An insurance contract is a contract under which the insurer undertakes, in exchange for a premium, to pay compensation or make good the loss in the event that a peril damages an interest of the policyholder that can be measured in money. As can be understood from this definition, the policyholder must have an interest measurable in money, and the insurer must assume the losses that may occur to that interest. For example, if a homeowner insures their home against fire, the homeowner's interest is that the home not be damaged by fire. The homeowner — that is, the policyholder — will be able to claim from the insurer any losses suffered when the fire peril materializes, and the insurer, upon the peril materializing, will conduct a damage assessment and make good the policyholder's actual, concrete losses. The branch of law that examines these matters is called insurance law.
The main sources of insurance law include the Turkish Commercial Code, the Insurance Law, the Turkish Code of Obligations, the Individual Pension Savings and Investment System Law, the Agricultural Insurance Law, the Law on the Protection of Consumers, the Highway Traffic Law, the Turkish Civil Aviation Law, the Financial Leasing Law, the Road Transport Law, the Disaster Insurance Law, the Law on the Compensation of Losses Arising from Terrorism and the Fight Against Terrorism, and the Social Insurance and General Health Insurance Law. Insurance law is regulated in Book 6 of the Turkish Commercial Code.
In addition to the laws listed above as sources of insurance law, there are numerous secondary regulations, including insurance contracts and decree-laws, Council of Ministers decisions, regulations, communiqués, circulars, and sector announcements related to insurance activities.
According to Article 1401 of the Turkish Commercial Code; An insurance contract is a contract under which the insurer undertakes, in exchange for a premium, to indemnify a peril or risk that damages a person's interest measurable in money, in the event that it materializes, or to pay a sum of money or perform other obligations due to the life spans of one or more persons or certain events occurring in their lives. This definition encompasses both indemnity insurance and fixed-sum insurance. Indemnity insurance is insurance aimed at making good, within the scope of coverage, the actual losses suffered by the policyholder.
Fundamental Concepts of Insurance Law: Sum Insured, Insurable Value, and Insurance Compensation
Sum Insured refers to the amount of compensation specified in the insurance policy that will be paid to the insured when the peril materializes. Article 1461 of the Turkish Commercial Code provides that The insurer's liability is limited to the sum insured. Even if the sum insured exceeds the value of the insured interest at the time the risk materializes, the insurer does not pay more than the actual loss suffered. The general principle is that the sum insured is equal to the insurable value. If the sum insured exceeds the insurable value, the insurer pays only the actual loss. For example, under an insurance contract with a sum insured of TRY 50,000, if a loss of TRY 30,000 occurs, the insurer is liable for the TRY 30,000 loss.
Insurable Value refers to the value of the interest subject to insurance. What matters here is the value at the moment the peril materializes. Article 1460 of the Turkish Commercial Code provides that The insurable value is the full value of the insured interest. This is because the value on which compensation is based is the value at the moment the peril materializes. Even if the insurable value is higher than the sum insured, the insurer is only liable up to the sum insured. For example, for a vehicle whose comprehensive (kasko) value and sum insured is TRY 100,000, if its market value later drops to TRY 60,000, the value at the moment the peril materializes is taken into account.
Insurance Compensation: According to Article 1459 of the Turkish Commercial Code, The insurer indemnifies the loss suffered by the insured. Insurance compensation is the compensation that must be paid to make good the loss suffered by the insured as a result of the peril materializing. Even if the resulting loss exceeds the sum insured, the insurer is only liable up to the sum insured, because the insurer's coverage limit is capped at the sum insured. If the loss that occurs is less than the sum insured, the insurer is obligated to make good the loss suffered by the policyholder. For example, under a comprehensive (kasko) insurance contract with a sum insured of TRY 100,000, if the policyholder's vehicle suffers TRY 20,000 in damage, the insurer's liability is TRY 20,000.
