Insurance Litigation: Turkey

1. Rules Governing Insurer Disputes

1.1 Statutory and Procedural Regime

Statutory and Procedural Regime Governing Insurance Disputes in Turkey

In Turkish law, unless parties determine the law of another country, the provisions of the Turkish Commercial Code No 6102 (TCC) and Insurance Law No 5684 (“Insurance Law”) are generally applied to the merits and legal basis of the disputes arising from insurance and the rights and obligations of the parties. Procedural matters generally are handled under the provisions of the Code of Civil Procedure No 6100 (“Civil Procedure Law”), the Private International and Civil Procedural Law No 5718 (“International Civil Procedure Law”) and the International Arbitration Law (“International Arbitration Law”).

As a general rule, insurance disputes are resolved by the commercial courts irrespective of the amount or value of the dispute. However, in disputes where the insured is a consumer, lawsuits must be filed before consumer courts. According to the Law on Protection of Consumers (“Consumer Protection Law”), persons benefiting from insurance contracts without any commercial or professional purposes will be considered as the “consumer” and such disputes will be heard by consumer courts.  

In case of the occurrence of the risk due to a third party’s actions and the payment of the insurance coverage to the insured, the insurer can file a lawsuit, in the scope of the right of subrogation, against the third person for the refund of the amount paid. Among Turkish scholars and in Turkish law precedents, different views are asserted regarding which court will resolve such cases. According to the prevailing view, the legal ground of this lawsuit is not an insurance contract but a claim for damages arising from the actions of the third party. And therefore, it is accepted that the dispute should be heard by a civil court of first instance.

According to Article 15 of the Civil Procedure Law, lawsuits arising from insurance disputes may be filed in several alternative courts, including (i) the court located at the domicile of the defendant, (ii) the court where the immovable property which is the source of the dispute is located, and (iii) the court where the risk occurs. It should be noted that these alternatives are valid for insurances related to assets; disputes arising from life insurance must only be filed in the courts at the domicile of the defendant.

Furthermore, the International Civil Procedure Law specifically determines the competent courts for insurance disputes including foreign elements, and stipulates that parties cannot remove the jurisdiction of these courts by insurance contracts. Accordingly, the court where the actual workplace of the insurer or the branch office or agency that concluded the insurance contract has jurisdiction in lawsuits filed against insurers. In case of lawsuits filed against the insured or the beneficiary, the court located at the domicile of the defendant in Turkey has jurisdiction.

1.2 Litigation Process and Rules on Limitation

Mandatory Mediation Process

Regardless of the disputed amount, it is obligatory to apply for mediation before filing a lawsuit in commercial courts for insurance disputes. This mechanism is accepted as a cause of action, and if a lawsuit is filed without exhausting this mechanism, the court shall reject the lawsuit. 

Furthermore, as stated at 1.1 Statutory and Procedural Regime, disputes arising from insurance contracts signed with consumers are heard by consumer courts, and if lawsuits are filed against the insurers, it is mandatory to apply to the consumer arbitration committee first for claims below TRY10,390. However, this obligation applies to insureds who are accepted as consumers, not insurers.

Proceedings of First-Instance Courts

Insurance disputes with a quantum exceeding TRY500,000 are subject to a procedure called written procedure. It consists of four stages. 

Exchange of petitions

Both parties submit two petitions (ie, plaint petition, response petition, rebuttal petition, rejoinder petition). Each petition must be submitted within two weeks from the date on which the counterparty’s petition is served. In these petitions, parties have to submit all their claims along with references to material evidence. Once this stage is completed, parties cannot submit an additional claim or amend their claims.

Preliminary proceedings

During this stage, the court determines the disputed matters of the case, reviews whether procedural requirements are fulfilled, and takes necessary actions to collect evidence from third parties. 

Examination stage

The court evaluates the claims and material facts of the case and evidence. During this stage the court hears witnesses, conducts on-site investigations, and appoints an expert to produce an expert report if necessary.

Verbal proceedings and decision

The court hears the final statements of the parties through verbal proceedings and then concludes its final decision on the case. 

Should the claim be less than TRY500,000, the simple trial procedure is followed. The purpose of this procedure is to conclude the trial faster. Parties only submit the plaint petition and the response petition. Preliminary and examination stages are ideally completed in a maximum of three hearings and the period between hearings cannot be more than one month. It should be noted that these periods and number of hearings may be extended in practice, depending on the nature and circumstances of the dispute.

Execution of First-Instance Court Decisions

Under Turkish law, in principle, the decision of first instance courts can be enforced and executed prior to the conclusion of the appeal process. In order to cease the enforcement, the respondent must request a decision on stay of execution from the court by depositing collateral.

Appeal Stage

Appeal before regional courts of appeal

Insurers can appeal the decisions of the first instance courts against them before regional courts of appeal. The time limit for filing an appeal before the regional court of appeal is two weeks following the date on which the reasoning of the decision is served. 

In the appeal stage, the regional court of appeal reviews the decision of first instance courts both in terms of the facts of the case and the application of the law. However, insurers cannot assert new claims or evidence which they did not submit during the proceedings of first instance courts. At the end of the appeal review, the regional court of appeal may reverse the decisions of the first instance courts or render a new decision.

