Turkey: The International Comparative Legal Guide To: Insurance & Reinsurance 2016

Last Updated: 10 August 2016
Article by Can Eris


1.1 Which government bodies/agencies regulate insurance (and reinsurance) companies?

Insurance and reinsurance companies are regulated by the Undersecretariat of the Treasury established under the Prime Ministry.

1.2 What are the requirements/procedures for setting up a new insurance (or reinsurance) company?

According to Insurance Law no. 5684, insurance (or reinsurance) companies planning to operate in Turkey shall be incorporated in the form of a joint-stock or a mutual company; however, mutual companies may only conclude agreements with non-members if permitted by the Undersecretariat.

The incorporation procedure is stipulated under the Turkish Commercial Code no. 6102 and the Insurance Law no. 5684. The founders of insurance (or reinsurance) companies should also be in compliance with the requirements set out in the Insurance Law no. 5684 such as not having declared bankruptcy, having the necessary financial strength and a clear criminal record.

Insurance companies may only operate in the non-life or life divisions and only in the insurance sector.

Insurance (or reinsurance) companies must apply for a licence from Undersecretariat for each branch (such as fire or cargo) they desire to operate in within one year from the establishment. Failure to apply for a licence within one year will result in the company not being able to use the words "insurance" or "reinsurance" in its title, along with other sanctions.

The minimum paid capital requirement for insurance (or reinsurance) companies is 5,000,000 TRY. However, the Undersecretariat is entitled to increase the required minimum paid capital amount. The Undersecreteriat will request an increase in the minimum paid capital for each applied branch licence.

1.3 Are foreign insurers able to write business directly or must they write reinsurance of a domestic insurer?

Insurable interests in Turkey of Turkish residents must be insured by insurance companies established in Turkey. Non-compliance with this rule may result in fines. However, Article 15 of the Insurance Law allows the direct foreign purchase of cargo insurance for imports and exports, hull insurance for boats, planes and helicopters purchased by foreign credit or foreign leasing, P&I policies, life insurance and travel insurance.

Foreign insurers generally insure the risk as a reinsurer by fronting through a local insurer.

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?

As a general rule, freedom of contract is valid in insurance agreements. However, every insurance policy issued in Turkey must refer to at least one of the general conditions that are prepared and published by the Undersecretariat of the Treasury. The abovementioned general conditions become a part of the insurance agreement and special conditions may only be included in the agreement to the extent that they are in compliance with such general conditions.

1.5 Are companies permitted to indemnify directors and officers under local company law?

There are no rules obliging or preventing companies from indemnifying their directors and officers. However, Turkish companies are increasingly purchasing D&O liability insurance to indemnify for losses or the advancement of defence costs in the event of claims against their directors and officers.

1.6 Are there any forms of compulsory insurance?

According to Article 13 of the Insurance Law, the Council of Ministers is authorised to introduce new types of compulsory insurance. Accordingly, there are various types of insurance made compulsory, especially for dangerous activities, such as motor third party liability insurance, bus personal accident insurance, liability for passenger transport, liability for transport of dangerous materials, liability for bottled gas producers, earthquake insurance, insurance for goods purchased by financial leasing, professional liability for insurance and reinsurance brokers, and P&I policies for ships carrying dangerous cargo passing through the Turkish Straits. The most common types of compulsory insurance in Turkey is motor third party liability insurance and earthquake insurance, as proof of an active policy is required for any transaction at the Vehicle and Land Registries.


2.1 In general terms, is the substantive law relating to insurance more favourable to insurers or insureds?

Generally, the weaker party in a transaction is protected both by the law and during litigation. The same applies in insurance. Any ambiguity or contradiction in the wording of the policy will be interpreted to the benefit of the insured. Furthermore, generally, it is enough for the insured to prove the amount of damages. The burden of proof for all other disputes that may arise from the insurance agreement, including whether a risk is covered or not, is on the insurer. A specific example would be in car insurance: where the insurer argues breach of duty of disclosure by the insured regarding how the accident happened, the Court of Appeals requires the insurer to prove how the accident really happened and that the circumstances in which it happened are not covered under the policy, which is most of the time, unprovable.

2.2 Can a third party bring a direct action against an insurer?

According to Article 1478 of the Turkish Commercial Code, third parties to the insurance policy may bring a direct action against a liability insurer.

2.3 Can an insured bring a direct action against a reinsurer?

According to Article 1403 of the Turkish Commercial Code, the policyholder or the insured does not have a direct right of action against a reinsurer.

2.4 What remedies does an insurer have in cases of either misrepresentation or non-disclosure by the insured?

There are specific remedies provided to the insurer in case of misrepresentation or non-disclosure by the insured depending on whether such misrepresentation or non-disclosure is made during the conclusion of the agreement, during the term of the agreement or after the occurrence of the risk.

In the event of a breach of the duty of disclosure or misrepresentation during the conclusion of the agreement, the insurer may request an increase in the premium or renege on the insurance agreement within 15 days from discovering the misrepresentation or non-disclosure. If the insurer chooses to request an increase in the premium and such request is not accepted by the insured within 10 days, the insurance agreement will be considered reneged.

