1.1 Which government bodies/agencies regulate insurance (and reinsurance) companies?
The main governmental body that regulates and supervises the insurance and reinsurance sector is the General Directorate of Insurance acting under the Ministry of Treasury and Finance.
More concretely, the General Directorate of Insurance and the Insurance Supervisory Boards acting under the Ministry are the two main bodies responsible for the regulation and supervision of the insurance and reinsurance sector.
1.2 What are the requirements/procedures for setting up a new insurance (or reinsurance) company?
Insurance and reinsurance companies acting in Turkey should be established as joint stock or cooperative companies.
Furthermore, these companies are not allowed to have any other scope of work that is not directly related to insurance or reinsurance.
The Insurance Code foresees certain requirements for the founders of insurance/reinsurance companies. Accordingly, these requirements are mainly on the reliability of the founders in relation to their financial status and criminal records.
Furthermore, there are also specific requirements for members of the Board of Directors and Auditors related to their financial status, criminal records, education and experience level.
1.3 Are foreign insurers able to write business directly or must they write reinsurance of a domestic insurer?
According to the Council of Ministers' decision, foreign insurance and reinsurance companies cannot directly act as insurance and reinsurance companies in Turkey, but could act as branches.
On the other hand, foreign insurance and reinsurance companies can market their policies by using brokers established and acting in accordance with the Insurance Code and relevant legislation requirements.
Therefore, there is no rule restricting foreign investors, including foreign insurance and reinsurance companies, to establish a Turkish insurance and reinsurance company in accordance with the requirements of the Insurance Code and relevant legislation.
1.4 Are there any legal rules that restrict the parties' freedom of contract by implying extraneous terms into (all or some) contracts of insurance?
Even though the freedom of contract is a basic and mandatory rule in the law of contracts according to the Turkish Code of Obligations, the Turkish Commercial Code, Insurance Code and relevant legislation foresee important exceptions for insurance and reinsurance contracts.
Therefore, according to the Insurance Code, all general terms of an insurance contract should be reviewed by the Directorate and Board.
On the other hand, according to the stipulations of the Turkish Commercial Code, stipulations of insurance and reinsurance contracts should be interpreted for the benefit of the insured.
Furthermore, according to the Turkish Code of Obligations, if the contract is composed by general terms prepared by one party and contain disadvantageous obligations for the other party, those terms should be deemed to be unwritten.
1.5 Are companies permitted to indemnify directors and officers under local company law?
According to the Turkish Commercial Code and relevant legislation, the companies may, in some conditions, request the indemnification of their damages from their directors and officers, especially if the directors and officers caused the damage through their own fault. On the other hand, the Turkish Commercial Code foresees important restrictions on the borrowing of the member of the Board of Directors for joint stock companies.
On the other hand, in such cases, other legal and administrative penalties are also foreseen in the Insurance Code.
1.6 Are there any forms of compulsory insurance?
The Turkish Code of Insurance and related legislation foresees some types of compulsory insurance such as traffic liability insurance, professional liability insurance for some professions (such as doctors, lawyers, etc.), personal accident insurance (in case of carriage of person by land, air and sea), liability insurance for dangerous substance and hazardous waste, etc.
2. (RE)INSURANCE CLAIMS
2.1 In general terms, is the substantive law relating to insurance more favourable to insurers or insureds?
In general terms, the substantive legislation on insurance law is more favourable to insureds. The insureds are protected by insurance legislation on one hand, and by consumer legislation on the other.
2.2 Can a third party bring a direct action against an insurer?
Turkish legislation gives the possibility to third parties to bring direct action against insurers, especially in third-party liability insurance.
2.3 Can an insured bring a direct action against a reinsurer?
According to the second paragraph of article 1403 of the Turkish Commercial Code, an insured does not have the right to bring direct action against a reinsurer.
2.4 What remedies does an insurer have in cases of either misrepresentation or non-disclosure by the insured?
According to article 1439 of the Turkish Commercial Code, if the disclosure is not made properly or incorrectly, the insurer may terminate the contract within 15 days or request additional premium. If the requested additional premium is not accepted within 10 days by the policy holder, the insurer shall be discharged of its policy obligations.
2.5 Is there a positive duty on an insured to disclose to insurers all matters material to a risk, irrespective of whether the insurer has specifically asked about them?
Articles 1435 and 1436 of the Turkish Commercial Code regulates the insured's duty of disclosure.