Appeal before the Court of Cassation

Any decision of the regional courts of appeal which exceeds TRY78,630 for 2021 can be appealed to the Court of Cassation. The time limit for filing an appeal before the Court of Cassation is two weeks following the date on which the reasoned decision is served. In contrast with the regional courts of appeal, the Court of Cassation only examines whether the lower court has applied and interpreted the law in an appropriate manner. At the end of the review, the Court of Cassation may approve or reverse the decision rendered by the lower court, however, it cannot render a new decision.

Statute of Limitation to File a Lawsuit

According to Article 1420 of TCC, insurers are obliged to file a lawsuit or apply to arbitration for all claims arising from insurance contracts within two years and this prescription period starts from the date when payment becomes due. In any event, all claims relating to an insurance indemnity or insurance sum shall be prescribed after a period of six years from the date of materialisation of the risk.

Article 1482 of TCC stipulates a special statute of limitations for liability insurances. Accordingly, the claim of indemnity directed against the insurer shall be prescribed within ten years of the event constituting the subject of the insurance.

1.3 Alternative Dispute Resolution (ADR)

Alternative Dispute Resolution Mechanisms in Turkish Law

Turkish law supports parties to specify alternative dispute resolution mechanisms such as arbitration in insurance contracts in order to reduce the workload of the courts and to resolve insurance disputes quicker and more effectively. In other words, in the Turkish legal system, the parties can freely decide to resolve their disputes in arbitration instead of through the courts.

Insurance Arbitration

According to Article 30 of the Insurance Law, the policyholders or persons benefiting from the insurance contract may apply to the Insurance Arbitration Commission (“Commission”) established under the Association of the Insurance and Reinsurance Companies of Turkey to settle disputes arising from insurance contracts (the “Insurance Arbitration”). In order to benefit from the Insurance Arbitration, it is not obligatory for the parties to sign an arbitration agreement or include an arbitration clause in the insurance contract. Insurers operating in Turkey must become members of this arbitration system by making a written application and paying a contribution fee in order to benefit from this mechanism.

Before applying to this mechanism, the policyholders or persons benefiting from the insurance contract must apply to the insurer and the claims must not be met completely or partially. In addition, the policyholders or beneficiaries should not apply to mandatory mediation, court, consumer arbitration committee or arbitration before applying to this mechanism. Otherwise, the Commission will reject the application.

It should be noted that the arbitrators who will resolve the dispute are determined by the Commission, not by the parties. Arbitrators have to issue their awards within four months, at the latest, from the date of their appointment. Otherwise, the dispute will be settled by the court. However, parties can extend this period in writing. 

Awards given by the arbitrators up to TRY40,000 are final, and awards above this amount may be appealed.

2. Jurisdiction and Choice of Law

2.1 Rules Governing Insurance Disputes

Choice of Law

As per Article 24 of the International Civil Procedure Law, parties can freely designate the law to be applied to the disputes arising from the insurance contract containing foreign elements. The applicable law may be designated in the insurance contract, or it may be decided by the parties in a separate contract. Moreover, parties can agree on the applicable law after the dispute occurs, or an existing law can be replaced with another. In Turkish law, there is no requirement to have any connection between the choice of law and the domicile of parties or the place where the insured is located, the parties can freely designate the applicable law.

Jurisdiction

Pursuant to Article 46 of the International Civil Procedure Law, the court where the actual workplace of the insurer or the branch office or agency that concluded the insurance contract, including foreign elements, has jurisdiction in lawsuits filed against insurers. In lawsuits filed against the insured or the beneficiary, the court located at the domicile of the defendant in Turkey has jurisdiction.

2.2 Enforcement of Foreign Judgments

Enforcement of Foreign Judgments in Turkey

The decisions of foreign courts in favour of or against the insurer only become enforceable in Turkey if the claimant files an exequatur lawsuit before the Turkish courts. The exequatur lawsuit is heard by the civil court of first instance. Article 51 of the International Civil Procedure Law stipulates that the court located at the domicile of the person against whom enforcement is demanded has jurisdiction. If the person does not have a residence in Turkey, the courts of Ankara, İstanbul or İzmir will be competent. The exequatur action is carried out according to the simple trial procedure.

According to the principle of Turkish private law, in enforcement lawsuits, Turkish courts are not able to observe the compliance with the substantive law of the decision given by the foreign court. In other words, Turkish courts can examine these judgments in a limited manner, without discussing the merits and legal basis of the case. The courts are only allowed to examine following matters.

  • The presence of a convention based on the principle of reciprocity or a provision of law or a de facto principle enabling the execution of the foreign judgment by a Turkish court, between Turkey and the country where the judgment originates.
  • Whether Turkish courts have exclusive jurisdiction over the case (ie, Turkish courts have exclusive jurisdiction over disputes regarding immovable assets, easements, usufruct and liens in Turkey. Since insurance disputes are not under the exclusive jurisdiction of Turkish courts, this condition will be met.)
  • Whether the foreign judgment is in conflict with public order.
  • Whether the judgment was granted without violating the defendant's right to defence.