In case of an increase in the risk during the term of the agreement, the insured should inform the insurer immediately. The insurer may request an increase in the premium or terminate the insurance agreement within one month from discovering the misrepresentation or non-disclosure. If the insurer chooses to request an increase in the premium and such request is not accepted by the insured within 10 days, the insurance agreement will be considered terminated. However, if the insured did not disclose or misrepresented the increase in the risk wilfully, the insurer will be entitled to the full premium for the term.

After the occurrence of the risk, the insured is under the obligation to notify the insurer of the occurrence of the risk immediately. In the case that non-compliance with the notification duty causes the loss to increase, the amount of indemnification shall be reduced accordingly.

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?

The insured should disclose to the insurer all relevant information that is known or should be known during the conclusion of the insurance agreement. All information specifically requested by the insurer and all information that would cause the insurer to not conclude the insurance agreement at all or under different conditions is considered as important information. In case of non-disclosed important information, the insurer may increase the premium or renege on the insurance agreement. After the occurrence of the risk, if the non-disclosed information affects the risk or the indemnification amount, then the indemnification amount is reduced accordingly. If the information is not disclosed by the insured intentionally and there is a connection between such non-disclosed information and the risk, the insurer is discharged of its duty to indemnify.

However, if the insurer provides a specific set of questions to the insured to be answered before the conclusion of the agreement, then the insured is only required to answer the specific questions and will not be required to disclose any other information, unless such information is withheld by the insured in bad faith.

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?

According to the Article of 1472 of the Turkish Commercial Code, any rights of the insured arising from the loss will pass automatically to the insurer upon payment of the indemnity for losses covered under the policy. As such, any ex-gratia payment by the insurer will not automatically create a right of subrogation. In such cases, an explicit assignment from the insured to the insurer is required by the Court of Appeals.


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?

Insurance agreements are regulated under the Turkish Commercial Code, and as such, insurance disputes are handled by the commercial courts without consideration of the value of the dispute, with the following exceptions:

  • Insurance disputes, where one of the parties is considered a consumer according to the Law on Consumer Protection no. 6502, are handled by the specialised consumer courts.
  • Insurance disputes arising from maritime insurances are handled by the specialised maritime courts.
  • If there are no commercial, consumer or maritime courts established in a jurisdiction, the local court of first instance will handle the insurance dispute in the capacity of the relevant court.

There is no jury system at any level under Turkish Law.

3.2 How long does a commercial case commonly take to bring to court once it has been initiated?

A commercial case will be resolved within one to two years at the first instance. The appeal stage may take another one to two years and the revision of the decision stage may take another six months to one year. However, as there are no specialised insurance courts, these durations may increase considerably due to the generally complex nature of insurance disputes.


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?

Under the Turkish civil procedure system, the principle is the submission of the evidence by the parties at the preliminary investigation stage. The judge cannot rely on or direct the parties to arguments, defences or evidences not used by them, however, the judge may request further clarification or evidence from both the parties and third parties on matters brought forward. Non-compliance with the request of the judge may be subject to sanctions.

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?

The parties may withhold such documents.

4.3 Do the courts have powers to require witnesses to give evidence either before or at the final hearing?

At the preliminary stage, the parties may submit a list of witnesses to the court, with contact information. The witnesses are required to, and, if necessary, will be forced to, appear before the court under oath unless they are relieved from the witness duty due to reasons stipulated under the procedural code, such as relation by blood or marriage to one of the parties. The judge and both parties may ask further questions to the witness.

4.4 Is evidence from witnesses allowed even if they are not present?

In principle, the witness will be heard at the court. Witnesses in a different jurisdiction may be heard through a rogatory court. The judge may decide to send a questionnaire to the witness for written answers; however if the written answers are considered insufficient, the judge may still require the witness to appear before the 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?

Turkish courts generally appoint an expert. The Court of Appeals generally directs the courts of first instances to appoint an expert in complex disputes, especially with regard to technical issues. The appointed experts may not express their opinions on legal matters that should be resolved by the judge. The reports submitted by the experts are considered discretionary evidence. Although the court is not bound by the reports, in the case of two contradicting reports, the courts appoint a third expert to resolve the contradiction again under the direction of the Court of Appeals.

The parties may submit expert-witness reports prepared by their own experts.

4.6 What sort of interim remedies are available from the courts?

As a general rule, the court may grant a suitable interim remedy in cases where there is an emergency situation calling for an interim remedy. The most common remedies are the freezing of assets or rights of the parties, transferring such to an escrow or deciding on any other remedy that would remove the risk or prevent any further damage. The court can order an interim remedy with or without prior notice to the relevant party. The party who makes a motion for an interim remedy order is liable for damages sustained by the other party or third parties, in cases where the interim remedy order is deemed to be unjust.

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?

The parties are entitled to appeal the final decision of the first instance courts, within 15 days of the receipt of the reasoned decision, if the disputed amount is over TRY 2,080 (as of 2015). Normally, there are no hearings at the appeal stage. However, the parties may request an appeal with hearing, provided that the disputed amount is above TRY 21,220 (as of 2015).

