Standard business interruption policies have structural limitations that can defeat a claim entirely. This article explains how those limitations work, what the UAE legal framework offers by way of protection, and what policyholders can do to understand their position.
The Coverage Gap
Business interruption insurance (BII) is designed to help a business survive during an operational shutdown. Standard insurance policies are typically structured around defined coverage triggers and are subject to exclusions, which may result in certain eventualities falling outside the scope of coverage, leaving associated losses uninsured when they occur beyond the specific terms of the policy. These exclusions may be detrimental to the continued existence of the business. The three most common structural limitations under the BII are lack of physical damage , war exclusion ,and contingent business interruption which tend to become most visible when a disruption is caused by geopolitical events, supply chain pressures, or circumstances beyond the direct control of the insured. It is precisely in those situations, where the loss may be most severe, that the policy is least likely to respond.
This article sets out how those limitations work, what the UAE Civil Code and CBUAE insurance regulatory framework (including the consolidated Federal Decree-Law No. 6 of 2025), offer by way of policyholder protection, and the practical steps businesses should take before, not after, a loss occurs.
What Business Interruption Insurance Actually Covers
Business interruption insurance also known as business income insurance is designed to replace income lost while a business is unable to operate. It typically covers lost net profit, continuing fixed expenses (rent, payroll, utilities), and in some cases the additional costs of operating from a temporary location during a period of restoration. This works under the general principle that when insured suffers direct physical loss or damage caused by a covered peril and the business is forced to suspend or curtail operations as a result the insurer pays the financial loss sustained during the period of restoration
In the United Arab Emirates, BII cover is offered as an extension to a Property All Risks or Contractors All Risks policy, or as a standalone endorsement
Major Features of the BII
First, the physical damage trigger – The policy only applies when there is actual physical damage to property, and that damage causes the business interruption. Losses such as supply chain issues, customer cancellations, import restrictions, or shipping delays—where there is no physical damage to the premises of the insured are usually not covered under the policy.
Second, the period of indemnity – the indemnity period is time-limited. Business interruption coverage applies only for a specified duration (commonly 12 months, but extendable to 24 or 36 months depending on the policy), starting from the date of the insured event. If the business disruption continues beyond this period, any further losses will not be covered, even if operations have not been fully restored.
Third, the waiting period – Third, the waiting period – Many business interruption insurance policies impose a waiting (or deductible) period, typically ranging from 48 to 72 hours following the occurrence of physical damage, before coverage is triggered. Consequently, any losses incurred during this initial period are not recoverable, and short-duration disruptions may fall entirely outside the scope of coverage.
The War Exclusion
A “war exclusion” clause is a standard part of most property and business interruption insurance policies. It means the policy will not cover losses caused by events such as war, civil unrest, rebellion, or similar large-scale conflicts, including actions by governments or groups acting like governments. Generally, the losses from war or large-scale conflicts can be extremely high and affect many businesses at the same time, which could seriously impact insurers financially. Therefore, if a business interruption is caused by war, geopolitical events, or actions taken because of them (such as airspace closures, port restrictions, or rerouting of vessels), the war exclusion will usually apply. In such cases, the insurer is not required to cover the loss, no matter how significant it is.
The Terrorism Carve-Out
Terrorism and war are treated separately under most insurance policies. While war is usually excluded, terrorism may either be excluded as well or covered to a limited extent if additional coverage has been purchased. Businesses exposed to political risks should carefully review the policy to check whether terrorism is covered, what exactly is included, and whether there are any limits or conditions on that coverage.
War Risk Endorsements
War-related losses are generally not covered under standard policies. However, businesses in the UAE can obtain separate war risk coverage through specialist insurers, often arranged the reinsurance facilities via international markets such as Lloyd’s or other political risk underwriters.This type of cover must be specifically negotiated and purchased in advance. Once a conflict or geopolitical risk becomes known, insurers are unlikely to offer such coverage, or it may only be available at significantly higher premiums.