If the above conditions are met, the court will decide to recognise and enforce the decision. Article 57 of International Civil Procedure Law stipulates that the decision of the foreign court will be legally equal to a decision of Turkish courts and the prevailing party can enforce the decision through the execution proceedings explained below. As it is regulated in the same article, the decision of refusal or acceptance can be appealed.

2.3 Unique Features of Litigation Procedure

Some Unique Features of Litigation Procedure

The mandatory mediation and the Insurance Arbitration described above are mechanisms specifically applied in Turkish law. These mechanisms are envisaged in Turkish law in order to reduce the number of lawsuits filed due to insurance disputes and to resolve these disputes quickly and effectively. 

Mediation is a mandatory mechanism that the parties must exhaust before filing a lawsuit in commercial matters, and the parties can agree on the disputed price through the mediator. This mechanism provides a fast resolution of the dispute without commencing a lawsuit process that may take a long time.

Furthermore, as stated at 1.3 Alternative Dispute Resolution (ADR), the insured or the beneficiary can resolve their disputes with the insurer by applying to the Insurance Arbitration. The arbitration process is concluded in a maximum of four months and the arbitral awards can be executed directly. According to the 2020 Annual Report prepared by the Commission, 44 insurance companies operating in Turkey are members of the Commission, and the total market share of these companies was 91.29% in 2020. A total of 529,514 applications were made to the Commission between 12 August 2009 and 31 December 2020. Accordingly, the total number of arbitrators in the Insurance Arbitration is 210 as of 31 December 2020. The popularity of this mechanism is increasing, and it enables the insurers a fast and cost-effective resolution. 

3. Arbitration and Insurance Disputes

3.1 Enforcement of Arbitration Provisions in Commercial Contracts

Enforcement of Arbitration Provisions in Commercial Contracts

Parties may freely include arbitration clauses in insurance contracts containing foreign elements. The parties may also sign an arbitration agreement before or after the dispute arises. It should be emphasised that the parties cannot resolve disputes over which Turkish courts have exclusive jurisdiction, such as disputes on immovable assets, easements, usufruct and liens in the arbitration. However, insurance disputes are not under the exclusive jurisdiction of Turkish courts and can be resolved before the arbitration. 

Although the parties have agreed in the insurance contract that any disputes will be resolved through arbitration, the insurer or the insured may file a lawsuit before Turkish courts. If the defendant does not raise an objection that there is an arbitration clause between the parties in the first response petition, the court becomes competent and continues to hear the case. In case of a timely objection, however, the court must dismiss the case and the claimant is required to apply to the agreed arbitration.

3.2 The New York Convention

Enforcement of Arbitral Awards under the New York Convention

Turkey is a party to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (“New York Convention”).

Foreign arbitral awards in favour of or against the insurer only become enforceable in Turkey if the claimant files an exequatur lawsuit before the Turkish courts. Article 3 of the New York Convention regulates that the rules of procedure of the country where the award will be executed apply to the enforcement process. In this scope, the exequatur lawsuit should be filed in the civil court of first instance. As per Article 60 of the International Civil Procedure Law, the enforcement of a foreign arbitral award shall be requested from the court mutually designated by the parties in writing. In the absence of such an agreement, the court located at the domicile of the defendant in Turkey will have jurisdiction. Or in the absence of domicile, the lawsuit will be filed in the court at the location of the asset subject to the arbitral award.

The competent court is not entitled to review the merits of the dispute or render a decision over the foreign arbitral award granted by an arbitral tribunal. The courts are only allowed to examine following matters:

  • whether the parties have the capacity to execute the arbitration agreement and whether the agreement is invalid in any way under Turkish law;
  • whether the party against whom the award is invoked received proper notice of arbitration and was present in the case;
  • whether the arbitral award exceeds the scope of the arbitration agreement;
  • whether the composition of the arbitral tribunal or the arbitral procedure is contrary to the arbitration agreement or the law of the country where the arbitration took place;
  • whether Turkish courts have exclusive jurisdiction over the dispute; and
  • whether the arbitral award is in conflict with public order.

If the court determines that the above conditions are met, it will decide to enforce the award and the prevailing party can enforce the award through the execution proceedings explained below. The court decision of refusal or acceptance can be appealed in accordance with general provisions.

3.3 The Use of Arbitration for Insurance Dispute Resolution

The Use of Arbitration in Insurance Dispute Resolution

Arbitration has been increasingly preferred in recent years as an alternative solution mechanism in Turkey. Despite the reforms carried out, the fact that the litigation period is still long and has not been reduced to the planned level has further encouraged the use of arbitration.

In insurance disputes where it is decided that arbitration will be conducted in a foreign country, the number, selection and composition of arbitrators, the procedural rules, the scope of arbitration applied to the dispute etc is determined by the contract signed between the parties. In the absence of such designation, these rules will be determined as per the law designated by the parties. In order for a foreign arbitral award to be enforced in Turkey, the exequatur process detailed at 3.2 The New York Convention should be carried out.

In practice, this alternative dispute mechanism is mostly preferred in property and liability insurances made for mergers and acquisitions, share or operation transfers, goods or service purchase contracts with large scope and value etc, where one party is foreign.

