Force Majeure is a legal concept commonly included in economic and commercial contracts, which exempts parties from liability in the event of unforeseen natural disasters or incidents that disrupt the expected course of events, preventing them from fulfilling their contractual obligations. In essence, if a party is unable to perform its duties due to circumstances beyond its control—rendering performance undesirable, commercially impractical, illegal, or impossible—the obligation is automatically terminated. Force majeure can encompass natural disasters, such as earthquakes and floods, as well as human-induced events, including wars.
From the previous definition of force majeure, we can identify
three conditions that must be met for liability to be
excluded:
1. Impossibility of Predicting the Incident: This condition is
objective and requires that the event be entirely unforeseeable,
not just from the perspective of the debtor but also from the
viewpoint of the most cautious and careful individual.
2. Impossibility of Preventing the Incident: The event must not
only be unpredictable but also impossible to prevent. It must
result in the absolute impossibility of fulfilling the obligation.
If the debtor could prevent the incident but fails to do so, he
cannot be exempted from liability, even if the incident was
unforeseen.
3. The Incident Must Be External: This means that the defendant is
not at fault for causing the event. If the defendant either causes
or contributes to the occurrence of the incident, it does not
qualify as force majeure, even if the first two conditions are met,
and the defendant will not be exempted from liability.
Additionally, if the incident is internal to the obligation or
situation, it does not qualify as force majeure.
Does Force Majeure Have any Effects?
The occurrence of force majeure leads to the suspension or
extension of the legally prescribed deadline for completing an
action. In terms of establishing liability—whether tortious
or contractual—three key elements must be present: error,
damage, and a causal link between the two. If an external cause
intervenes and disrupts the causal link, liability may not be
established. External causes include: (1) force majeure or
unexpected accidents, (2) the fault of the injured party, and (3)
the fault of a third party. If a party can prove that the damage
was caused by an external factor beyond their control, they are not
liable for compensating the damage.
Regarding the performance of contractual obligations, force majeure
exempts the obligor from fulfilling their obligation. In relation
to the application of binding legal rules, the principle that
"ignorance of the law is no excuse" means that once a law
is published, all individuals are presumed to be aware of it.
Therefore, ignorance of a legal rule cannot be used as a
justification to avoid compliance or adherence to its
provisions.
Legislations on Insurance
In insurance policies, a force majeure clause may excuse one or
both parties from fulfilling their obligations under specific
circumstances, thereby relieving them of liability for
non-performance caused by unforeseen events.
If a force majeure event is not covered in the insurance policy,
the insurance company may not be liable to cover the damages.
Article 287 of the UAE Civil Transactions Law states that "If
a person proves that the loss arose out of an extraneous cause in
which he played no part such as a natural disaster, unavoidable
accident, force majeure, act of a third party, or act of the person
suffering loss, he shall not be bound to make it good in the
absence of a legal provision or agreement to the
contrary."
Also, Article 249 of the same Law states that "If exceptional
circumstances of a public nature which could not have been foreseen
occur as a result of which the performance of the contractual
obligation, even if not impossible, becomes oppressive for the
obligor so as to threaten him with grave loss, it shall be
permissible for the judge, in accordance with the circumstances and
after weighing up the interests of each party, to reduce the
oppressive obligation to a reasonable level if justice so requires,
and any agreement to the contrary shall be void."
Further, Article 273 of the same Law states that "1. In
contracts binding on both parties, if force majeure supervenes,
which makes the performance of the obligation impossible, the
corresponding obligation shall cease, and the contract shall be
automatically cancelled. 2. In the case of partial impossibility,
that part of the contract that is impossible shall be extinguished,
and the same shall apply to temporary impossibility in continuing
contracts, and in those two cases it shall be permissible for the
obligee to cancel the contract, provided that the obligor is so
aware."
Additionally, in a 2021 ruling, the Court of Cassation affirmed the
application of force majeure in insurance claims. The court
emphasized that for a party to be exempted from liability, force
majeure must be the sole cause of the damage.
It is important to highlight the circulars issued by the UAE
Central Bank to address the impact of the adverse weather
conditions happened in April 2023 in the UAE. The Central Bank
issued the following two circulars:
1. On March 5, 2024, the Central Bank of the United Arab Emirates
launched a new portal called (Sanadak) to register complaints
against licensed financial institutions and insurance companies in
the event of any dispute with insurance companies regarding
compensation for rain damage.
