AL BUHAIRA NATIONAL INSURANCE COMPANY v ARAB WAR RISKS INSURANCE SYNDICATE [2024] DIFC CFI 013 — Reinsurance indemnity for defence costs (09 September 2025)

This judgment clarifies the scope of implied terms in facultative reinsurance contracts within the DIFC, specifically regarding the recovery of legal defence costs by the ceding insurer.

What was the specific nature of the dispute between Al Buhaira National Insurance Company and Arab War Risks Insurance Syndicate regarding the m/t BETA reinsurance claim?

The dispute arose from a facultative reinsurance contract covering a Marine Hull War Policy for the vessel m/t BETA. The Claimant, Al Buhaira National Insurance Company (ABNIC), sought an indemnity from the Defendant, Arab War Risks Insurance Syndicate (AWRIS), following a claim made by the insured, Horizon Energy LLC and Al Buhaira International Shipping Inc, regarding the disappearance of the vessel. ABNIC had previously sought to avoid the underlying policies, leading to extensive litigation in both the DIFC and Sharjah courts.

In the present proceedings, ABNIC sought a declaration that it was entitled to be indemnified by AWRIS for any liability it might face under the War Policy, as well as for all costs and expenses incurred in defending the claims brought by the insured. The Court ultimately dismissed the broader claim for indemnity regarding the underlying policy liability but affirmed the Claimant's right to recover defence costs. As noted in the final order:

The Defendant shall pay to the Claimant its costs of the proceedings, immediately assessed in the sum of AED 4,563,051.74 within 14 days of the date of this Judgment.

The dispute highlights the tension between a reinsurer’s liability for the underlying risk and the ancillary obligation to cover the ceding insurer’s legal expenses when defending claims that fall within the scope of the reinsurance contract.

Which judge presided over the trial of Al Buhaira National Insurance Company v Arab War Risks Insurance Syndicate in the DIFC Court of First Instance?

The trial was presided over by H.E. Justice Michael Black KC in the DIFC Court of First Instance. The proceedings took place over four days, from 7 April 2025 to 10 April 2025, with the final judgment delivered on 9 September 2025.

What were the primary legal arguments advanced by Nicholas Craig KC for ABNIC and Alex Potts KC for AWRIS in the CFI 013/2024 proceedings?

Nicholas Craig KC, representing ABNIC, argued that the Reinsurance Contract contained an implied term requiring AWRIS to indemnify the Claimant for all costs and expenses incurred in defending claims brought by the insured. ABNIC contended that because the reinsurance was on a facultative basis covering the War Policy, the reinsurer should bear the burden of the legal costs associated with the underlying litigation, particularly given that ABNIC was acting to protect the interests of the reinsurance cover.

Conversely, Alex Potts KC, for AWRIS, resisted the claim for indemnity, arguing that the scope of the Reinsurance Contract did not extend to the legal costs incurred by ABNIC in its attempts to avoid the underlying policies. AWRIS maintained that the contract was limited to the specific risks insured and that there was no express or implied obligation to fund the ceding insurer's litigation strategy against the insured. AWRIS further reserved its rights regarding the assessment of costs, stating:

In a footnote AWRIS stated “For the avoidance of doubt, the Defendant reserves its rights generally with respect to any potential interim payment on account of costs, pending detailed assessment.

What was the specific doctrinal issue the Court had to resolve regarding the implied terms of the Reinsurance Contract?

The Court was tasked with determining whether, in the absence of an express provision, a facultative reinsurance contract carries an implied term that the reinsurer is liable to indemnify the ceding insurer against costs and expenses properly incurred in defending claims brought by the insured. The doctrinal challenge lay in balancing the principle of freedom of contract against the commercial reality that a ceding insurer, when defending a claim, is often acting to mitigate the potential loss that the reinsurer would otherwise be required to indemnify. The Court had to decide if the nature of the "back-to-back" relationship in this specific facultative arrangement necessitated an implied indemnity for defence costs to give the contract business efficacy.

How did Justice Michael Black KC apply the test for implied terms to the Reinsurance Contract?

Justice Michael Black KC examined the commercial relationship between ABNIC and AWRIS to determine if the implied term was necessary. He concluded that the nature of the facultative reinsurance, which was intended to mirror the underlying War Policy, required that the reinsurer share in the burden of the defence costs incurred by the ceding insurer. The judge reasoned that it would be commercially inconsistent for the reinsurer to benefit from the ceding insurer's defence efforts without contributing to the associated costs.

