded or ‘buried’ into the body of the policy wording and still be valid. The prescriptive requirements for arbitration agreements to be considered binding are unsurprisingly, given the significance of parties in effect opting out of the local court system in favour of arbitration. There are major differences in terms of cost, convenience, and procedure between court litigation and arbitration. Compliance with Article 58(4) is therefore of crucial importance if arbitrational is the desired dispute resolution mechanism in the policy.
In a notable case, [6] the Omani Court swiftly rejected an insurer’s challenge to its jurisdiction, citing an arbitration agreement that was not clearly separated from the policy wording.
The Court noted, when considering Article 58(4): ‘…the legislator valued the special importance of the arbitration clause in the insurance contract, requiring a notice…of its existence to be contained in the form of an agreement separate from the general conditions…and arranged a penalty [if not contained in a special agreement] that it be null and void.´ In a more recent decision, the Supreme Court of Oman overturned two lower court judgments that had ruled an arbitration agreement in an insurance policy’s general conditions to be valid. In doing so, the Supreme Court restated the principles of Article 58(4) and the inherent need for arbitration agreements to be displayed in a separate agreement.[7]
Further, explicit written consent to arbitration is a cornerstone of the arbitral process.[8] Jurisdictional challenges may arise if an insurer, exercising its subrogation rights, pursues a third-party wrongdoer in arbitration, as the third party is unlikely to have consented to be bound by the arbitration agreement between the insurer and the insured.
Insurers who want insured parties to be bound by arbitration agreements should ensure that these agreements are displayed separately from the main policy wording. For added precaution, it is advisable to obtain the insured’s signature on any arbitration agreement to reduce the risk of the provision being invalidated under Article 58(4). Underwriters should closely examine other Omani procedural requirements[9] for arbitration agreements to ensure that disputes are resolved in the desired forum.
- Arbitrary conditions
Finally, Article 58(5) operates to void:
‘Any other arbitrary condition the violation of which proves not to have caused the happening of the occurrence insured against.’
The Insurance Law does not define what will amount to an ‘arbitrary condition.’ Article 58(5) is relevant when an insurer relies on an exclusion while the insured disputes any causal link between that exclusion and the loss. This highlights the importance of insurers clearly particularising (in writing) the reasons for declining coverage, specifically linking the exclusion to the circumstances of the insured’s claim.
- Subrogation
Subrogation is a key part of the insurance framework, allowing the insurer to step into the shoes of the insureds and pursue third party wrongdoers. Notably, the Insurance Law does not codify any right of subrogation, although and notably, such rights are enshrined in legislation in respect of marine and motor vehicle insurance.[10]
Additionally, while the Omani Civil Code includes provisions akin to subrogation principles in the context of debt assignments, it explicitly states that insurance contracts are governed by specialized laws specific to the insurance sector, rather than the Civil Code itself.[11]
However, an insurer’s rights of subrogation have been recognised under general Omani law principles in certain scenarios.[12] Any potential subrogation claim therefore requires careful examination on a case-by-case basis to ascertain if such rights are likely to be enlivened and enforced by the Omani Courts.
- Provision of Arabic wording
Whilst English is commonly used in business transactions in Oman, insurers must be mindful of the Arabic language requirements imposed by the Insurance Law.
Article 60 of the Insurance Law stipulates that all insurance policies issued in Oman must be in Arabic, or alternatively, accompanied by a true Arabic translation. The Arabic version prevails in the event of any dispute concerning interpretation. This aspect is particularly crucial, lest insurer and insureds find themselves in a dispute as to the correct interpretation of a policy originally issued in a non-Arabic language.
- Key takeaways
Policy wordings drafted outside of Oman must be reviewed and adapted to align with the requirements of the Insurance Law and its regulatory framework.
Insurers providing services in Oman must therefore ensure:
- All policy wordings, especially those incorporating wording from outside Oman, do not breach Article 58 and comply with Omani law and practice.
- The formalities relating to arbitration agreements are met, ensuring any dispute is adjudicated in the intended forum and not subject to jurisdictional challenges.
- Policy wordings are accompanied by an Arabic translation, which is provided to the insured along with the English language policy.
Insurers and insureds alike should be mindful of the important role played by the Insurance Law in regulating their relationship. As the insurance industry grows alongside the Omani economy, the Insurance Law will continue to be crucial in the expansion of this key sector.
Contacts:
Nic Henrikson Hamood Al-Rawahi
[1] Note, marine and motor vehicle insurance are subject to special provisions in Royal Decree No. 19/2023 issuing the Maritime Law and Royal Decree 34/94 Promulgating the Vehicle Insurance Law.
[2] Case No. 544/91 Session 01/01/1992 (Commercial Disputes Resolution Authority).
[3] Federal Law No. 6/2007 On the Regulation of Insurance Operations, Article 28(2).
[4] Thornton v. Shoe Lane Parking Ltd [1971] 2 QB 163.
[5] Case No. 208/2005 Session 8/02/2006 (Supreme Court).
[6] Case no. 52/1986 Session 25/05/1986 (Commercial Disputes Resolution Authority).
[7] Case no. 204/2019, Session 27/10/2020 (Oman Supreme Court).
[8] As reflected in Royal Decree 47/97 Promulgating the Law of Arbitration in Civil and Commercial Dispute, Articles 11-12.
[9] For example, Article 267 of Royal Decree No. 18/2019 Promulgating the Commercial Companies Law relating to the authority of limited liability company authorised signatories to enter into arbitration agreements on the company’s behalf.
[10] As per Royal Decree No. 19/2023 issuing the Maritime Law and Royal Decree 34/94 Promulgating the Vehicle Insurance Law.
[11] Royal Decree No. 29/2013 Promulgating the Civil Code, Article 735.
[12] Case No. 371/2019 (Oman Supreme Court).