The Physical Damage Trap
Beyond the war exclusion, the physical damage trigger is the other major source of BII claim failures where disruption has a geopolitical or supply chain dimension.
Consider the following common scenarios:
- A trading company cannot obtain goods because its shipping line has suspended sailings through the Red Sea and Strait of Hormuz.
- A logistics business sees revenues fall because port congestion has extended transit times by weeks.
- A hospitality business loses bookings because regional tensions have suppressed travel demand.
In each of the above case, there is real financial loss but in none of these cases has there been direct physical damage to the insured’s own property and cannot be covered under the BII
The contingent BII gap. A related but distinct issue arises where physical damage does occur but at the premises of the insured’s supplier, customer, or key counterparty, not at the insured’s own site. Standard BII cover does not extend to these upstream or downstream losses unless the policy includes a contingent business interruption extension, sometimes called a ‘suppliers’ extension’ or ‘dependent properties’ endorsement. Such extensions are available but must be specifically purchased.
The COVID precedent. The UK Supreme Court decision in Financial Conduct Authority v Arch Insurance (UK) Ltd and Others [2021] UKSC 1, while not directly binding in UAE courts, remains instructive. In this case, BII recovery was sought under specific policy extensions known as “disease clauses” or “notifiable disease” extensions. Unlike standard BII cover, these clauses did not require any physical damage to the insured property as a precondition for triggering cover. Instead, they responded to the occurrence (or suspected occurrence) of a notifiable disease within a defined radius of the insured premises.
The Supreme Court ruled that the presence of COVID-19 within the relevant vicinity was capable of triggering cover under such clauses, provided the specific policy wording supported that interpretation. The decision turned on careful analysis of the language used, confirming that these non-damage extensions could respond to widespread disease-related restrictions even where no direct physical loss or damage had occurred at the insured location8
The UAE insurance market drew two practical lessons from the UK Supreme Court’s decision in the FCA v Arch case. For insurers, the ruling underscored the risks of broad or loosely worded non-damage extensions (such as disease clauses), prompting many to tighten policy language in subsequent renewals. This included narrowing the scope of such clauses, introducing stricter causation requirements, adding explicit exclusions for epidemics or pandemics where previously absent, or removing certain non-damage triggers altogether to limit exposure to large-scale, non-physical events. For policyholders, the decision reinforced that coverage for non-physical interruptions depends entirely on the precise wording of any extensions. Policyholders who acquired BII cover after 2021 should check carefully whether any such extensions have been removed from their policies.
The Legal Framework: UAE Civil Code, Insurance Law and Regulatory Oversight
Insurance contracts in onshore UAE are governed by two principal bodies of law: the UAE Civil Code9 and the insurance regulatory framework administered by the Central Bank of the UAE (CBUAE).10
UAE Civil Code, Article 1028. This is the most important policyholder protection when challenging an exclusion clause. Article 1028 of the UAE Civil Code requires that clauses leading to forfeiture of insurance rights or cancellation of cover must be clearly stated and highlighted. UAE courts sometimes apply this principle to exclusion clauses depending on their effect. The purpose is to ensure that policyholders are aware of the limitations of their cover before the risk materialises.
UAE courts have applied Article 1028 strictly when assessing clauses that limit policyholder right. In Dubai Court of Cassation Case No. 440 of 2024, the Court examined an arbitration clause included within the printed general conditions of an insurance policy and held that it was not enforceable. The Court reasoned that Article 1028 requires arbitration agreements in insurance contracts to be concluded through a separate and explicit agreement rather than being incorporated within standard policy wording.
The formatting requirement. The CBUAE’s Consumer Protection Regulation, now carried forward under Federal Decree-Law No. 6 of 2025, gives this disclosure obligation teeth at the formatting level. Onerous exclusion clauses including those that cause the forfeiture of insurance rights must be printed in bold and in a different colour from the surrounding text to be enforceable.2 An insurer relying on a war exclusion not presented in compliance with these formatting rules faces a strong argument that the exclusion is not binding on the policyholder.
