UAE: Can an insurer refuse to pay for hidden ship defects?

Question: I am a partner in a shipping company. Three months ago, one of our insured ships sustained severe damage. While a trailer loaded with sand and stones was being towed by a tugboat in the port, it separated from the tugboat due to bad weather conditions, drifted away, and collided with the rocky seabed. The insurance company refused to pay compensation, claiming that the trailer had a defect that could have been discovered during a proper inspection. What action can be taken against the insurance company, and is their decision right?

Answer: The insurer shall be liable for damage arising from a hidden defect in the ship, and you should formally request compensation.

Under Article 286 of Federal Decree-Law No. (43) of 2023 Concerning Maritime Law, the primary objective of a marine insurance contract on a ship is to ensure the insurer guarantees material damage to the insured item caused by maritime risks or force majeure incidents, provided these are covered by the policy.

However, material damage resulting from a defect in the insured item or from inadequate packaging or packing is generally excluded from coverage. However, the insurer shall be liable for damage arising from a hidden defect in the ship.
Article 291 explicitly states: “The insurer shall not be held liable, without explicit agreement, for the following matters: Material damage arising from a defect in the insured item or insufficient packaging or packing. However, the insurer shall be liable for damage arising from a hidden defect in the ship.”

Moreover Article 315 excludes two cases with regard to ship insurance, namely:

Damage resulting from an intrinsic defect in the ship unless the defect is hidden.

Damage resulting from intentional faults committed by the captain.