Accordingly, the insured is under the duty to disclose any important information in relation to the policy. Furthermore, any non-disclosed or incorrectly disclosed information should be deemed important if it could lead to the non-conclusion of the contract or to its conclusion with different terms if correctly disclosed.
Furthermore, according to article 1436 of the Code, if a list of questions is given, the information in relation to the list should be deemed important.
2.6 Is there an automatic right of subrogation upon payment of an indemnity by the insurer or does an insurer need a separate clause entitling subrogation?
Articles 1472 and 1481 of the Turkish Commercial Code regulate the automatic right of subrogation for loss and liability insurances upon payment of the indemnity.
Accordingly, the insurer, upon payment of the indemnity, would legally succeed to its insured. Furthermore, if legal action or enforcement proceedings had already been initiated against the relevant party, the insurer may continue these proceedings in accordance with the rule of subrogation without the Court's or defendant's consent upon the proof of payment of the indemnity.
3. LITIGATION – OVERVIEW
3.1 Which courts are appropriate for commercial insurance disputes? Does this depend on the value of the dispute? Is there any right to a hearing before a jury?
This is a very controversial issue under Turkish law due to the entry into force of the Turkish Consumer Code in 2013.
According to articles 4 and 5 of the Turkish Commercial Code, any issue stipulated under the Code should be deemed commercial, and commercial courts would be solemnly competent for all kind of disputes raised from these commercial issues. Furthermore, if both parties of a contract are merchants and the contract is related to their commercial activities, the dispute arisen from such contract should also be deemed as a commercial dispute under the solemn authority of the commercial courts.
Therefore, according to paragraph (l) of article 3 of the Turkish Consumer Code that entered into force one year after the Turkish Commercial Code, insurance contracts concluded between consumers and insurers should be deemed as a consumer transaction, and the competent court for such disputes should be consumer courts.
In the light of the legislation explained above, if a dispute arises from an insurance contract concluded between an insurance company and a merchant in relation to the merchant's commercial activities, this should be deemed as a commercial dispute, and the commercial court would be competent; whereas if a dispute arises from an insurance contract concluded between the insurer and insured having any relation to a commercial activity, consumer courts would be competent.
3.2 What, if any, court fees are payable in order to commence a commercial insurance dispute?
In order to commence a commercial dispute, court fees should be calculated on the basis of a percentage of the alleged indemnity and/or claim.
3.3 How long does a commercial case commonly take to bring to court once it has been initiated?
Once the claim petition is submitted, examined by the court and notified to the defendant, the defendant would have at least two weeks to submit its responses. This two-week period may be extended by the court to a maximum of one month.
After the submission of the responses, the claimant would have its two-week period for representing its replication petition. This period of two weeks may also be extended for a maximum term of one month.
At the last part of petition exchanges, the defendant would again have its two-week period for presenting its rejoinder petition. This period may also be extended to a maximum of one month.
It usually takes about two months for the court to appoint a hearing date once this exchange of petitions period is terminated.
4. LITIGATION – PROCEDURE
4.1 What powers do the courts have to order the disclosure/discovery and inspection of documents in respect of (a) parties to the action, and (b) non-parties to the action?
First of all, according to the general rule of procedural law on burden of proof (onus probandi), each party should submit all kinds of evidence in relation to their claim or defence.
Furthermore, the court may also order the parties or third parties to submit and/or disclose every kind of document that is deemed to be in relation to the dispute.
4.2 Can a party withhold from disclosure documents (a) relating to advice given by lawyers, or (b) prepared in contemplation of litigation, or (c) produced in the course of settlement negotiations/attempts?
First of all, it should be underlined here that lawyers, due to professional secrecy, are under the duty to not disclose any facts or information entrusted to them by their client.
Secondly, according to articles 220 and 221 of the Turkish Code of Civil Procedure, if a party or a third party refuses to submit a required document, the court is obliged to tender an oath to the related party stating that this document does not exist or cannot be found.
Furthermore, if the relevant party does not submit any legally grounded reason for the non-disclosure of a relevant document in conjunction with its claim, the court would assume that the claims of the counterparty are proven or the claim of the relevant party could not be proven.
Additionally, a document produced in the course of settlement negotiations/attempts may not be disclosed on the basis of confidentiality, business secrecy or ethical reasons.
4.3 Do the courts have powers to require witnesses to give evidence either before or at the final hearing?
According to the Turkish Code of Procedure, witnesses may be heard until the decision is given by the court. Therefore, it is possible for the court to hear the witness at the final hearing but before giving the final decision.
4.4 Is evidence from witnesses allowed even if they are not present?
According to the general rule stipulated under the first paragraph of article 258 of the Turkish Code of Procedure, the witness should be heard at the competent court.
