Interactive Map – Insurance Regulation in Bahrain
Rana Al Alawi
Holman Fenwick Willan Middle East LLP
|Population 1.362 million||AL Rank (GDP) 17th||Global Rank (GDP) 97th|
|GDP 2014 $33,87 billion|
|Economic Growth 2012 3.6%||Economic Growth 2013 5.3%||Economic Growth 2014 4.5%|
|Inflation (official) 2012 2.2%||Inflation (official) 2013 1.5%||Inflation (official) 2014 1.5%|
|Currency/Exchange Rate WWW.BLOOMBERG.COM/MARKETS/CURRENCIES|
RESERVATION OF RIGHTS / WITHOUT PREJUDICE RULE The doctrines of reservation of rights or without prejudice correspondence do not exist under Bahraini law in the form or usage that they are used in England. Under the Bahraini Civil Code, insurers are required to pay the insured amount within 30 days from the date on which the insured submits the necessary information and documents. The parties can enter into non-disclosure or confidentiality agreements whereby information passed between them cannot be shown to third parties, although there must be a clear agreement to this effect and on the meaning of without prejudice correspondence, including a clear statement that the communication is not an admission of liability.
PRIVILEGE Under Bahraini law, there is no general doctrine of privilege (i.e. whether legal advice privilege or litigation privilege), although the impact of this is minimised by the absence of any obligation of disclosure (discussed below). However, the laws governing lawyers’ conduct in Bahrain prohibit lawyers from disclosing confidential information provided by their clients without the client’s consent or other limited circumstances.
DISCLOSURE There is no formal doctrine of disclosure under Bahraini law, nor any general obligation on parties to litigation to disclose documents as that which applies under English law. However, pursuant to the laws governing evidence, the court may order disclosure of documents on its own volition or following a request by a party if the documents are identified and productive to the matter.
INTEREST Bahraini Courts generally award interest at a rate of between 4% to 7% from the date of filing the action until final payment.
COSTS The general principle is that the losing party will be ordered to pay the court fees paid by the other party. However, the losing party also be ordered to pay nominal legal fees of the other party in some circumstances.
MONETARY CORRECTION In the absence of an express contractual provision, monetary correction is not provided for under Bahraini law.
PUNITIVE DAMAGES Bahraini law does not expressly provide for punitive damages.
EXPECTED LENGTH OF CASE Generally, proceedings in the Court of First Instance will take 6-9 months, although more complex matters can take considerably longer than this as this may entail appointment of experts. In the instance of an appeal, the appealing party has 15, 30, or 60 days in order to submit an official appeal based on the nature of the case. Cases of a non-priority, non-specialized nature that occur in high frequency, such as motor claims, will stay pending for a few years due to their sheer volume and unimportance. Cases of a more specialized nature, such as banking and insurance claims, are dealt with sooner; however, most of these claims do not reach court-level as the agreements governing the parties of such claims contain arbitration clauses, whereby the parties submit to being mediated by a foreign arbitration chamber. Most insurance companies try to settle any disputes with the client prior to escalation.
Once an appeal is lodged, there is no set time frame in which the Courts may adjudicate the case. This is dependent upon the number of pending cases awaiting final judgement. The Bahrain Chamber for Economic, Financial and Investment Dispute Resolution (“BCDR”) may also have jurisdiction over a matter or claim in the following two instances— if both parties have agreed to submit to such jurisdiction; or if the matter must be referred to the BCDR by law. In relation to the latter, a matter shall be referred to the BCDR if the claim value exceeds Bahraini Dinar Five Hundred Thousand and if the dispute involves a financial institution in Bahrain according to the Central Bank of Bahrain law, or an international commercial dispute. Awards under the BCDR may be challenged directly to the Court of Cassation, which may extend the case duration up to two years.
FRONTING REQUIREMENTS At present, outright fronting is not permitted but is still commonly practiced. We understand that local insurers are heavily reliant on foreign reinsurers, and that in practice, according to the CBB rulebook that governs such fronting arrangements, the insurer must “monitor its exposure, to an individual reinsurer and provide details of its reinsurance programme to the CBB. It must notify the CBB if its total aggregate exposure, on a premium basis, to one reinsurer (or group of related reinsurers, exceeds 25% of individual or aggregate risks and why it considers that this exposure does not pose a credit risk for which a provision should be made the risk.”
The parties are free to choose the law applicable to the insurance / reinsurance contract and Bahraini Courts will generally uphold a foreign governing law clause provided it does not offend public order, morality or core public policies in Bahrain. The parties can also choose arbitration as the method of dispute resolution, however, under the Bahraini Civil Code, an arbitration clause must be “prominently highlighted” in block letters or larger font and signed by the parties.
LIMITATION Under the Bahraini Civil Code, claims arising out of a general insurance contract must be brought within 3 years from the occurrence of the incident from which the claim arose with the following exceptions:
- In the case of non-disclosure or misrepresentation, the time limit is from the date the insurer becomes aware of the non-disclosure or misrepresentation.