Disputes where the Place of Arbitration is Turkey

The provisions of the International Arbitration Law shall apply to disputes containing foreign elements and where the place of arbitration is chosen as Turkey. 

The parties are free to determine the number of arbitrators, provided that it is an odd number. In cases where the number of arbitrators is not determined, it is deemed that three arbitrators have been selected. If the parties cannot agree on the composition of the arbitral tribunal, the arbitrators are selected by the court upon request. The parties can freely agree on the procedure to be followed by the arbitral tribunal, provided that these rules comply with the rules of the International Arbitration Law. They may, in the determination of such procedure, make a reference to any law or international or institutional arbitration rules. If there is no such agreement between the parties, the arbitral tribunal will apply the procedure determined in International Arbitration Law. The arbitral tribunal may order on an interim injunction or a provisional attachment before or during the arbitration proceedings. If the party against whom the decision was made does not comply with this decision, an application should be made to the court in order to enforce such interim injunction or provisional attachment.

The award shall be rendered within one year from the date when the minutes of the tribunal's first meeting is issued. The parties may extend this period. 

The parties are able to request the cancellation of a decision from the regional courts of appeal. However, the regional court of appeal is not entitled to examine the merits of the dispute. The court orders the annulment of the arbitral award if it identifies one of the following issues:

  • the arbitration agreement is not valid because one of the parties was incapacitated;
  • the composition of arbitrators does not comply with the contract or the International Arbitration Law;
  • the arbitral award is not rendered within the terms of the arbitration;
  • the arbitral tribunal’s decision on competence was unlawful;
  • the arbitral tribunal rendered an award on matters beyond the parties’ claims, or did not rule on one of the party’s claims;
  • the arbitral proceedings were not in line with the parties’ agreement or the procedure determined in International Arbitration Law;
  • the parties’ equality was not respected;
  • the dispute is not capable of settlement by arbitration under Turkish law; or
  • the award is in conflict with the public policy.

The decision of the regional courts of appeal regarding the annulment can be appealed to the Court of Cassation, however, a limited examination is made according to the above-mentioned issues.

4. Coverage Disputes

4.1 Implied Terms

General Scope of Insurance Contracts

In Turkish law, insurers do not have the right to freely determine the content of insurance contracts, and they can only amend the content on a limited basis.

Pursuant to Article 11 of Insurance Law, insurers have to prepare the main content of insurance contracts in accordance with the general terms determined by the Undersecretariat of Treasury (“Undersecretariat”) of the Ministry of Treasury and Finance, and have to apply these terms in a similar way. In other words, the Undersecretariat determines the general terms such as the subject of insurance, the geographical limit of insurance, situations outside the scope of insurance etc that insurance contracts must contain according to each insurance type. However, insurers can determine special conditions in accordance with the specialties of the matter in the insurance contract under the title of special conditions.

Further, foreign words cannot be included in insurance contracts, and the contract must all be in Turkish. In such cases, translation of foreign words shall be used as determined by the Turkish Language Association. In addition, the insurance contract and the policy should be written in an easy-to-understand and simple language, and should not contain phrases that may lead to misunderstanding.

It is significant to specify in detail the risks that are not covered by the insurance in the contract. As per the Insurance Law, unspecified risks are covered by insurance. The burden of proof of whether the realised risk is not covered by the insurance is on the insurer.

Pre-contractual Information Obligation

Before the conclusion of the contract, the insurer is required to inform the policyholder in writing about all matters related to the insurance contract, including the insured’s rights and provisions to which the policyholder has to pay special attention. The burden of proof of whether the policyholder has been duly informed is on the insurer. If the policyholder does not object to the written notification within 14 days, the insurance contract is concluded in accordance with the informed conditions.

Obligation to Deliver Insurance Policy

If the insurance contract is concluded by an insurer or its agent, the insurer is obliged to deliver the policy to the policyholder within 24 hours from the conclusion of the contract. If it is concluded by another third party, the policy must be delivered within 15 days. The insurer will be liable for losses arising from the late delivery of the policy.

Obligation to Pay Insurance Coverage

The insurer is obliged to pay the insurance coverage to the insured within 45 days (within 15 days for life insurance) at the latest from the date of notification of the occurrence of the risk. The insurer conducts the investigation within this period to determine the amount to be paid. In the event of a dispute between the parties regarding insurance coverage, the insurer will pay at least 50% of the amount to be determined in the preliminary appraisal report to be made by the court as an advance and this amount is deducted from the final compensation amount determined later. Even if a dispute does not arise, the insurer is obliged to pay at least 50% of the amount determined in the contract to the insured if it does not complete its investigations within three months.

If the insurance coverage to be paid increased as a result of the failure or delay in giving notice of the materialisation of the risk, the insurer may request a reduction in insurance coverage depending on the degree of the fault.

Termination of Contract due to Extraordinary Cases

In cases where the insurer has declared concordat, or its licence is being revoked, or its power to conclude contracts has been abrogated, the policyholder may terminate the contract within one month from the date of becoming aware of these facts. If the insurer declares bankruptcy, the contract automatically terminates.

The insurer has the right to terminate the contract within one month if the policyholder declares bankruptcy or becomes insolvent before paying the entire premium.