Therefore, the court may decide to hear the witness in the place of the litigation or litigated goods.
It is also possible to hear the witness at his/her residence if the witness is ill or disabled to the extent that he/she could not be present at the court house.
Furthermore, according to the fourth paragraph of article 258 of the Turkish Code of Procedure, if the witness does not reside in the judicial locality of the competent court, the witness might be heard by another court within the judicial locality of his/her residence via rogatory court.
4.5 Are there any restrictions on calling expert witnesses? Is it common to have a court-appointed expert in addition or in place of party-appointed experts?
According to Turkish procedural law, there are no restrictions on appointing expert witnesses. The court may appoint experts either on its own or upon a party's request. However, an expert view (or expert report) is not a binding document for the court. More concretely, even with an expert view presented or an expert report submitted, the court would still remain as the final authority to decide on the litigation.
It is possible for the parties to also add an expert view in their submissions. Therefore, a court-appointed expert is a more common expert witness type used under the Turkish litigation procedure.
4.6 What sort of interim remedies are available from the courts?
The Turkish Code of Procedure regulates preliminary injunction under its article 389 for cases where serious damage might occur or where it would be impossible or difficult to obtain rights due to changes in the current situation.
Furthermore, article 257 of the Turkish Enforcement and Bankruptcy Code foresees a precautionary lien for the money receivables on the movable and immovable properties of the debtor.
4.7 Is there any right of appeal from the decisions of the courts of first instance? If so, on what general grounds? How many stages of appeal are there?
Under the three-tier appeal system, accepted also by Turkish procedural law, the Regional Courts of Appeal act as appeal courts (secondary degree courts) for the decisions given by the Courts of First Instance, whereas the Court of Cassation (or Supreme Court) remains the final decision-making authority for appeals that have been made against the Regional Courts of Appeal's decisions.
As a general rule, all final judgments could be appealed. Therefore, judgments on claims amounting under TRY 3,560 are non-appealable before the Regional Courts of Appeal.
Furthermore, Regional Courts of Appeal are the final judicial authorities for judgments on claims not exceeding TRY 47,530 (including this amount).
The appeal period is two weeks for the Regional Courts of Appeal and one month for the Court of Cassation. Therefore, that period of appeal may vary in certain relevant legislation.
4.8 Is interest generally recoverable in respect of claims? If so, what is the current rate?
Interest is generally recoverable in respect of claims. The interest rates vary according to the nature of the dispute and are yearly reviewed by the Central Bank of Turkey. If an example should be given, the interest rate for a commercial dispute which arose after 1 January 2019 is 21.25% yearly.
4.9 What are the standard rules regarding costs? Are there any potential costs advantages in making an offer to settle prior to trial?
Civil proceedings costs are as follows: application fees; official attorney fees; and litigation expenses.
The Code of Fees and Charges and secondary tariffs determine most of the litigation costs and are reviewed every year.
As a general rule, litigation expenses shall be paid before filing an application. At the end of the proceedings, litigation costs and the official attorney fee determined by the court shall be borne by the losing party.
4.10 Can the courts compel the parties to mediate disputes, or engage with other forms of Alternative Dispute Resolution? If so, do they exercise such powers?
The main alternative dispute resolution ("ADR") method used in Turkey is arbitration. Therefore, the court may not ex officio compel the parties to arbitrate. The court would compel the parties to arbitrate if there is an arbitration clause in the contract and one of the contracting parties presented the arbitration objection as a preliminary objection.
Mediation is also one of the ADR methods used in Turkey. Compared to arbitration, the use of mediation is quite limited, but the government encourages its use in order to decrease the files applied before the courts. That is why Turkey has adopted a mandatory mediation mechanism for labour law disputes as of 1 January 2018, and for commercial law disputes as of 1 January 2019. Accordingly, the parties should apply to mediation before filing a claim arising from a labour or commercial law dispute.
Furthermore, in the matter of insurance and reinsurance, the Turkish Insurance Code foresees an insurance arbitration committee as an ADR method. Application to the insurance arbitration committee is not mandatory. Therefore, the court may not compel the parties to apply to the insurance arbitration committee. In addition, for the admissibility of the application, the relevant party should not file a legal action before the commercial or consumer court.
4.11 If a party refuses to a request to mediate (or engage with other forms of Alternative Dispute Resolution), what consequences may follow?
Mediation and arbitration are, as obvious as it is by their names, ADR methods. This is why parties are not under the obligation to mediate or arbitrate.