- In the case of an insured accident, from the date the concerned persons become aware of the occurrence.
- In relation to liability insurance, from the date of filing of the action by the third party against the insured or the date on which the third party receives compensation from the insured.
In relation to contracts of marine insurance, claims must be brought within 2 years, although the date form which the limitation period runs depends on the nature of the claim. Reinsurance contracts are likely to fall within these limitation periods if the reinsurance contract is governed by Bahraini law.
CONDITIONS, CONDITIONS PRECEDENT AND WARRANTIES Bahraini law does not expressly define “conditions”, “conditions precedent” and “warranties” as such. However, there are certain formalities and other provisions regarding the interpretation of such clauses in an insurance contract of which the re/insurer should be aware.
To be valid and enforceable under Bahraini law, any “conditions relating to invalidity, forfeiture or arbitration” (which would therefore include conditions precedent to liability, warranties or exclusion clauses) must be “prominently highlighted” in block letters or larger font. Under the Bahraini Civil Code:
- Any clause in an insurance contract that seeks to entitle the insurer to avoid the contract of insurance / avoid the claim in relation to a breach which is not causative of the loss is potentially invalid. This definition covers warranties, exclusion clauses and conditions precedent.
- In relation to notification clauses “stipulating the forfeiture of the insured’s right” (drafted as conditions precedent) in the event of a delay in notifying a claim or providing documents, such provisions will not be valid if there was an “acceptable excuse” for the delay.
NON-DISCLOSURE / MISREPRESENTATION The Bahraini Civil Code imposes an obligation on the insured to disclose “all circumstances of which he is aware and which are useful for the insurer to know to enable the latter to assess the risks assumed” and in particular, those matters which the insurer made the subject of specific written questions. For instance, in terms of medical insurance, the insurer may require a detailed medical history and from the requesting party in order to be evaluated adequately. This duty applies at the time the insurance is procured. Further, during the period of the policy, the insured is obliged to notify the insurer of any circumstances which result in increasing the risks insured.
An insurance policy is voidable by the insurer if “the insured remains silent in respect of a certain matter or submits an improper statement that is likely to change the issue of the risk or its significance is undermined in the insurer’s opinion“. In terms of the insurer’s rights:
- If the non-disclosure is discovered before the insured risk materialises, the insurer may avoid the policy after 10 days’ written notice (by registered post) unless the insured agrees to an increase of the premium reflecting the increased risk. If the policy is avoided, the insurer must refund the premium or that part of the premium in respect of which the insurer did not take a risk.
- If the non-disclosure is discovered after the insured risk materialises, the insured amount is reduced in the same proportion as the premiums actually paid compared to the premiums which should have been paid had the risks been accurately disclosed by the insured. If such a non-disclosure is intentional, it warrants the cancellation of the contract.
- Misrepresentation warrants the cancellation of the policy ab initio. Typically, an insurer chooses to reject a specific claim rather than terminate the full contract if the misrepresentation is not material.
FOLLOW THE FORTUNES / SETTLEMENTS Bahraini law does not regulate or define the concepts of “follow the fortunes” or “follow the settlement” clauses. Therefore, it is necessary to rely on the reinsurance contract wording itself to determine the obligations of the parties and the consequences of any breach thereof. It is common for treaty reinsurance contracts to explicitly contain the aforementioned clauses. Exceptionally, the clauses are read into implicitly. It is therefore very important for the parties to include very clear “follow the fortunes” or “follow the settlement” wording which explains the intention of the parties and the consequences of a settlement of a claim by the cedant.
CLAIMS CO-OPERATION / CLAIMS CONTROL There are no provisions under Bahraini law regarding claims cooperation or control. Therefore, the scope of the claims cooperation / control and the consequences of a breach of such a provision will need to be clearly provided for in the wording of the reinsurance contract, and may also be based on the scope of work of the insured company.
ROLE OF THE REINSURANCE BROKER (PRODUCING AND PLACING) There is no legal requirement under Bahraini law to conduct insurance / reinsurance business through an insurance broker. Where an insurance broker is involved, insurance brokers in Bahrain must be authorised by the financial services regulator, the Central Bank of Bahrain. Under Bahraini law, a broker is an independent intermediary who:
- acts as agent for another person in relation to the buying of insurance for that other person;
- makes arrangements with a view to another person, whether as principal or agent, buying insurance; or
- advises on insurance.
Bahraini law does not distinguish between placing brokers and producing brokers. Reinsurance brokers based in Bahrain shall be registered in accordance with the CBB Rulebook 3 and the CBB law, and must be duly licensed. Foreign reinsurance brokers are not directly regulated under Bahraini law, provided they do not carry on business activities in Bahrain (i.e. their business activities are conducted outside Bahrain). Therefore generally, a foreign reinsurance broker’s functions and duties will be determined by the contractual arrangements between it and the reinsured, a producing broker and/or the reinsurer (as the case may be).