Insurance Litigation 2016, Turkey Chapter
1.In what fora are insurance disputes litigated?
In the Turkish judicial system, insurance disputes are resolved by the commercial courts, irrespective of the amount or value of the dispute. On the other hand, insurance disputes arising out of maritime law are heard by the Specialised Maritime Court. If there are no specialised courts, ie, a commercial court in a certain province, disputes are heard by the general competent court, namely a civil court of first instance. It is also possible to initiate international or domestic arbitration proceedings.
As an alternative, the Insurance Arbitration Commission, which is incorporated under the Insurance Union of Turkey, is a feasible dispute-solving mechanism alternative to court proceedings. Only the insured or policyholder is entitled to apply to the Commission to avoid prolonging litigation procedures and obtain a viable solution. In order to apply to the tribunal, no arbitration clause is needed provided that the insurer is a member of the Commission. Regarding disputes arising out of mandatory insurances, if the insurer is not a member of the Commission, the insured, beneficiary and policyholder are still entitled to apply to the arbitral tribunal.
2.When do insurance-related causes of action accrue?
As per the general insurance rules stipulated in the Turkish Commercial Code (TCC) numbered 6102 and dated 14 February 2011, the insured’s cause of action against the insurer accrues when the insurer’s obligation to indemnify the insured commences; in any event, this is within 45 days of the date of notification of the policyholder (in life insurance, this period is 15 days). However, there is a prescription period that should always be kept in mind. As per the general insurance rules under the TCC, all claims arising from insurance contracts shall be prescribed after a period of two years as of the date when payment falls 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. In liability insurance, indemnity shall be prescribed within 10 years of the event constituting the subject of the insurance: for example, negligence of the insured.
In Turkey, it is usually the case that insurers refrain from paying the indemnification; thus, insurance coverage denial is rather common in insurance disputes.
3.What preliminary procedural and strategic considerations should be evaluated in insurance litigation?
In general, the following must be taken into account before initiating insurance litigation:
- the competency of the courts or an arbitral tribunal;
- the costs that will arise from litigation (in the Turkish litigation system, although the costs are not sky-high, the claimant should bear the costs during the litigation and the losing party should bear the costs after the litigation period is completed, together with the expenses of the claimant’s attorney); and
- the prescription period of the claim.
In practice, the culture of settlement or mediation is not yet firmly established in Turkey; in most cases, therefore, disputes are resolved by actions before the courts.
Regarding insurance disputes, identifying the damage as well as the determination of the material facts in relation to loss is particularly important to detect whether the insured has increased the risk of occurrence. Similarly, these also have an immense effect on the recourse action between jointly liable parties.
To identify and determine the damage or loss accrued and the material facts as of the date of the loss, it is advisable to take immediate action to record the evidence. In practice, this action is preferably taken right after the occurrence of the risk. Obtaining an adjuster’s report or filing a determination action before the court is also advisable, as these offer safer claims to initiate an action. It is also important for the insurer to detect whether there are other insurances covering the risk.
Last but not least, in liability insurance, the insured’s recourse actions must be considered carefully since there are conditions to be met in order to initiate litigation for recourse claims. The following should be noted:
- to be entitled to the right of subrogation, firstly, the insurer must pay the indemnity to its insured. The precedents in this regard require the indemnification to be paid to the rightful person;
- the right of subrogation only covers the amount that is paid by the insurer to the insured and the interest applied to such amount starting from when the payment was made. The insured remains the rightful owner of the remaining amount that is not covered by the insurer; and
- the insured should be entitled to ask for indemnification from the third party in order for the insurer to ask for the same; for example, if the insured has committed misconduct that led to the damage, then the insurer, as the subrogee of the insured, shall not have any right of subrogation against the third party, since the third party did not cause the damage.
4.What remedies or damages may apply?
As it is not possible to request specific remedies, monetary damages are claimed in a typical litigation case.
Monetary damages would cover the indemnity and the default interest, provided that the claim for the interest is stated within the initial claim. The commercial interest rate to be accrued is set every year, in 2016 being 11.5 per cent per year. With respect to foreign currency, the legal interest rate will be the highest interest rate applied to deposit accounts with a one-year maturity, unless a higher rate is stipulated in the contract.
Regarding non-life insurance, the main principle is the prohibition of enrichment. Therefore, in non-life insurance such as property and liability insurance, it is not possible to claim for a higher amount than the incurred damages.
