Guidance Note to Insurance Companies Operating in the State of Kuwait

Subject: Risk and Claims Management in Light of Current Geopolitical Circumstances and Disruptions to Some Business Activities

In light of the geopolitical developments and the ongoing war in the region, and the resulting economic and operational impacts, including the disruption of some business activities or the temporary closure of facilities, it is essential to remind insurance companies operating in the State of Kuwait of several legal and regulatory considerations that must be taken into account when dealing with insurance policies and related claims.

1- Reviewing Insurance Policy Terms and Exclusions

Insurance companies must review the terms of their existing insurance policies, particularly those related to:

– War Exclusion Clauses

– Business Interruption Clauses

– Scope of Coverage, whether the disruption is due to direct physical damage or external circumstances.

It should be emphasized that the scope of insurance coverage is determined according to what is explicitly stated in the insurance policy, in accordance with the principle of freedom of contract stipulated in the Kuwaiti Civil Code.

2- The Relationship Between Physical Damage and Business Interruption Compensation

In many commercial insurance policies, business interruption coverage is conditional upon direct physical damage to the insured property. Therefore, mere business interruption due to security or economic conditions, without actual physical damage, may not fall under coverage unless the policy explicitly states otherwise.

3- Legal Obligations under Kuwaiti Civil Law

Insurance companies must adhere to the fundamental principles governing insurance contracts, including:

– Compliance with the policy terms as agreed upon by both parties.

– Interpreting ambiguous terms – when necessary – in a manner that does not disrupt the contractual balance between the insurer and the insured.

4- Handling Insurance Claims

It is recommended that insurance companies adopt clear and documented procedures when receiving claims related to business interruption or potential damages, through:

– Conducting a thorough technical and legal assessment of each claim individually.

– Engaging experts or loss adjusters when needed.

– Clearly and justifiably documenting the reasons for accepting or rejecting claims.

5- Compliance with Regulatory Requirements

Insurance companies must comply with the instructions and regulations issued by the competent regulatory authority governing the insurance sector in the State of Kuwait, including:

– Maintaining financial solvency and technical reserves.

– Reporting material risks that may affect the company’s financial position.

– Adhering to governance and risk management standards.

6- Risk Management and Reinsurance

In light of current circumstances, it is recommended that insurance companies:

– Review their reinsurance programs and ensure the coverage of war and civil unrest risks.

– Assess the exposure of their insurance portfolios to geopolitical risks.

– Update their risk management and business continuity policies.

7- Communication with Policyholders

It is advisable for insurance companies to communicate transparently with their clients and clarify the limits of insurance coverage to avoid misunderstandings or future disputes.

8- Marine Insurance Sector

Given that the maritime transport sector is among the most affected by geopolitical conditions and ongoing wars, a recurring question arises regarding the extent to which marine insurance policies cover damages or delays resulting from these circumstances.

In this regard, it is necessary to refer to the provisions of the Maritime Trade Law and the terms of the insurance policy. Articles (287) and (288) provide that the insurer is obliged to compensate for material damages to the insured property resulting from maritime perils or force majeure, including joint maritime losses and expenses incurred to protect or mitigate damage to the insured property.

Conversely, Article (292) stipulates the exclusion of certain cases from coverage, including non-material damages such as unemployment, delays, or obstacles affecting commercial operations. Furthermore, risks of war, civil unrest, and seizure are not covered unless expressly agreed upon in accordance with Articles (289) and (290). Therefore, insurance coverage may extend to physical damage to goods due to force majeure circumstances, but delays in the arrival of goods or the resulting commercial effects are not covered by compensation unless they result in physical damage to the insured goods.

Summary

The current geopolitical circumstances necessitate that insurance companies operating in the State of Kuwait adopt a balanced legal and technical approach when handling claims and insurance coverage. This approach must ensure compliance with the provisions of the Kuwaiti Civil Code and the Insurance Regulation Law, while simultaneously maintaining the stability of the sector and the confidence of policyholders.