In such cases, the injured party may claim its losses arising from the termination of the contract by filing a lawsuit.

Termination of Contract due to Breach of Contract

According to Article 1449 of the TCC, if a policyholder fails to fulfil their obligation arising from the contract, the following conditions must be met in order for the insurer to discharge of its obligations by terminating the contract: (i) the breach must be based on fault, (ii) the breach has effect on the materialisation of the risk or the extent of the insurer’s obligation to be fulfilled, and (iii) the insurer must notify the policyholder for termination within one month from the date it became aware of the breach.

4.2 Rights of Insurers

The Policyholder is Obliged to Disclose Necessary Circumstances to the Insurer before the Contract is Executed

Pursuant to Article 1435 of the TCC, the policyholder is obliged to inform the insurer of all important circumstances of which it is or ought to be aware at the time of the conclusion of the contract. Circumstances that are not disclosed completely or disclosed insufficiently or wrongly to the insurer shall be deemed important if they cause the non-conclusion of the contract or the contract to be concluded under different conditions.

In case the insurer is aware of such non-disclosure, incomplete or wrong disclosure within the contract period before the occurrence of the risk, it may request an additional premium from the policyholder or terminate the contract. If the request for an additional premium is not accepted within ten days, the contract is deemed to be terminated. The insurer is required to give written notice for termination of the contract within 15 days from the date it became aware of the breach of disclosure obligation. The policyholder has to pay the premiums for the period of validity of the insurance contract to the insurer.

The Policyholder’s Acts or Transactions Leading to an Increase of Insurance Coverage

As per Article 1444 of the TCC, after the conclusion of the insurance contract, the policyholder cannot accomplish acts or transactions causing an increase of the insurance coverage without the insurer’s prior consent. In such cases, the insurer may request an additional premium or terminate the contract within one month from the date it became aware of such act or transaction. The insurer has to give notice to the policyholder within this period, otherwise the request for an additional premium or termination cannot be asserted. Again, if the request for an additional premium is not accepted within ten days, the contract is deemed to be terminated.

If such act or transaction is negligently accomplished by the policyholder and affects the amount of insurance coverage, the insurer may request a reduction in insurance coverage depending on the degree of the fault. If the policyholder acted with intent, the insurer will be discharged of its payment obligation.

4.3 Significant Trends in Policy Coverage Disputes

Significant Trends in Policy Coverage Disputes

One of the first and most important trends in coverage disputes is the significant increase in the number of disputes resolved before the Insurance Arbitration. A considerable number of the insured have started to give priority to the Insurance Arbitration, which is more economical than court proceedings and can be completed quickly and effectively.

While there is disagreement over whether disputes arising from insurance contracts signed with consumers are resolved by the commercial court of first instance or the consumer court, the Court of Cassation has eliminated this uncertainty and has consistently decided that lawsuits must be filed in consumer courts.

Recently, Turkish law and regulation has begun placing more emphasis on providing the policyholder before the conclusion of the insurance contract with clear, simple and honest information about important issues such as the scope of the policy, the amount of premium to be paid, and the matters not covered by the coverage. In case of a breach of the obligation to inform, the insurer may be obliged to cover the damages that may arise due to incomplete or incorrect information. Therefore, it is becoming more important for the insurers to clearly determine their information policies and record their information processes.

4.4 Resolution of Insurance Coverage Disputes

Resolution of Insurance Coverage Disputes

In the practice of Turkish law, insurance coverage disputes are generally resolved before Turkish courts. The parties generally file lawsuits in accordance with the procedural rules explained in detail above for such disputes.

It is also common for the insurer or the insured to initiate execution proceedings without filing a lawsuit. The execution proceedings are initiated at the execution office located at the domicile of the person against whom execution proceedings will be initiated, unless the parties determine an authorised execution office. The execution office will issue a payment order and deliver it to the debtor.

If the debtor does not object in writing to the relevant execution office within seven days from the date of notification of the payment order, the execution proceedings become final. Upon the finalisation, the claimant can seize the debtor’s assets and then demand the sale of the seized assets from the execution office.

If the debtor objects in writing to the relevant execution office within seven days from the service, the proceedings cease. In such cases, the claimant should file a lawsuit in the execution court to which the execution office is affiliated, in order to annul the objection and to continue the execution proceedings. In such a lawsuit, the court examines whether there is an insurance coverage to be paid and determines the amount, if any. In case the debtor’s objection is annulled, the court decides that the debtor will also pay at least 20% of the debt due to prolonging the execution proceedings. Upon the court's decision in favour of the claimant, the claimant can seize the debtor’s assets and then demand the sale of the seized assets from the execution office.

As detailed above, the Insurance Arbitration and the arbitration are also mechanisms used for the resolution of disputes (apart from filing lawsuits and initiating execution proceedings).

The above explanations are valid for disputes arising from the liability of reinsurance companies to pay the insurance coverage.