5.1 What approach do the courts take in relation to arbitration and how far is the principle of party autonomy adopted by the courts? Are the courts able to intervene in the conduct of an arbitration? If so, on what grounds and does this happen in many cases?
As stressed in the above paragraphs, arbitration is an ADR system conducted upon the agreement of the parties. That is why the intervention of the courts may happen only in some circumstances and party autonomy is a given priority.
At first, if the parties do not comply with the arbitration clause, the court may not ex officio apply the arbitration clause and oblige the parties to arbitrate. In other words, the arbitration clause would be taken into consideration by the courts if presented as a preliminary objection by one of the parties to the court.
On the other hand, the courts may intervene when the parties fail to agree on the appointment of the arbitrators; this may occur upon the application of either party, or the parties may apply to the courts so as to obtain interim relief, or the court may extend the period so that the arbitration process should be concluded upon the application of either party.
Along with this general explanation, the insurance arbitration committee should also be explained here in general, as this is much more of an institutional arbitration system under the control of the General Directorate. That is why, deviating from the arbitration system recognising party autonomy, once the litigation is brought in front of the insurance arbitration committee the parties may neither appoint their arbitrator nor decide on the law to be applied.
5.2 Is it necessary for a form of words to be put into a contract of (re)insurance to ensure that an arbitration clause will be enforceable? If so, what form of words is required?
In general rules, an arbitration clause should be put into an insurance and reinsurance contract. Therefore, a specific form of words is foreseen neither under the Turkish Code of Procedure nor the Code of International Arbitration.
Furthermore, according to article 30 of the Turkish Insurance Code and the relevant legislation, even though an arbitration clause is not foreseen in an insurance agreement, the insurer and insured may apply directly to the insurance arbitration committee; the non-existence of an arbitration clause in the contract of insurance may not be objected to in such case. In other words, arbitration competence of the insurance arbitration committee may be foreseen as semi-mandatory only for insurance contracts.
5.3 Notwithstanding the inclusion of an express arbitration clause, is there any possibility that the courts will refuse to enforce such a clause?
Except for specific exceptions such as disputes arising out of or in connection with the rights in rem in relation to immovable goods in Turkey, the courts may not refuse to enforce a valid and enforceable arbitration clause.
5.4 What interim forms of relief can be obtained in support of arbitration from the courts? Please give examples.
Regarding an interim measure or determination of evidence, if an arbitration panel or arbitrator issues an interim measure or decides on the determination of evidence, the enforcement of it may be requested by the competent court.
Furthermore, if the issuance of such decision could not be enforceable or would not be realised on time, the party or parties may apply directly to the court for the decision of an interim measure or of the determination of evidence. The interim measure might be a preliminary injunction or precautionary lien as explained under question 4.6 above.
5.5 Is the arbitral tribunal legally bound to give detailed reasons for its award? If not, can the parties agree (in the arbitration clause or subsequently) that a reasoned award is required?
According to article 436 of the Turkish Code of Procedure setting out the rules, an award ought to contain the legal reasons and grounds upon which the decision is made.
Similarly, article 14 of the Turkish Code of International Arbitration provides that an award should contain the legal reasons and grounds upon which the decision is made and the amount of compensation if requested.
Even though the Turkish Insurance Code does not provide any rules regarding the formal requirements of the award issued by the insurance arbitration committee, the Code itself refers to the Turkish Code of Procedure in the event that there are no specific provisions for a matter. Therefore, where there is an insurance arbitration award, it should also contain the legal reasons and grounds.
5.6 Is there any right of appeal to the courts from the decision of an arbitral tribunal? If so, in what circumstances does the right arise?
Under Turkish Law, arbitral awards cannot be appealed. Arbitration awards, whether rendered in Turkey or abroad, are binding and enforceable as of the time they are rendered.
Arbitration awards could only be set aside before Turkish Courts of First Instance on very limited grounds.
In addition to that, filing an application to set aside an international arbitration award does not affect the enforceability of the award; whereas for domestic awards, filing an application to set aside does not prevent the award from being enforceable.
Although arbitration awards cannot be appealed, the judgments setting the award aside can be appealed.
When it comes to the award given by the insurance arbitration committee, an appeal system is foreseen in the relevant legislation on insurance arbitration committee within the committee. Therefore, it would be possible also for such arbitration awards to be set aside before Turkish Courts of First Instance on the same limited grounds as normal arbitration awards.
Originally published by The International Comparative Legal Guide to Insurance & Reinsurance 2020.
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.