Preliminary and jurisdictional considerations in insurance litigation

Fora

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.

The Code of Civil Procedure provides the claimant with a number of alternative courts having jurisdiction for insurance disputes, including the commercial courts at the domicile of the defendant, and the place of immovable property or risk that is claimed to have triggered the insurance coverage. The Turkish Code of International Private Law numbered 5718 has designated specific jurisdictions for the cases arising from insurance contract disputes, and clearly states that they cannot be contracted otherwise by the parties. Article 46 of the Code provides that the relevant jurisdictional rules shall prevail:

The court where the insurer’s headquarters, or its branch office or the agent who concluded the contract are located in Turkey, has jurisdiction in the disputes arising from insurance contacts. In the cases to be filed against the insured or the beneficiary, the court of the Turkish domicile of these persons has the jurisdiction.

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. No arbitration clause is needed to apply to the tribunal, provided that the insurer is a member of the Commission. Regarding disputes arising out of mandatory insurances, the insured, beneficiary and policyholder are entitled to apply to the arbitral tribunal even if the insurer is not a member of the Commission. It is also possible to initiate international or domestic arbitration proceedings.

Causes of action

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) provided that the insurer’s right to examine the risk in question is not prejudiced by the insured or any external hindrance.

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.

Preliminary considerations

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 scope of the law governing the insurance contract and duties imposed on the insured or policyholder imposed by the governing law and policy conditions;
  • the competency of the courts or arbitral tribunal;
  • 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 claimant’s attorney fee up to the amount prescribed by the tariff of the Turkish Bar Association); 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, determination of the material facts in relation to loss and whether the insured has increased the risk of occurrence is particularly important. 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 recourse actions must be considered carefully as there are conditions to be met to initiate litigation for recourse claims. The following should be noted: to be entitled to the right of subrogation, first the insurer must pay the indemnity to its insured or, depending on the circumstances, the beneficiary; and the right of subrogation only covers the amount that is paid by the insurer to the insured or beneficiary and the interest applied to such amount starting from when the payment was made. The insured or beneficiary remains the rightful owner of the amount that is not covered by the insurer.

Damages

What remedies or damages may apply?

Monetary damages are claimed in a typical litigation case.

Monetary damages in insurance disputes would cover the indemnity foreseen under the policy 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 2018 it was 19.5 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. The ultimate purpose of the damages to be awarded by the court would be to reinstate the insured or policyholder to the position it would have been in had the risk covered under the policy not occurred.

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.

Under what circumstances can extracontractual or punitive damages be awarded?

Under Turkish law, it is not possible to award punitive damages because of the principle of prohibition of enrichment. It is, however, possible to insert penalty clauses in agreements where one or more of the parties agree to pay a certain sum of money or perform an action if they 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.

In reinsurance, extracontractual obligations refer to damages awarded by a court against an insurer that are outside the provisions of the insurance policy, owing to fraud, bad faith or negligence of the insurer in handling a claim. Turkish law precedents and practice are scarce in this respect; however, courts are inclined to deal with this issue from the point of the insurer’s burdens of proving the scope of the insurance coverage and enlightening the insurer regarding fundamental aspects of the policy. If the insurer fails to fulfil these burdens, the court may either conclude that the disputed matter is within the scope of the insurance policy regardless of the written agreement or may order the insurer to compensate the insured for any loss caused as a result of the insurer’s failure. The reinsurer, on the other hand, would be responsible only to the extent of the reinsurance agreement with the insurer and may avoid any compensation for such court judgments unless a particular clause holds the reinsurer responsible.