4.5 Position if Insured Party Is Viewed as a Consumer

Position if Insured Party is Viewed as a Consumer

In Turkish law, in cases where the insured is a consumer, the parties have the same rights and obligations arising from the insurance contracts as from contracts made with other real or legal persons. However, Turkish laws and regulations give utmost importance to whether the consumer is sufficiently informed before the conclusion of the insurance contract and whether the scope of insurance is explained in a simple and understandable way. In case of a possible dispute, if the consumer claims that the insurer did not sufficiently inform the consumer about the scope of the insurance, the insurer has to prove the contrary.

Therefore, in consumer insurance contracts it is crucial to inform consumers in writing or by electronic means, to use clear and understandable language, and to record the information process.

4.6 Third-Party Enforcement of Insurance Contracts

Third-Party Claims from the Insurers

Since the insurance contract is concluded between the insurer and the policyholder, in principle, third parties do not have the right to claim from the insurer or to file a lawsuit against the insurer. The exception to this rule are cases where it is clearly regulated in the laws that third parties can make a claim directly from the insurers.

According to Article 1454 of the TCC, the policyholder may take out insurance for a third party’s interest called insurance in favour of a third party. The right arising from such insurance contracts belongs to the insured. The insured is entitled to claim directly from the insurer to pay the insurance coverage and file a lawsuit for these claims.

Another exception is related to liability insurance. As per Article 1478 of the TCC, the third party who suffered damage within the scope of liability insurance may demand compensation for the part of the damage up to the insurance amount determined in the contract directly from the insurer.

Nevertheless, according to Road Traffic Law No 2918 (“Traffic Law”), vehicle owners are obliged to take out compulsory traffic insurance in order for motor vehicles to be on the road, and insurers cannot refrain from concluding such contracts. As per Article 97 of the Traffic Law, if the driver, while operating the vehicle, causes the death of another person or injury to another person or damage to something, the third party who suffered damage directly claims its damages up to the amount specified in the compulsory traffic insurance from the insurer and files a lawsuit for these claims.

Furthermore, real persons and legal entities transporting passengers on roads are obliged to take out the liability insurance in order to cover the damages that may be incurred by passengers. Again, insurers cannot refrain from concluding such contracts. According to Article 21 of the Road Transport Act No 4925, persons who suffer damages during transportation can claim their losses directly from the insurer within the limits provided in the liability insurance and file a lawsuit against the insurer for such claims.

4.7 The Concept of Bad Faith

The Concept of Bad Faith 

In Turkish law, the concept of bad faith is directly regulated in the Insurance Law. Article 32 of the Insurance Law stipulates that the insurer will not delay the payment of insurance claims in violation of the rules of good faith. Pursuant to this rule, the insurer is obliged to make payments arising from the insurance contract to the insured, unless there are legally acceptable reasons.

This concept is also indirectly regulated under the TCC. According to Article 1427 of the TCC, following the materialisation of the risk, the insurer is obliged to complete the necessary investigations and make the payment within 45 days from the date of notification by the insured party. Moreover, even if a dispute arises regarding insurance coverage between the parties, this Article aims to protect the insured against the insurer by stipulating the obligation to pay at least 50% of the amount to be determined in the preliminary appraisal report to be made by the court as an advance. In this context, the TCC also regulates rules that would indirectly accelerate and encourage the insurer to pay the insurance coverage.

If the insurer fails to make or delays payment without a just cause, the insurer may face several penal and administrative sanctions under Turkish law.

4.8 Penalties for Late Payment of Claims

Penalties for Late Payment of Claims

As per Article 32 of the Insurance Law, the Undersecretariat is authorised to take all necessary measures in order to prevent the insurers and reinsurers from delaying the payment of the insurance claims contrary to the rules of good faith. If the insurer or reinsurer does not pay the insurance coverage despite the measures implemented by the Undersecretariat, an administrative fine of approximately TRY75,000 is imposed as of 2021.

Additionally, in case the insurance coverage is not paid in the scope of a violation of the rules of good faith, a criminal investigation may be carried out against the real person officials of the insurers (the board of directors’ members and persons authorised to represent the insurer). Persons who are found guilty as a result of criminal proceedings will be subject to a judicial fine between 300 days and 730 days. As per Article 52 of Turkish Criminal Code No 5237, the daily amount of the judicial fine will be between TRY20 and TRY100 and will be determined by the criminal court on the basis of the personal and economic conditions of the offender(s). The criminal investigation is initiated upon the application of the Undersecretariat to the public prosecution office. In addition, persons who have been penalised more than once cannot take charge in the governing body of the insurer.

In addition to the administrative and penal sanctions above, if the insurer does not pay the insurance coverage partially or completely, it also has to pay the interest accruing together with the coverage to the insured. As detailed at 4.7 The Concept of Bad Faith, the insurer has a 45-day investigation period from the notification regarding the materialisation of the risk. After this 45-day period (15 days in life insurance), the insurer falls into default without further notice and is also responsible for the interest arising from the delay. Article 1427 of the TCC states that any provision in the insurance contract exonerating the insurer from paying default interest will be invalid. The commercial default interest rate to be accrued is 18.25% per year as of 2021.

4.9 Representations Made by Brokers

Insurance Contracts Concluded by Representatives

In Turkish Law, a broker or a third party can represent the policyholder for the conclusion of the insurance contract. Pursuant to Article 21 of the Insurance Law, brokers can only operate through a licence obtained from the Undersecretariat, and persons who operate as brokers without a licence are subject to imprisonment and judicial fines.