2. On April 22, 2024, the UAE Central Bank issued a circular
authorizing banks and financing companies operating in the State to
defer personal and car loan instalments for a period of six months
to mitigate the repercussions of the weather conditions in the
State, as the aforementioned circular stated the following:
"The Central Bank today issued a notice to all banks and
insurance companies to allow the deferral of repayment of
instalments of personal and car loans for customers affected by the
repercussions of the weather condition for a period of six months.
The deferral shall be without imposing additional fees, interest or
profits, or otherwise increase the principal amount of the loan for
the deferral of the repayment of instalments.
On the other side, the Central Bank further confirmed that the
damages to vehicles and homes resulting from the heavy rains during
the weather condition the country witnessed last week are covered
by insurance if there is an insurance policy against loss and
damage or what is normally referred to as "comprehensive
insurance". The insurance companies shall be considered
responsible for indemnification.
The Central Bank further added that the same applies to homes as
well. In that, owners of real states, whether homes or buildings
covered by insurance are entitled to have their property repaired
from damages caused by the recent rains and weather conditions. The
Central Bank urges the public to carefully read and comprehend the
insurance policy to protect their insurance rights, and approach
SANADAK, the financial and insurance ombudsman, if they have a
complaint or dispute with the insurance company.
Property owners looking to insure their property should thoroughly
review the terms of the insurance policy before signing, as this
will help them understand the coverage in case of natural
disasters. Standard vehicle insurance documents for loss and damage
usually state that the insurance company is not responsible for
compensation due to natural disasters. However, the insured party
may negotiate additional coverage beyond what is provided in the
standard policy, through an agreement between both parties that
includes extra terms to address such coverage.
Policyholders should carefully evaluate their needs and select
the appropriate coverage to ensure sufficient protection against
potential risks. It is equally important to review the policy's
exclusions to understand which events are not covered. Common
exclusions often include acts of war, terrorism, and intentional
actions.
It is important to note that the standard motor insurance policy
against loss and damage, issued under the Standard Motor Vehicles
Insurance Policies and based on the Insurance Authority Board of
Directors Resolution No. 25 of 2016, specifies in Clause 9 of
Chapter Four that "The company shall not be liable to pay any
compensation for the following matters: accidents that have
occurred, caused, resulted from, or are directly or indirectly
related to natural disasters such as floods, tornadoes, hurricanes,
volcanoes, earthquakes, or tremors." Natural disasters, as
defined in the document, refer to any widespread phenomenon arising
from nature—such as floods, tornadoes, hurricanes, volcanoes,
earthquakes, and tremors—that leads to extensive damage and
is officially recognized by the relevant authorities in the
state.
This means that coverage for damage caused by rain and storms to
vehicles under most insurance policies in the UAE relies on the
competent authorities officially classifying the weather conditions
as a "natural disaster." However, if an individual signs
an insurance policy that explicitly includes coverage for damage
caused by rain or natural disasters, the insurance company is
legally required to compensate the insured for any resulting
losses.
If the insurance policy includes a specific clause covering force
majeure events, such as natural disasters and rain damage, the
insurance company may be legally obligated to compensate the
insured. However, it is important to note that insurance policies
often set limits on the coverage amounts for damages resulting from
such events. If the damage exceeds these limits, the insured may
not receive full compensation.
While a force majeure clause can limit parties' liability
for events beyond their control, it does not relieve them of
responsibility for damage arising from their own negligence. If the
insured's actions or negligence contribute to the occurrence or
severity of the event, they may still be held liable for the
resulting damages. For example, if a vehicle is damaged by rain and
floods while in motion during adverse conditions, the insurance
company may limit its responsibilities.
From the above, we can conclude that the success of an insurance
claim is primarily determined by the specific wording of the
policy, especially the force majeure clause, the insurable risks
clause, and any exceptions listed. The precise language in these
clauses acts as the key reference for determining coverage for
force majeure events in the agreement between the insurer and the
insured. When both parties agree to include coverage for natural
disasters, the insurer is responsible for compensating damages,
provided the insured is not at fault for the event.
A thorough understanding of the force majeure clause, its
implications, and effective strategies for managing it can empower
individuals and companies to handle unforeseen events with
confidence, ensuring their interests are safeguarded and minimizing
potential risks.
The article is for informational purposes only and is not intended to serve as legal or tax advice. Readers should not rely on the information provided here for making tax-related or legal decisions. For specific advice, it is essential to consult with a specialist tax and legal advisor.
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