If the policy stipulates a fixed sum for all damages, it may not be possible for the insured to be in the position it would have been in before it suffered damage. However, if the policy covers the total property valued under the contract, provided that all duties of the insured are satisfied, it may be possible for the insured to claim and obtain the sum of all its damages.
It is also possible to include a revaluation clause in the insurance contract and pay the current value of the property. This is usually preferred in motor vehicle insurance, where the value of the motor vehicle is revalued at the time of the occurrence.
5.Under what circumstances can extracontractual or punitive damages be awarded?
Under Turkish law, it is not possible to award punitive damages due to the principle of prohibition of enrichment. It is, however, possible to insert penalty clauses in agreements where one or more of the parties agrees to pay a certain sum of money or perform an action if he or she fails to fulfil their obligations under a contract. Under penalty clauses, loss does not need to be proved. However, it is not common to insert penalty provisions in insurance policies in Turkey.
With regards to extracontractual damages, Turkish law provides for indemnification against tortious acts provided that there is a tortious act, damages, causal link between the act and damages, and fault. However, indemnification based on a tortious act is not applicable in insurance litigation, since insurance litigation is not based on conflicts related to tortious acts, but is based on contractual obligations.
6.What rules govern interpretation of insurance policies?
Although the general approach of Turkish legislation is towards protecting the relatively weak party in a legal transaction, there are no explicit rules regarding the interpretation of insurance policies. However, under the reasoning of the TCC, it is highlighted that the founding principle of insurance contracts is the protection of the insured.
As a general principle of Turkish law, the terms of a contract are construed to the detriment of the author of such term. Since insurance policies are considered to contain the standardised terms of contract imposed by the insurer, they will be interpreted to the detriment of the party who formulated the provision, who is usually the insurer.
Other than such, the basic principle of the contract remaining in force and the consensus of the parties are also dominant in the interpretation of insurance policies.
7.When is an insurance policy provision ambiguous and how are such ambiguities resolved?
As per article 1425 of the TCC, insurance policies shall be drafted in an intelligible and easily readable manner. Indeed, the primary duty of providing proper wording is on the insurer.
During the conclusion and the term of the insurance contract, there may be some points that are not clear or have more than one meaning that may create ambiguity in the insurance contract. These points may cover everything related to the insurance contract – for example, those points relating to the obligations of the parties, coverage, exclusions and deductibles.
During the negotiation or the conclusion of the insurance contract, if there are any provisions that are questioned by the insured, the insurer and its agents are under the obligation to inform and clarify these points principally in writing. The burden of proving that the pre-contractual information duty has been duly fulfilled shall lie with the insurer. It is seen in practice that the Court of Appeals gives utmost importance to the positive duty of information of the insurer. For example, in one of its decisions, the Court of Appeal ruled a decision of reversal where it determines that the indemnification requested by the insured should have been identified and depending on whether the insurer can prove that it has accomplished its informative duty.
8.What are the mechanics of providing notice?
The TCC introduces a positive duty for notification on the insured. However, the procedure for such notification is not clearly defined in the TCC. This may vary depending on the policy. In some policies, usually in property insurance, notifying the occurrence to the insurer may be made by leaving a notice of claim by electronic means, whereas in other policies, notification may be sent through a notary public. However, for the sake of proof, it is advisable for the insured to send a written notification, preferably via registered post or notary public, to avoid any uncertainty regarding when the indemnification duty of the insured becomes due.
9.What are a policyholder’s notice obligations for a claims-made policy?
The TCC does not explicitly regulate notice obligation in claims-made policies, but provides general rules for the notification duty of the policyholder. In general, the policyholder shall notify the insurer without delay when it becomes aware of the occurrence of the risk.
In liability insurance, the insured shall notify the insurer within 10 days of those events that may give rise to its liability. Moreover, the insured shall notify the insurer of any claim made against it immediately, unless otherwise agreed. This provision cannot be altered to the detriment of the insured in an insurance contract. When there is such an alteration, the rules provided in the TCC will directly apply.
The scope of this notification is not clearly set in the TCC. However, in accordance with the contract or at the insurer’s request, the insured shall provide all information and documents necessary for determining the extent of the risk and indemnity and that might be expected from the policyholder to the insurer within a reasonable period of time.
10.When is notice untimely?
If the notice is not provided within the periods stated in question 9, notice is considered to be untimely. The TCC has chosen to use different wordings when stipulating the notice duty of the insured; namely, in the general provisions of the TCC, the notification duty of the insured must be accomplished without delay, whereas in liability insurance it must be pursued immediately.