In principle, the policyholder is responsible for all kinds of transactions made by a broker or a third person by way of representation. However, the policyholder may claim that the representative has no authority or exceeds the scope of its authority to sign the insurance contract. Article 1406 of the TCC provides that the policyholder may give its approval to the contract concluded on its behalf before or after the materialisation of the risk. Turkish scholars indicate that if the policyholder approves the insurance contract before the materialisation of the risk, the insurer will be responsible for premium payments arising from the approval date. That said, a considerable number of scholars criticise the approval mechanism of the policyholder after the materialisation of the risk, and state that this approval should not make the contract valid. However, since it is explicitly regulated in the TCC, the approvals given after the materialisation of the risk will also keep the contract valid.

If the policyholder does not approve the contract, the insurer may claim premiums up to the date the insurance contract is not approved from the unauthorised representative as compensation. In addition to this compensation, the insurer may also demand from the unauthorised representative the negative damages, if any, incurred due to the failure to conclude the contract. The notion of negative damage refers to losses by the insurer in relation to its reliance on the validity of the contract. In short, in the case of unauthorised representation, the insurer may claim premiums until the date of the non-approval, and negative damages incurred until the date the insurer became aware of such unauthorised representation.

Last but not least, in order to ensure that the insurance contract remains valid, Article 1406 of the TCC stipulates that the contract concluded with an unauthorised representative will be deemed as having been concluded with this representative provided that it has an insurable interest. In other words, if the unauthorised representative has an insurable interest, it will be directly the party to the insurance contract.

4.10 Delegated Underwriting or Claims Handling Authority Arrangements

Delegated Underwriting or Claims Handling Authority Arrangements

Delegated underwriting or claims handling authority arrangements are not common in the Turkish insurance system. It is not regulated in Turkish law to prohibit the insurer from delegating some of its functions to third parties. However, each insurer is obliged to obtain a licence from the Undersecretariat in order to carry out insurance activities in Turkey. Therefore, insurers outsourcing certain functions to third parties have to ensure that delegated parties are not authorised to operate as insurers in Turkey and conclude insurance contracts on behalf of the insurer. Otherwise, it is possible to impose administrative and penal sanctions against the insurer and delegated parties. 

In addition, concluding comprehensive agreements and defining delegated functions clearly in the agreements to be made with third parties, to whom certain functions will be delegated, is crucial to prevent future disputes arising. Such disputes will be resolved by the courts according to the provisions of the signed agreement.

5. Claims against Insureds

5.1 Main Areas of Claims where Insurers Fund the Defence of Insureds

In most types of liability insurance, two obligations are imposed on the insurer which can be stated as indemnification and defence against lawsuits.

Duty to defend is well explained by the insurer's obligation to provide defence to the insured by either hiring an attorney or enlisting one of its own. Duty to indemnify, on the other hand, is different than obligation of defence. It includes the payment of damages and the result from a covered claim regardless of a need for defence.

The expenses the insurer incurs to defend itself are generally covered by the standard general liability policy, and these expenses would not reduce the policy limits. Yet, some proprietary liability policies that cover the defence costs under policy limits can be sold.

Since it is the general rule that the insurers fund the defence of the insured when the risk that has emerged is under the scope of the coverage which has been determined by the policy, the circumstances that are not under this scope should be examined. The areas to be counted are outside of the risk area determined by the insurance contract and they appear as fields where defence is not met by the insurer. In areas other than these, the insurer generally needs to fund the defence. These excluded areas can be categorised as catastrophic, intentional actions, covered elsewhere, illegal actions, and maintenance issues.

5.2 Likely Changes in the Future

With the outbreak of the COVID-19 pandemic, the expected emergence of many viruses in the future, and the increasing normalisation of disasters due to global warming, fires and storms, we can now expect the risks excluded under the title of "catastrophic" to be included in insurance policies in the near future.

5.3 Trends in the Cost or Complexity of Litigation

In Turkey, litigation costs are not high but continue to rise and are consuming an increasing percentage of corporate revenue. The average outside litigation cost per respondent is nearly TRY200-300 for the opening of a new case in 2021, and court fees are 2.27 per mill of the total amount of the case for large value cases and 33.40 for low value cases. Litigation costs rarely change in Turkey.

According to the Legal Practitioner’s Act, all litigation fees and attorney’s fees will be paid by the losing party. The losing party does not pay the professional fees that the winning party has incurred. The losing party only pays a “representation fee” to the counsel of the winning party according to the Official Fee Tariff which has digressive rates pro-rata to the quantum.

5.4 Protection against Costs Risks

Claimants can buy legal protection insurance. In that insurance, the insurer is only paid if the insured has no fault regarding legal dispute. This insurance mainly covers traffic law, family and private law and property law; however, it can be widened with construction contracts, inheritance, forestry, stone and query etc. Legal protection insurance covers all litigation expenses and attorney’s fees within the policy period. 

6. Insurers’ Recovery Rights

6.1 Right of Action to Recover Sums from Third Parties

According to the TCC, insurers consider all claims against third parties as insured. The insurer becomes the successor to all the rights and obligations and can claim recovery from the tortfeasor third party.  

