DIFC Court Curbs Defence-Cost Recovery in $70m Gulf Tanker Reinsurance Case

Why the DIFC Appeal Ruling on the M/T BETA Dispute Matters for London Market Wording

The Dubai International Financial Centre's Court of Appeal has issued a ruling that limits how far an unwritten Middle East market practice can extend reinsurance obligations. The 10 August decision in Al Buhaira National Insurance Company v Arab War Risks Insurance Syndicate concerned the disappearance of the tanker M/T BETA off the UAE coast in 2019 and the resulting dispute over a $70 million hull and war-risk programme.

The tanker's owner, Horizon Energy LLC, insured the vessel with Sharjah-based Al Buhaira National Insurance Company (ABNIC). ABNIC later avoided both the hull and war policies for misrepresentation, arguing Horizon had said the vessel was in class when it was not. That avoidance succeeded in 2024 and was not appealed. But a separate claim by Horizon against ABNIC remains pending in the Sharjah courts, so ABNIC turned to its reinsurer, the Bahrain-based Arab War Risks Insurance Syndicate (AWRIS), which had taken 100 per cent of the facultative war-risk cover.

Three issues reached the appeal panel. The court confirmed English law governed the reinsurance contract despite no express choice-of-law clause, pointing to the use of Institute Clauses and standard London market wordings. It also found that AWRIS had accepted the annual placement note by conduct after four years of receiving premium without objecting. Most significantly, it reversed a first-instance finding that a Middle East market practice required reinsurers to pay a cedant's defence costs unless the contract said otherwise.

The appeal judges held such an implied term was inconsistent with the contract's express cover limits and unreasonable in a chain where London retrocessionaires would have had no notice of an unwritten regional custom. The court did not determine the amount of defence costs, and the parties now have 21 days to file submissions on the costs of the litigation.

What the Three-Split Judgment Changes for Gulf Cedants and London Retrocessionaires

English Law by Market Wording, Not by Signed Clause

The panel's governing-law finding confirms that reinsurers and cedants using Institute Clauses and London Market Association wordings without a choice-of-law clause may import English law and its case law. The court relied on evidence that the risks end up in the London market regardless of where the paper is signed. For a Bahrain-based syndicate writing a Sharjah cedant, that meant English legal principles controlled contract formation and implied terms.

This is an interpretation built on the court's stated reasoning rather than a rule that every Gulf placement is automatically subject to English law. It nevertheless raises the cost of assuming otherwise for underwriters trading into the region.

Four Years of Premium as Acceptance by Conduct

ABNIC's better outcome on formation shows a signature request is not always a condition precedent. AWRIS argued the placement note was not binding because it had never signed and returned the document. Because AWRIS took premium and cover under that document for four years without objecting, the Court of Appeal found acceptance by conduct. The practical effect is that silence plus performance can create a binding contract, even when standard market documents ask for a signed return.

The Defence-Costs Reversal and the Retrocession Problem

The most consequential part of the ruling is the reversal on defence costs. At first instance, expert evidence had suggested Middle East reinsurance market practice entitles a cedant to recover legal costs unless excluded. The appeal court rejected that as an implied term because it conflicted with express cover limits and would have exposed AWRIS to open-ended costs it could not pass to London retrocessionaires, who had no notice of any such custom. The panel invoked the 1985 English case Insurance Co of Africa v Scor (UK) Reinsurance Co, which refused an implied indemnity exceeding a monetary cap.

The ruling does not settle the quantum of ABNIC's defence costs. The court said the question was never reached and the reversal made it moot. For underwriters, the holding is narrower than a blanket ban: it targets an unwritten regional custom that would expand liability beyond the written terms and beyond what a retrocessionaire could foresee.

Why This Matters Beyond the Single Tanker

The decision lands against a backdrop of Gulf marine disputes years after the underlying loss. The BETA disappeared in 2019, but litigation has continued through DIFC and Sharjah proceedings while Hormuz-related disruption has pushed up war-risk premiums and led some insurers to cut capacity in the wider Gulf. The court's conclusion that an unwritten regional custom cannot travel up a London-market retrocession chain may affect how war-risk capacity is priced and documented in that region.

Practical Checks for Brokers and Reinsurers Writing Facultative War Risk into the Gulf

• Redraft facultative war-risk slips that use London Market Association or Institute Clauses without a choice-of-law clause. The DIFC panel used those wordings and evidence that risks end up in the London market to apply English law, so cedants and brokers should decide expressly whether they want that outcome rather than leave it to inference.
• Do not rely on an unsigned annual placement note as evidence of non-acceptance. AWRIS took premium for four years without objecting and was held to have accepted the terms by conduct; if a signed return is intended as a condition, the document must say that unambiguously.
• Write any expected defence-cost recovery into the reinsurance wording. The appeal court rejected an implied Middle East market practice on costs, citing express cover limits and the absence of notice to London retrocessionaires; an unwritten regional custom will not travel up the chain.
• For London retrocessionaires, check whether facultative war-risk business from Gulf cedants purports to pass on defence costs. The panel found it unreasonable to expect retrocessionaires to fund an unknown regional custom, but the clearest position is to make the presence or absence of such cover explicit in the slip.
• Follow the 21-day costs submissions in the DIFC proceedings. The court left liability for costs at first instance and on appeal to be resolved on the papers, so the final allocation in Al Buhaira v Arab War Risks Insurance Syndicate is not yet fixed.