The Court’s reasoning focused on the necessity of the term to ensure the contract functioned as intended within the context of marine insurance. The holding was clear:

It is an implied term of the Reinsurance Contract made between the Claimant and the Defendant that the Defendant is liable to indemnify the Claimant against costs and expenses properly incurred in defending claims brought by or against Horizon Energy LLC and Al Buhaira International Shipping Inc arising out of or in connection with Marine Hull War Policy No.: SH-HULL/000114/18/SH.

This reasoning ensures that ceding insurers are not left to bear the entirety of legal costs when they are effectively defending the risk that the reinsurer has agreed to cover.

Which specific statutes and RDC rules were central to the Court’s determination of costs and interest in this matter?

The Court relied on Article 88 of the Commercial Transactions Law (Federal Law No. 18 of 1993) and Article 17 of the Law of Damages and Remedies (DIFC Law No. 7 of 2005) regarding the award of interest. Regarding the procedural aspects of the costs assessment, the Court applied the Rules of the DIFC Courts (RDC), specifically RDC 4.15 and RDC 4.16, which govern the court's power to assess costs and manage the litigation process. The Court also referenced the Claimant's entitlement to an indemnity:

(4) Interest on all amounts found due to it at such rate and for such period as the Court considers appropriate pursuant to Article 88 of the Commercial Transactions Law, Federal Law No. 18 of 1993, alternatively Article 17 of the Law of Damages and Remedies, DIFC Law No. 7 of 2005.

How did the Court distinguish or apply previous DIFC precedents regarding the avoidance of insurance policies?

The Court referenced its previous decision in [2021] DIFC CFI 098, which dealt with the entitlement of an insurer to avoid policies based on a breach of the duty of fair presentation. In the present case, the Court reiterated the standard for such avoidance, noting:

I am satisfied that the Claimant has made out its entitlement to avoid both the Hull Policy and the War Policy for a deliberate or reckless breach by the Defendants of their duty of fair presentation.” 16.

By applying this precedent, the Court confirmed that the underlying policies were subject to valid avoidance, which informed the scope of the indemnity claims. The Court also noted that the Claimant's knowledge of the claim was a critical factor, stating:

I accept that ABNIC had no knowledge of a potential claim until Horizon gave notice of a potential claim under the Underlying Policy on 18 November 2020.

What was the final disposition of the case and the specific monetary relief awarded to ABNIC?

The Court partially allowed the claim. While the broader claims for indemnity under the underlying policy were dismissed, the Court found in favor of the Claimant regarding the recovery of defence costs. The Defendant was ordered to pay the Claimant's costs of the proceedings, which were assessed at AED 4,563,051.74. The Court rejected the Defendant's arguments regarding the timing and substance of settlement offers, noting:

I consider the offer made after the sight of the draft judgment to be irrelevant both in substance (ABNIC did better than the offer) and timing (all the costs of the action, save for the final costs submissions, were incurred by that date).

The Court also expressed surprise at the disparity in costs between the parties, observing:

It is surprising that there should be a difference in excess of 20% between a claimant’s and defendant's costs especially when one normally expects the claimant’s costs to be higher since they have carriage of the proceedings and where there is no counterclaim.

What are the wider implications of this ruling for practitioners dealing with facultative reinsurance contracts in the DIFC?

This judgment serves as a significant precedent for practitioners, establishing that in the absence of express language to the contrary, facultative reinsurance contracts may contain an implied term for the indemnity of defence costs. Litigants must now anticipate that courts will look to the commercial purpose of the reinsurance arrangement to determine if the reinsurer should share in the costs of defending underlying claims. This places a greater emphasis on the drafting of "claims cooperation" or "claims control" clauses in reinsurance contracts to explicitly define the scope of liability for legal expenses. Practitioners should be aware that the DIFC Courts are willing to imply such terms to ensure that the ceding insurer is not unfairly prejudiced when managing risks that are ultimately reinsured.

Where can I read the full judgment in Al Buhaira National Insurance Company v Arab War Risks Insurance Syndicate [2024] DIFC CFI 013?

The full judgment is available on the DIFC Courts website: https://www.difccourts.ae/rules-decisions/judgments-orders/court-first-instance/al-buhaira-national-insurance-company-v-arab-war-risks-insurance-syndicate-2024-difc-cfi-013

CDN link: https://littdb.sfo2.cdn.digitaloceanspaces.com/litt/AE/DIFC/judgments/court-first-instance/DIFC_CFI-013-2024_20250909.txt

Cases referred to in this judgment:

Legislation referenced:

• Commercial Transactions Law, Federal Law No. 18 of 1993, Article 88
• Law of Damages and Remedies, DIFC Law No. 7 of 2005, Article 17
• Rules of the DIFC Courts (RDC) 4.15, 4.16(1), 4.16(2)