When insurers decide to initiate recourse action, first the insurer must pay insurance coverage to the insured or its beneficiary. The insurer can only claim the paid amount from the third party. As explained above, although there is controversy among Turkish scholars and in Turkish law precedents over which court has jurisdiction, it is generally accepted that this lawsuit should be filed before a civil court of first instance. During the recourse action, the insured is obliged to maintain the insurer’s right to "hold harmless" by taking the necessary measures. If the coverage amount does not cover the actual loss, then the insured can claim the remaining amount from the third party by means of a separate lawsuit.

6.2 Legal Provisions Setting Out Insurers’ Rights to Pursue Third Parties

Article 1472 of the TCC states that an insurer and insured are in a subrogation relationship and they become successors to each other after the insurer pays insurance compensation to the insured. In a third-party action, claims will be in the name of the parties themselves, since they have a legal right to participate. As a matter of fact, the insurer is under no obligation to prove its right to recourse, as its insurance contract with the insured is enough to proceed to the lawsuit stage. 

7. Impact of COVID-19

7.1 Type and Amount of Litigation

As in all areas, the pandemic has had a huge impact on insurance-related litigation. In order to reduce the impact of COVID-19, Law No 7226 was published in March 2020, which temporarily suspended all litigation actions, including the filing of lawsuits, notices and any enforcement proceedings, for two months.

Further, due to the standstill in the business sector, in March 2020 the government introduced a credit system which is a commercial credit insurance supported by the government to compensate losses faced in the business sector. Nevertheless, a large number of insurance claims were filed due to conflicts around force majeure and objective impossibility, many of which are still in the first instance stage.  

7.2 Forecast for the Next 12 Months

With the lessons learned during the pandemic, parties to insurance contracts are on a route to settle their differences, which leads to amendments in the renewal of contracts with a view to adjusting the interests of both sides of insurance contracts and aligning them with the post-pandemic era. We also expect that large scale insurance claims filed as a result of the pandemic are likely to be settled within the next year.

7.3 Coverage Issues and Test Cases

With the invention of COVID-19 vaccines, the public interest in healthcare insurance has rapidly increased. Therefore, most companies have extended the healthcare insurance that they have obtained for their employees. Since transmissible diseases fall into the scope of healthcare insurance, insurers have included COVID-19 as one such transmissible disease. Therefore, the scope of healthcare insurance has widened. 

7.4 Scope of Insurance Cover and Appetite for Risk

The scope of health insurance has widened in a way that consumers receive treatment in Turkey and abroad in connection with pandemic-related problems. Insurance contracts covering damages, delays, loss of profit are amended in such a way that insurance coverage is provided for risks that have arisen due to the pandemic.

The scope of credit insurance for small business entities has been widened since traders could not collect their receivables from debtors. According to a regulation published in the Official Gazette dated 25 March 2020, all small entity owners are entitled to obtain credit insurance paid by the government.

Also, in terms of third party liability insurance, health and life insurance since the pandemic have not been counted as an exception, and COVID-19 will therefore be covered. 

Naturally, insurance only provides cover for material damages and losses, however, the pandemic has enabled the collection of insurance compensation for lost revenue under loss of profit policies. If COVID-19 or the pandemic has not been excluded from the policy, then, according to the TCC’s named perils principle, loss of revenue can be demanded from the insurer. 

On a different subject, as per the information shared by the Minister of Transport and Infrastructure, more than 110,000 cyber-attacks were carried out in 2020. The Ministry of Transport and Infrastructure has published the National Cybersecurity Strategy and Action Plan (2020-2023) in order to prevent these attacks and reduce their effects. 

The pandemic has significantly accelerated digitalisation in business life. Cyber-risks continue to spread in parallel with the speed of digital technologies and, therefore, demand for cyber-risk insurance, which provides financial protection against cyber-attacks, is increasing.

8. Climate Change

8.1 Impact on Underwriting and Litigating Insurance Risks

Climate change-related litigation risks and insurance have not been regulated in Turkey yet. However, in terms of natural disasters, the insurance market can be considered as a well-regulated area. Since the recent wildfires and floats caused by global warming, we can say that the effects of climate change may be considered as natural disasters and may fall into the scope of natural disaster insurance. 

The fires and floods that have taken place around the world recently have also affected Turkey, with the fires in the west of Turkey and the floods in the north causing great loss of life and property. Housing package insurances against natural disasters such as these has been in great demand recently. This type of insurance, which has high insurance premiums, has started to become popular due to the recent disasters.

Insurance cases have increased due to the natural disasters and it is predicted that the number will increase in the next year.

9. Significant Legislative and Regulatory Developments

9.1 Developments Affecting Insurance Coverage and Insurance Litigation

Although there are no significant laws that have been published related to insurance coverage and insurance litigation in the pandemic, the scope of health insurance has been widening. According to the Private Health Insurance Regulation, all losses caused by a transmissible disease are covered under health insurance. Since the COVID-19 outbreak, insurers recognised COVID-19 as a transmissible disease and included it within the health insurance.

This article was first published on Chambers and Partners Practice Guides in October 2021. See the article here.