UAE Civil Code 2026: restating core principles of insurance indemnity

The new UAE Civil Code - Federal Decree-Law (No. 25 of 2025) - effective from 1 June 2026, represents the most wide-ranging changes in decades. This bulletin forms part of Kennedys’ series analysing how selected reforms may affect insurers.

Among the insurance provisions of the new Civil Code, a restatement of insurers’ indemnity obligations has been introduced at Article 963 which provides:

“The insurer is only obligated to compensate the insured for damage actually resulting from the occurrence of the insured-against risk, provided this does not exceed the value of the insurance.”

This provision may seem unremarkable. It embodies core principles of insurance law already established internationally, such as:

• The indemnity principle: insurance should not put the insured in a better position than they were in before the loss. 
• Causation: insurance responds only to loss caused by an insured peril. 
• Liability limits: insurance recoveries are contractually capped regardless of the size of the actual loss. 

Although they are familiar principles, their express inclusion in the new Civil Code is nonetheless significant. In practice, insurance claims are not always assessed distinctly from broader civil compensation principles, and in some cases this has resulted in awards that exceed policy limits, blur the distinction between insured and uninsured loss, or compensate losses only loosely connected to the insured peril. 

Article 963 therefore offers insurers a useful counterweight to that approach. It provides an express statutory provision to which insurers and their legal advisers can point when encouraging courts to assess compensation strictly by reference to policy terms, indemnity and causation principles.

It remains to be seen how impactful the new provision will be in practice. It may:

• Reduce litigation risk for insurers when denying claims that lack a sufficient causal link to the insured risk or that include exaggerated or unsupported quantum.
• Lead to greater scrutiny of individual heads of loss from both a quantum and causation perspective.
• Encourage courts to adhere more strictly to policy limits.