A UAE Insurance Company Cancelled Your Policy?

Can an insurer cancel a policy for non-payment of a premium when the payment failed for an administrative reason, and the policyholder offered to put it right?

The question tends to arise at the worst possible moment, because a policy is usually only tested when the insured event is close at hand. The following case study, drawn from a matter concluded by MIO & Partners, illustrates how such a cancellation was challenged and what the outcome was.

Background

Our client held a life insurance policy under which premiums were collected automatically from a credit card registered with the insurer. She was subsequently diagnosed with breast cancer.

Shortly after the diagnosis, the insurer cancelled the policy. The stated reason was non-payment: the card held on file had become invalid and the premiums had not been collected.

Our client sought to correct the position immediately. She offered to settle the outstanding premiums using an alternative card held in her husband’s name. The insurer declined to accept payment by that method and maintained the cancellation.

The position she was left in was therefore as follows:

• the policy had been in force and premiums had been collected without difficulty until the card expired;
• the failure to pay was administrative rather than deliberate;
• she had offered to remedy the arrears as soon as she became aware of them; and
• the cancellation took effect at the point at which the cover mattered most.

How We Approached the Case

A cancellation of this kind is straightforward on its face. The premium was unpaid, and the policy documents provided for cancellation in that event. Arguing the point purely as a question of whether payment had been received was unlikely to assist our client.

We therefore challenged the cancellation on a different footing, namely the insurer’s obligation to perform the contract diligently and in good faith. That obligation is a general principle of UAE contract law and applies to the manner in which a contracting party exercises rights available to it under the agreement.

In other words, the relevant questions were not confined to whether the premium had been paid. They extended to how the insurer had conducted itself: whether the policyholder had been notified that collection had failed and given a reasonable opportunity to remedy it, whether refusing an alternative means of payment was a reasonable exercise of the insurer’s rights, and whether the cancellation was consistent with the insurer’s obligations to a policyholder who had offered to pay.

Outcome

The proceedings ran for approximately two years. Our client succeeded, and was awarded compensation of approximately AED 1.1 million, which went towards the cost of her medical treatment.

The matter formed part of the work recognised in the firm’s ranking by The Legal 500 as a leading law firm in the UAE.

Conclusion

A policy that lapses because a card expired is a common enough administrative failure. What made this matter worth pursuing was not the unpaid premium but the conduct that followed it: a policyholder who offered to pay, an insurer that declined the payment, and a cancellation that took effect precisely when the cover was needed. Those are the facts a court examines when asked to consider how a contracting party has exercised its rights.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.