11.What are the consequences of late notice?
The TCC gives utmost importance to the causal link between the negligence of the policyholder in its notification duties and the occurrence of the risk.
The only remedy is that, if the insurance indemnity or the fixed sum to be paid increased as a result of the failure or delay in giving notice of the occurrence of the risk, the indemnity or the fixed sum shall be reduced by taking into consideration the degree of the negligence of the policyholder. This provision cannot be altered to the detriment of the insured in an insurance contract. When there is such an alteration, the rules provided in the TCC will directly apply.
12.What is the scope of an insurer’s duty to defend?
The insurer’s duty to defend is only possible in liability insurance. It is not a duty but more of a right granted by the TCC to insurers. In other words, insurers are not obliged to defend the insured in a possible litigation.
If the insurer desires to defend the insured, the insurer shall declare its intent to defend the insured within five days of the date of notification of those events that may give rise to its liability.
When the insurer defends, it acts on behalf of the insured but for its own account and under its own responsibility, and assists in the defence of the insured with regard to the claims of the third persons. If the insurer considers its right to defend, it should also give due consideration to the rights and interests of the insured.
This provision cannot be altered to the detriment of the insured in the insurance contract. In the case of detrimental alteration, the provisions of the TCC shall apply.
It is common for an insurer to choose to take over defence for its own account, as it is to the benefit of the insurer with regard to coverage matters.
13.What are the consequences of an insurer’s failure to defend?
If the insurer remains silent and does not choose to defend the insured, it shall pay the indemnity that would become final and binding on the insured. Any settlement agreed by the insured without the consent of the insurer is not binding on the insurer if the insurer did not approve such settlement within 15 days of notification. It should be noted that the insurer shall not refrain from approving the settlement for unjust causes.
14.What constitutes bodily injury under a standard CGL policy?
In the Turkish insurance framework, such a standard CGL insurance does not exist. However, third-party liability insurance provides coverage for financial damages.
As per the general terms determined by the Undersecreteriat of the Treasury, third-party liability insurance covers both bodily injury and property damage claims of third parties. Apart from the above, there are different kinds of financial liability policies, including independent auditors’ professional liability insurance, motor vehicles liability insurance, professional liability insurance, financial liability insurance, employer’s liability insurance and medical injury liability insurance.
In financial liability insurance against third persons, bodily injury covers death, loss of limb and other harm to the human body, including sickness or disease.
15.What constitutes property damage under a standard CGL policy?
Property damage covers all kinds of physical and visible injury to tangible property such as total or partial loss of the property, including all injury resulting in loss of use of that property.
16.What constitutes an occurrence under a standard CGL policy?
Under general liability insurance, the materialisation of the decrease in the assets of the policyholder arising out of either property damage or bodily injury constitutes an occurrence.
17.How is the number of covered occurrences determined?
The number of covered occurrences is not explicitly determined in Turkish legislation.
Likewise, neither the TCC nor the general terms of professional liability insurance specifically stipulate how serial damages must be evaluated.
However, contracts tend to include a serial damages clause that considers continuous or continual occurrences as ‘one’ and stipulates that the insurer shall indemnify the insured once, up to the insurance coverage.
Including a serial damages clause in a contract also has an effect on the deductible attributable to the insured. Together with the serial damages clause, the risk remaining with the insured shall be covered once, which is, in some cases having a high amount of deductible, preferred by the insured.
18.What event or events trigger insurance coverage?
As per the TCC, insurance coverage is triggered by the occurrence, in other words the materialisation of the risk, provided that the occurrence is ‘insured’ under the insurance policy and the notifications are duly made by the insured, irrespective of whether it is a claims-made or occurrence-based policy.
19.How is insurance coverage allocated across multiple insurance policies?
In principle, if the same interest is insured against the same risk for the same term by more than one insurer at the same date or at different dates, the policyholder shall not be paid in excess of the insurance value. There are two different kinds of multiple insurance policies stipulated under the TCC.
In respect of an interest covered for its full value, the same person or other persons can only subsequently take out insurance against the same risks, for the same periods, provided that the following circumstances and conditions are present:
- the double insurance is approved by the subsequent and previous insurers;
- the policyholder transferred its rights arising out of the previous insurance contract to the subsequent insurer or waived its rights under the previous insurance contract. In this case, the transfer or the waiver must be written on the insurance policy, failing which the subsequent insurance shall be deemed to be invalid; and
- the liability of the subsequent insurer is restricted to the part of the loss that is not paid by the previous insurer. In this case, the previous insurance must be annotated on the subsequent insurance policy, failing which the subsequent insurance shall be deemed to be invalid.