Contra proferentem. Where policy language is genuinely ambiguous, UAE onshore courts will generally construe the ambiguity against the party that drafted the wording, that is, against the insurer. A war exclusion clause capable of more than one reasonable reading may therefore be construed in the policyholder’s favour.
Sanadak: the mandatory first step. Onshore insurance disputes in the UAE must be referred to Sanadak, the independent insurance and financial consumer protection ombudsman before initiating the court proceedings. The Sanadak committee has exclusive authority to decide the dispute at first instance; a dissatisfied party may appeal to the UAE Court of Appeal within 30 days of the committee’s decision.
DIFC and ADGM: A Different Regime
Businesses that place insurance through entities in the Dubai International Financial Centre (DIFC) or the Abu Dhabi Global Market (ADGM) are subject to a distinct regulatory framework separate from onshore UAE insurance law. In these financial free zones, insurance activities are regulated by the DFSA (in the DIFC) and the FSRA (in the ADGM), rather than the Central Bank of the UAE.
Insurance contracts governed by ADGM law are directly subject to English common law principles, while DIFC law is based on a common law framework influenced by English law. In both jurisdictions, courts adopt an objective approach to contractual interpretation and generally give effect to clear policy wording, even where the outcome may be unfavourable to the policyholder.
There is no mandatory Sanadak stage for DIFC or ADGM insurance disputes. Policyholders may proceed directly to the DIFC Courts or ADGM Courts, or to arbitration if the policy contains a valid arbitration clause.
The Consumer Protection Regulation’s bold/colour formatting requirement does not apply in the free zones. Exclusion clauses will be construed according to their plain meaning, and the policyholder bears the burden of demonstrating that the exclusion does not apply on its terms.
Therefore, the jurisdiction in which the insurance is placed therefore materially affects a policyholder’s prospects when challenging a denial. This jurisdictional difference is not merely a post-loss consideration for legal analysis; it is a strategic factor that should actively inform insurance placement decisions from the outset.
Principal Coverage Gaps: A Summary
The table below summarises the six coverage gaps most relevant to businesses in the current environment.
| Coverage Gap | Typical Policy Position | Risk to Businesses |
|---|---|---|
| War exclusion | Armed conflict excluded by default; a war-risk endorsement is required to reinstate cover | Disruptions via Strait of Hormuz or other geopolitical events may fall within the exclusion |
| Physical damage trigger | Standard BII responds only to direct physical loss or damage to insured property | Supply chain breakdowns, shipping delays, and revenue losses without physical damage are not covered |
| Contingent BII / supply chain | Coverage for suppliers’ losses absent unless a contingent BII extension is purchased | Upstream supplier shutdowns and port congestion losses may fall outside standard policy scope |
| Period of indemnity | Coverage ends at the policy limit (commonly 12 months), regardless of actual recovery time | Protracted disruptions may exceed the indemnity period before operations are restored |
| Waiting period / deductible | Many policies impose a 48–72 hour waiting period before BII cover is triggered | Short-duration disruptions may fall entirely below the threshold |
What Businesses Should Do
Reviewing insurance coverage is most productive before a loss occurs. The following steps are relevant to any business holding a BII policy.
Practical Checklist
- Read the exclusions, not just the coverage. Identify every exclusion clause in your BII policy. Locate the war exclusion and any terrorism exclusion. Verify how they are defined and whether they are printed in bold and in a different colour as required under CBUAE regulations.
- Confirm the physical damage trigger. Check whether your BII coverage is contingent on physical loss or damage to your own property. If so, determine whether any non-damage extensions — disease clauses, denial of access clauses, or similar — have been included or excluded.
- Assess contingent BII exposure. Identify your critical suppliers, key customers, and dependent counterparties. Verify whether your policy includes a contingent BII or suppliers’ extension that would respond if those parties suffer physical damage causing disruption to your operations.
- Verify your period of indemnity. Confirm how long your BII coverage runs from the date of loss and whether it is adequate for the realistic time required to resume full operations.
- Check compliance with UAE law. If your policy was placed with a foreign insurer not licensed by the CBUAE, it may constitute unlicensed non-admitted insurance and could be unenforceable in an onshore UAE court.
