Board Members Liability Insurance

Kilinc Law & Consulting


Kilinç Law & Consulting established by Levent Lezgin Kilinç currently operates in Istanbul, Izmir and London. Our firm, provides services to clients in a wide range of complex matters including Project Finance, Corporate Law, M&A, Energy Law, Dispute Resolution, Maritime Law, IP Law, International Transactions as well as Litigation of the disputes.
The Board of Directors assumes a pivotal role as the primary governing body within a joint-stock corporation, tasked with substantial management and representation duties. Given the inherent magnitude...
Turkey Insurance
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The Board of Directors assumes a pivotal role as the primary governing body within a joint-stock corporation, tasked with substantial management and representation duties. Given the inherent magnitude of these responsibilities, Board members face a proportional level of legal accountability. Consequently, there has been protracted discourse surrounding the notion of indemnification through insurance as a fundamental mechanism for mitigating Board liabilities. Presently, “Board of Directors' Liability Insurance” or “Board Members Insurance” (“BMI”) has gained widespread traction as an essential insurance product globally, spanning from the United States and England to Continental Europe, Germany, Japan, and Turkey. The availability of such insurance serves as a significant source of reassurance for Board members.

Although BMI is less pervasive in Turkey's corporate milieu, its significance is underscored by its recognition in the Turkish Commercial Code (“TCC”) under Article 361. This provision sanctions the insurance of damages incurred by the company due to the actions of Board members in the discharge of their duties. Furthermore, in publicly held companies, disclosure of such insurance is mandated if coverage exceeds 25% of the company's share capital.

However, the regulatory framework governing the terms and conditions of BMI remains relatively unstructured within insurance legislation. Typically, insurance companies tailor specialized policies to address the unique risks confronting corporations. Consequently, the formulation of policy terms, particularly recourse clauses, assumes paramount importance.

This article aims to explore critical dimensions pertaining to BMI.


BMI policies, widely employed in practice, are characterized by bespoke terms and conditions. Given the multifaceted nature of circumstances potentially giving rise to Board members' liability, each policy is meticulously tailored to provide protection against claims stemming from faulty decisions or negligence. As the importance of this insurance escalates globally and in Turkey, insurance coverage and policy exclusions remain flexible in accordance with the policy's stipulations. While subject to the nuances of individual policies, insurance companies typically undertake to indemnify damages incurred by the corporation, regulatory bodies, creditors, customers, competitors, employees, liquidators, and shareholders.


Before delving into the scope of insurance coverage, it is imperative to clarify several terms. The insurer typically refers to the corporation entering into the policy with the insurance company and remitting the premiums, while the insured or beneficiary denotes the party safeguarded under the policy in case of a loss or claim.

In BMI policies, the insurer is typically the corporation, although there are rare instances where Board members may act as insurers. In such scenarios, the Board member assumes the role of policyholder and bears responsibility for premium payments. Conversely, if the corporation serves as the policyholder, it assumes liability for premiums.

The designation of the “insured” (beneficiary) is pivotal in liability insurance. While certain policies solely cover the corporation against losses resulting from Board members' actions or transactions, this may not afford adequate protection to individual Board members. To comprehensively mitigate legal liability, Board members should be designated as insured parties alongside the corporation. Additionally, directors, managers, officials, and company employees can also be included as insured parties.

Policy coverage typically encompasses indemnities and payments legally mandated for the Board, court expenses arising from lawsuits, investigation costs, compensation claims related to securities, administrative fines, legal assurances, bailment expenses, and requests made by bankruptcy officers or liquidators on behalf of the corporation.


In policies where the Board member serves as the insurer, the insurance company is precluded from seeking recourse against the Board member subsequent to indemnifying aggrieved parties or the corporation. However, this may vary in policies where solely the corporation serves as the insurer. Depending on policy terms, the insurance company may pursue recourse against parties, organizations, or Board members responsible for the damage. To safeguard Board members, clauses excluding insurance company recourse should be incorporated into policies where they do not act as insurers, except in cases of willful misconduct.


Analogous to other insurance categories, BMI policies encompass various exclusions. Typically excluded are damages stemming from a member's deliberate breach of duty to the company, penal clauses in contracts, product liability, environmental damages, pending litigation, physical injuries, and penal fines imposed under criminal laws.


In conclusion, the adoption of BMI as a global mechanism for mitigating Board liabilities underscores its pivotal role in contemporary corporate governance. While BMI's prevalence is not at the expected level in Turkey, its recognition within the TCC highlights its growing importance. However, the absence of a structured regulatory framework necessitates careful consideration of policy terms, particularly recourse clauses, to ensure comprehensive protection. By exploring critical dimensions such as the legal nature, policy coverage, recourse, and exclusions of BMI, this article contributes to a nuanced understanding of its significance in modern corporate risk management practices.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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