Under the Insurance Law No. 5684 (“Insurance Law”) insurance companies can only operate in the Turkish market by establishing
a joint stock company or a cooperative. Furthermore, pursuant to the Council of Ministers' Decision on the International Activities in the Insurance Sector, foreign insurance companies can also operate in Turkey by establishing a branch office. While, there is no license requirement for establishment, an insurance company, once established, must obtain an appropriate license from the Undersecretariat of Treasury in order to commence its operations. There is a variety of licenses available; each license is specific to a certain branch of insurance (i.e. life, non-life, life-pension or re-insurance) and every insurance company must hold all licenses applicable to its insurance products.
The Insurance Association of Turkey is a professional organisation and, as per the Insurance Law, all insurance and reinsurance companies established in Turkey must be a member of the Insurance Association of Turkey.
Pursuant to the Insurance Law, only insurance companies established and operating in Turkey are permitted to insure the insurable interests of Turkish citizens or other residents of Turkey. However, there is a notable exception for life insurance, which can be purchased from abroad. Other exceptions include transportation insurance for goods subject to export and import and third-party liability insurances arising from the operation of ships.
2. Effect of misrepresentation and/or non-disclosure
The Turkish Commercial Code No. 6102 (“TCC”) regulates the notification requirements of the policyholder to the insurer. Pursuant to the TCC, there is an obligation on the policyholder to provide all material information to the insurer that is known, or ought to have been known, by the policyholder that would affect the conclusion of the insurance contract or may require the contract to be concluded on different terms and conditions. If the insurer provides a written list of questions to the policyholder, the questions and the policyholder’s responses will be considered material information and the policyholder will not be obliged to provide additional information to the insurer. If upon receipt of the policyholder’s responses the insurer requires additional information, the insurer may ask the policyholder additional questions in writing. Furthermore, the policyholder is not required to provide information on any issue that is already known to the insurer. However, in all cases there is an overarching obligation on the policyholder not to withhold material information in bad faith, regardless of whether or not the insurer provides a specific list of questions.
The TCC states that, actions of the insured (under third-party insurances) or the beneficiary (under life insurances), shall be taken into account in terms of the performance of this obligation, provided that they are informed about the insurance. Therefore, although not expressly stated under the TCC, it is accepted in practice that the insured and the beneficiary will be under the same obligations as the policyholder under such circumstances.
The remedies available to the insurer in instances of misrepresentation and/or the non-disclosure of material information depend on when the insurer becomes aware of the misrepresentation and/or non-disclosure.
If the insurer becomes aware of the misrepresentation and/or non-disclosure before the occurrence of an insured event, the insurer may either:
- rescind the insurance contract within fifteen days of becoming aware of the misrepresentation and/or non-disclosure; or
- request from the policyholder or the insured, as the case may be, the amount of the additional insurance premium that would have been paid by the policyholder had the misrepresentation and/or non-disclosure not occurred.
In cases where the insurer becomes aware of the misrepresentation and/or non-disclosure after the occurrence of an insured event under the insurance contract, and the misrepresentation and/or non-disclosure has an effect on the quantum of the policyholder’s/insured’s/beneficiary’s claim or on the occurrence of the insured event itself, the insurer will either:
- be entitled to reduce the insurance proceeds by the difference between the insurance premium paid by the policyholder and the insurance premium that would have been paid by the policyholder had the misrepresentation and/or non-disclosure not taken place; or
- if there is evidence of bad faith on the part of the insured and causality between the misrepresentation and/or non-disclosure and the occurrence of the insured event, the insurer will be entitled to rescind the insurance contract and will consequently be discharged from its obligation to pay the insurance proceeds.
Please note that in the case of life insurance contracts, the remedies available to the insurer in instances of misrepresentation and/or non-disclosure are more limited. For example, an insurer is only able to rescind a life insurance contract within the first five years of the insured term; thereafter the insurer will only be entitled to claim for the insurance premium difference.
3. Effect of breach of warranty and condition precedent
Under Turkish law, insurance contracts are not conditional contracts. Therefore, they cannot be subject to conditions precedent.
Under Turkish law, there is no recognised warranty concept. However, the insurance contract may impose on the policyholder and the insured certain obligations that must be complied with during the insured period. The remedies available to the insurer for breach of such obligations by the policyholder and the insured are the same as those applicable to misrepresentation and/or the non-disclosure.
4. Consequences of late notification
The policyholder is obliged to notify the insurer without undue delay as soon as it becomes aware of a claim.
In cases where the policyholder has, due to its own fault or negligence, failed to notify or delayed the notification of a claim to the insurer, and such failure or delay results in an increase of the insurance proceeds, the insurer will be entitled to reduce the amount of the insurance proceeds. The amount of the reduction is dependent on the extent of the policyholder’s fault or negligence.
5. Entitlement to bring a claim against an insurer
Generally, the policyholder has a right to bring a claim against the insurer under an insurance contract. Also, beneficiaries under the life insurance contracts shall have right to bring a claim against the insurer. Moreover, in the case of third-party liability insurance, a prospective third-party claimant who has suffered an insured loss because of the actions and/or omissions of the policyholder has a right to bring a claim directly against the insurer.
6.Entitlement to damages from an insurer for late payment of claim
Under the TCC, insurance proceeds shall become due and payable by the insurer to the policyholder once an insured event has been realised, a claim notified to the insurer by the policyholder and the insurer has completed its investigation of the claim. The insurer is required to complete its investigation within forty five days from the date of notification of the claim by the insured. This period is fifteen days for life insurances.
The late payment of insurance proceeds constitutes a “default” by the insurer under the TCC and consequently default interest will be due in addition to the insurance proceeds. The default interest rate can be determined in the insurance contract freely by the parties, subject to the relevant limitations under the Code of Obligations No. 6098 for non-commercial insurance policies. However, if no default interest rate is specified in the insurance contract or if the rate therein is not applicable to the particular claim, then specific default interest rates would be applied in accordance with the Law on Legal Interest and Default Interest No. 3095.
7. General rules concerning the limitation period for claims
Under the TCC, the statutory limitation period for insurance claims is six years from the date when the insured event occurred; reducing to two years once the policyholder becomes aware that the insured event has occurred.
However, with respect to third-party liability insurance, the statutory limitation period is ten years from the date when the insured event occurred; reducing to two years once the third party becomes aware that the insured event has occurred.
8. Policy triggers with respect to third-partyliability insurance
Third-party liability insurance is triggered when the insured third party suffers an insured loss during the insured period.
9. Recoverability of defence costs
The recoverability of defence costs varies depending on the types of insurance contract; however, generally the insurer is liable for the reasonable costs and expenses incurred by the policyholder and insured, including expenses relating to the defence of claims.
10. Insurability of penalties and fines
There is currently no specific legislation in Turkey in relation to the insurability of penalties and fines.