- Consider specialist war risk or political risk cover. If your business has material exposure to geopolitical disruption — through shipping routes, energy supply chains, or regional counterparties — engage a specialist broker to explore dedicated endorsements. Such cover is more readily available before a conflict is a ‘known risk.’
- Document losses if disruption has already begun. Contemporaneous documentation of revenue loss, additional costs, and causation evidence is critical to any future BII claim.
Business interruption insurance is a precisely defined contractual product. It responds only to specified risks, within agreed limits, and subject to clearly defined conditions. Features such as war exclusions, physical damage triggers, and the absence of contingent business interruption extensions are standard elements of most policies—not exceptions—and they operate as intended when a loss falls within their scope.
In the UAE, the legal framework provides policyholders with important protections. Under the UAE Civil Code and the Central Bank of the UAE (CBUAE) regulations, exclusion clauses must be clearly disclosed and properly presented, and any ambiguity in policy wording is generally interpreted against the insurer. In addition, Sanadak offers a formal mechanism for resolving insurance disputes.
For policies issued through the DIFC or ADGM, a different legal regime applies. These jurisdictions follow a common law-based framework (with ADGM directly applying English common law principles), where courts adopt an objective approach to contractual interpretation and typically give effect to clear and unambiguous policy wording.
While these protections are meaningful, they are most effective when policyholders fully understand their coverage before a loss occurs. A proactive policy review is therefore the most practical way for any business to identify what is—and equally important, what is not—covered under its insurance arrangements.
Footnotes
- Standard BII cover typically includes: (a) net profit loss during the period of restoration; (b) continuing fixed charges; and (c) additional expenses of working. See Chubb, ‘Business Interruption Insurance and Coverage Basics’, available at: chubb.com (accessed March 2026).
- BII policies in the UAE market typically cover losses related to property damage caused by fire, floods, earthquakes, and similar perils: see Al Buhaira Insurance Company, ‘Business Interruption Insurance’, available at: albuhaira.com/business-interruption (accessed March 2026). For the wider context of shipping and energy contract disruptions affecting UAE businesses, see Milen Zachariah John, George Mathew and Benoy Jacob, ‘Strait of Hormuz and Force Majeure: Legal Implications for UAE Shipping and Energy Contracts’, ATB Legal Consultancy (March 2026), available at: atblegal.com.
- The physical damage trigger is a fundamental feature of standard All Risks and BII policy construction: see Ericksen, Krentel & Cole LLP, ‘How Is Business Interruption Insurance Coverage Triggered?’, available at: ericksenkrentel.com (accessed March 2026); and Chubb, ibid (note 1). Courts across common law jurisdictions have consistently upheld the requirement for actual physical damage.
- War exclusion clauses are standard features of most property and BII insurance policies. For the typical scope of such clauses, see HUB International, ‘War Exclusions and Insurance’, available at: hubinternational.com (accessed March 2026). The standard exclusion covers war, civil war, revolution, rebellion, insurrection, civil strife, and hostile acts by or against belligerent powers.
- The Law Reporters, ‘War Risks and Insurance: Can UAE Businesses Recover Losses Caused by Conflict and Geopolitical Disruptions?’ (March 2026), available at: thelawreporters.com. The article notes that where an exclusion clause is ambiguous or not clearly presented to the insured, UAE courts and regulators may interpret the terms in favour of the policyholder.
- For the position on supply chain-linked BII losses under standard policies, see ICLG Briefing, ‘Recent Legal Developments in Business Interruption Insurance — Coverage Issues and Wider Implications perhaps for the Middle East (UAE)’, available at: iclg.com (2020). While focused on COVID-19, the analysis of non-damage BII claims and the physical damage trigger remains directly applicable to supply chain disruption arising from geopolitical causes.
- Financial Conduct Authority v Arch Insurance (UK) Ltd and Others [2021] UKSC 1. The UK Supreme Court delivered judgment on 15 January 2021. The full judgment is available at the UK Supreme Court website: supremecourt.uk/cases/uksc-2020-0177. The decision is not binding in UAE courts but is widely cited in insurance and legal commentary in the region.