The parties are also entitled to request the revision of the decision of the Court of Appeals, within 15 days from the receipt of the decision, on limited grounds such as unconsidered appeal reasons, contradictory statements in the decision, or evidence forming the basis for the decision being insubstantial.

4.8 Is interest generally recoverable in respect of claims? If so, what is the current rate?

The insurer is considered to be in default on the 15th day in life insurance and on the 45th day in non-life insurance after the notification of the loss by the insured. The current legal interest is 10.50% in commercial disputes and 9% in general disputes (as of 2015). Disputes in foreign currency will be subject to the highest yearly interest rate applicable for such currency to deposit accounts in Turkey.

4.9 What are the standard rules regarding costs? Are there any potential costs advantages in making an offer to settle prior to trial?

Litigation costs are borne by the claimant. Litigation costs include court duties, postage, expert and witnesses' fees, and other expenses determined by the court, and of course, attorney fees and other expenses incurred during the court proceedings.

The losing party will be required to pay the winning party's costs at the end of the trial, including attorney fees determined according to the Tariff of Minimum Lawyers' Fees.

There are no cost advantages for offering settlement.

4.10 Can the courts compel the parties to mediate disputes? If so, do they exercise such powers?

In practice, the judge asks parties whether it is possible for the parties to settle in the preliminary hearing. However, courts are not entitled to force parties to settle or to hold settlement negotiations. Although, recent developments show that in the near future attending mediation in accordance with the Law on Mediation in Civil Claims no. 6325 will be made mandatory for certain types or value of disputes. The specifics of the implementation and whether insurance disputes will be subject to this requirement is not yet known.

4.11 If a party refuses to a request to mediate, what consequences may follow?

Currently, there are no consequences of refusing a request to mediate. However, recent developments show that in the near future, attending mediation in accordance with the Law on Mediation in Civil Claims will be made mandatory for certain types or value of disputes. The specifics of the implementation and whether insurance disputes will be subject to this requirement is not yet known.


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?

In addition to the general national or international arbitration mechanisms, a special arbitration process has been created in accordance with the Insurance Law no. 5684 for claims against the insurers arising out of insurance contracts to avoid lengthy court litigation processes. The Insurance Arbitration Commission is incorporated under the Insurance Association of Turkey.

Almost all insurance companies established in Turkey are members of the Commission. If the insurance company is a member of the Commission, the insured, beneficiary or third parties (in liability insurance) may apply to the arbitration even if there is no arbitration clause in the policy.

The disputes are resolved within four months from the establishment of the arbitration panel. The decisions given on matters below TRY 5,000 are final, and the parties may object to the decision at the Commission for matters above TRY 5,000. The review of the objection should be resolved within two months. Although arbitration awards are not subject to the review of the Court of Appeals except for cancellation, arbitration awards issued at the Commission may be appealed against if the disputed amount is above TRY 40,000.

The courts are not entitled to intervene in the arbitration procedure.

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?

For regular national or international arbitrations, an explicit arbitration clause in writing, or a separate arbitration agreement in writing, is required to start arbitration proceedings.

In respect of the Insurance Arbitration Commission, if the insurance company is a member of the Commission, the insured, beneficiary or third parties (in liability insurances) may apply to the arbitration at the Commission even if there is no arbitration clause in the policy.

5.3 Notwithstanding the inclusion of an express arbitration clause, is there any possibility that the courts will refuse to enforce such a clause?

In case of a valid arbitration clause and objection by one of the parties that the dispute should be resolved through arbitration, the courts will enforce the clause and reject the court claim.

The parties are not required to apply to the special Insurance Arbitration Commission.

5.4 What interim forms of relief can be obtained in support of arbitration from the courts? Please give examples.

It is possible for arbitrators to issue interim remedy orders stipulated under the Civil Procedural Law, and such orders will be enforced by the courts provided that there is a valid arbitration agreement. The parties may request interim remedy orders directly from the courts with the permission of the arbitration committee or in accordance with the arbitration agreement, unless there is an emergency where an interim remedy order by the arbitration committee may not likely resolve in time.

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?

An arbitration award shall be reasoned and justified in accordance with both the International Arbitration Code and the Civil Procedural Law. The same applies for awards given at the Insurance Arbitration Commission.

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?

It is not possible to appeal against arbitration awards under both the International Arbitration Code and Civil Procedural Law. However, it is possible to request the cancellation of an arbitration award from the competent court of first instance, solely on the ground of procedural errors, arbitrability of the subject matter or competency of the arbitrators, and public order, within one month from the receipt of the award. The decision of the court of first instance regarding cancellation may also be appealed against.

A special objection procedure is envisioned for the Insurance Arbitration Commission. The parties may object to the arbitration awards at the Commission on matters above TRY 5,000. The review of the objection should be resolved within two months. Although arbitration awards are not subject to the merits review of the Court of Appeals, arbitration awards issued at the Commission may be appealed against on the basis of merits if the disputed amount is above TRY 4,000.

Originally published by Global Legal Group.

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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