If the same interest is insured with more than one insurer at the same date, against the same risk and for the same period, all of the co-insurance contracts shall be deemed valid only up to the value of the insured interest. In other words, in joint insurance, there are different insurance policies for a part of the value of the property.
In such a case, each insurer shall be liable for the proportion that its insured sum bears to the total of the insurance sums. If the insurers are jointly liable according to their contracts, the insured shall not have the right to claim more than its loss. Moreover, each of the insurers shall be liable up to the sum it has to pay according to its contract. In that case, the insurer who has made the payment shall have recourse to the remaining insurers for the proportion of the insurance sums that the insurers have to pay to the insured under their contracts.
20.What is the general scope of first-party property coverage?
In Turkish law, first-party property coverage includes all kinds of risks that would create physical damage to the property of the insured (fire, flood, etc). Some typical examples of first-party property insurance would be motor vehicle insurance, construction insurance and theft insurance.
21.How is property valued under first-party insurance policies?
As per the TCC, depending on the nature of the property, the procedure for valuation of the property subject to the policy may vary. For example, in fire policies, it is usually the case that, after obtaining the information from the policyholder, the insurer appoints a private expert to value the real estate, establish whether it has adequate fire alarm systems or the real estate’s likelihood of burning. Using information from the expert and the insured, the insurer sets the value of the property, and thus the coverage of the policy.
The value of the insurance is set in the contract and constitutes a binding value for the property at the time of the occurrence. The insurer, however, is entitled to request a reduction of the value of the property, provided that the set value is excessive in relation to the real property value.
It is also possible to include a revaluation clause, which is widely seen in motor vehicle property insurance, in which the property is revalued at the time of the occurrence.
As a side note, the insurer is entitled to examine the value of the property during the term of the contract.
22.What is the scope of D&O coverage?
As per Turkish legislation, there is no standard D&O insurance coverage, since this type of insurance is not specifically regulated under Turkish law and the general terms of professional liability insurance do not shed adequate light on the matter.
In practice, the scope of the D&O insurance policy covers third-party claims against the insured that are caused by faults or improper performance in his or her professional services. Third parties would typically mean the shareholders of the company, regulatory authorities, creditors, competitors and employees.
Insurance companies in Turkey tend to provide D&O insurance coverage that includes cover for administrative monetary fines issued by the regulatory authorities and the litigation costs, provided that there is a deductable stipulated in the contract and excluding any wilful misconduct and misrepresentation of the D&O.
23.What issues are commonly litigated in the context of D&O policies?
Although it is difficult to provide statistical information in terms of the most severe and frequent claims because circumstances may vary significantly, it can be said that claims against D&O policies are frequently based on an allegation of a breach of the general duty of care and a breach of the duties in the company law provisions of the TCC.
While not frequent, D&O liability in antitrust infringements can be quite severe, amounting to an administrative fine of up to 5 per cent of the fine imposed on the company (up to 10 per cent of the annual turnover in Turkey).
It can also be said that frequent claims also arise from administrative proceedings for non-compliance with various legislation such as capital markets, tax and customs-related legislation.
24.What type of risks may be covered in cyber insurance policies?
Cyber insurance is a new concept in Turkey, and mainly offers cover for the risks related to threats to companies’ networks and IT infrastructure.Coverage includes expenses incurred and payments made by a company:
- for the destruction or theft of its assets through any unauthorised access to or use of such company’s systems, including its risk management systems;
- in communicating with affected customers about such data breach or loss;
- for the recovery of lost or breached data;
- in identifying how a breach to its systems or how a network failure has occurred; and
- in monitoring complaints raised by data subjects.
It is also possible to include digital media risks, such as:
- defamation of trade reputation, or of the character of any person or organisation;
- unintentional infringement of a copyright, title, slogan, trademark, trade name, trade dress mark, service mark, service name, domain name or licence agreement;
- invasion and infringement of, or interference with, the rights of privacy, publicity, morality and not being presented in a false light;
- theft of ideas or information, plagiarism, piracy or misappropriation;
- public disclosure of private facts;
- personal intrusion and commercial appropriation of a name;
- material interruption to a company’s network systems; and
- data restoration.
25.What cyber insurance issues have been litigated?
No cyber insurance issues have been litigated in Turkey to date.
First published by Getting the Deal Through, in 11.04.2016