- ICLG Briefing, ibid (note 6). The analysis highlights that the FCA v Arch decision confirmed: (a) whether the policy includes an express disease clause or notifiable disease extension is determinative; (b) an exclusion for epidemics must be conspicuous and clearly disclosed; and (c) contra proferentem applies where policy language is ambiguous. See also Norton Rose Fulbright, ‘The Supreme Court has handed down its judgment in FCA v Arch Insurance’ (January 2021), available at: nortonrosefulbright.com.
- Federal Law No. 5 of 1985 (UAE Civil Transactions Law), Part 7, Chapter 5 (Insurance Contracts), Articles 1026–1050, available at: uaelegislation.gov.ae. Article 1028 requires that any condition suspending or cancelling the policy must be clearly written and drawn to the attention of the insured. Note: the UAE Civil Code will be replaced by Federal Decree-Law No. 25 of 2025 effective 1 June 2026; the insurance chapter provisions are expected to be restated in substantially similar terms: see Kennedys Law, ‘UAE Civil Code 2026: restating core principles of insurance indemnity’ (February 2026), available at: kennedyslaw.com.
- The insurance regulatory framework in onshore UAE has been consolidated under Federal Decree-Law No. 6 of 2025 Regarding the Central Bank, Regulation of Financial Institutions and Activities, and Insurance Business, which repealed Federal Decree-Law No. 48 of 2023. A one-year transition period is in place, with full compliance required by September 2026: see Chambers and Partners, ‘Insurance & Reinsurance 2026 — UAE’, BLK Partners (January 2026), available at: practiceguides.chambers.com.
- Federal Decree-Law No. 6 of 2025, ibid. The Consumer Protection Regulation mandates that exclusions, warranties, and terms that cause the arbitrary forfeiture of insurance rights must be printed in bold and in a different colour. This requirement applies to consumer and SME policies onshore; it does not extend to professional/corporate clients or to DIFC/ADGM policies: Chambers and Partners, ibid (note 10).
- Chambers and Partners, ibid (note 10): ‘arbitration clauses must be contained in a separate, signed agreement to be enforceable, and onerous warranty or exclusion clauses must be printed in bold and in different colours, just as they are in consumer policies.’ See also HFW, ‘Good Faith in the UAE — An Insurance Focus’ (December 2019), available at: hfw.com.
- Chambers and Partners, ibid (note 10): ‘If an exclusion clause is ambiguous or not clearly presented to the insured, UAE courts and regulators may interpret the terms in favour of the policyholder.’ See also The Law Reporters, ibid (note 5).
- Sanadak is the independent financial consumer protection ombudsman established by the CBUAE. It has exclusive authority to decide onshore insurance disputes at first instance, and the Insurance Dispute Resolution Committee within Sanadak handles insurance-specific complaints. A party aggrieved by a Sanadak decision may appeal to the UAE Court of Appeal within 30 days. See the Sanadak website at: sanadak.gov.ae; and Chambers and Partners, ibid (note 10), Section 7.
- Federal Decree-Law No. 48 of 2023 (now consolidated under Federal Decree-Law No. 6 of 2025), Article 2(2): the UAE insurance regulatory law will not apply to companies operating in the DIFC and ADGM. See Clyde & Co, ‘The new UAE insurance law: the who, what, when, why and how?’ (March 2024), available at: clydeco.com.
- Chambers and Partners, ibid (note 10): ‘In the DIFC and ADGM, the interpretation of insurance contracts follows English-style common-law principles… Contracts are construed based on what a “reasonable person” with the background knowledge available to the parties would have understood the language to mean.’ In the DIFC, insurance activities are regulated by the DFSA (see dfsa.ae). In the ADGM, they are regulated under the Financial Services and Markets Regulations and the FSRA rulebooks (see adgm.com/financial-services-regulatory-authority).
Edited by Benoy P Jacob