The Insurer's Debts and Obligations
1. Obligation to Bear the Risk
The insurer's foremost obligation is the obligation to bear the risk. When a peril related to the protected interest materializes, the insurer will be liable for that peril. According to Article 1421 of the Turkish Commercial Code; Unless otherwise agreed, the insurer's liability begins upon payment of the premium or the first installment; in insurance relating to the carriage of goods by land and sea, the insurer becomes liable upon conclusion of the contract. Under this provision, unless otherwise agreed, the insurer's liability begins upon payment of the premium or the first installment.
The circumstances and conditions under which the insurer will be liable are explicitly specified in the insurance contract or the general terms and conditions of insurance. For example, in compulsory traffic insurance, the vehicle's make, model, insurance period, and matters falling outside the scope of coverage are specified. For instance, the general terms and conditions specify that if the policyholder leaves the scene of the incident other than in an emergency, this will fall outside the scope of coverage.
2. Disclosure Obligation
One of the insurer's obligations toward the policyholder is the obligation to provide disclosure and all necessary information about the insurance contract. Before the insurance contract is concluded, and while allowing the necessary time for review, the insurer and its agent must notify the policyholder in writing of all information relating to the insurance contract to be concluded, the insured's rights, provisions to which the insured must pay particular attention, and any notification obligations tied to future developments.
In addition, independently of the policy, the insurer must disclose in writing to the insured, throughout the term of the contract, any events and developments that may be considered significant with respect to the insurance relationship. The insurer bears the burden of proving that such information and disclosure were provided.
3. Obligation to Provide the Insurance Policy
If the insurance contract was concluded by the insurer itself or its agent, the insurer is obligated to provide the policyholder with a policy signed by authorized persons within twenty-four hours of the conclusion of the contract; in other cases, within fifteen days. The insurer is liable for any loss arising from late delivery of the policy.
4. Obligation to Pay Expenses
Another obligation of the insurer toward the policyholder is the obligation to pay expenses. The insurer must pay the reasonable expenses incurred by the policyholder, the insured, and the beneficiary for the purpose of determining the scope of the risk, the compensation, or the sum payable, even if these expenses prove to be of no use.
Since the insurer will pay the insured's actual loss, it must also pay expenses incurred for the purpose of determining the scope of the compensation obligation. For example, the policyholder may also claim from the insurer the fee for a report obtained from an independent appraiser to determine the extent of the value loss suffered by the vehicle involved in an accident. Unfortunately, insurance companies often try to avoid these obligations.
5. Obligation to Pay the Insurance Compensation or Sum
When the peril materializes, the insurer is obligated to make good any loss falling within the scope of the policy. This loss is the policyholder's actual loss. According to Article 1427 of the Turkish Commercial Code, unless there is an agreement for compensation in kind, the insurance compensation is paid in cash. In other words, under the statutory provision, unless otherwise stipulated, the insurer makes payment in cash.
The insurance compensation or sum becomes due following the materialization of the risk, after the documents relating to the risk have been submitted to the insurer, once the insurer's investigations relating to its performance have concluded, and in any event forty-five days after notification. For life (personal) insurance, this period is fifteen days. If the investigation has been delayed due to a fault not attributable to the insurer, the period does not run. As specified in this statutory provision, once the policyholder learns that the risk has materialized, they must notify the insurer of this without delay. The insurer becomes obligated to pay this compensation once its investigations and examinations regarding the damage have concluded, or at the latest within forty-five days. In practice, unfortunately, insurance companies often raise disputes over many matters.
The Policyholder's Debts and Obligations
1. Obligation to Pay the Premium
The insurer provides protection for the insured interest using the premiums received from the policyholder. Article 1430 of the Turkish Commercial Code provides that The policyholder is obligated to pay the premium agreed upon in the contract. Unless otherwise agreed, the insurance premium is paid in advance. As a rule, the insurer's liability begins from the date the premium or the first installment is paid. If changes occur among the factors affecting the premium that require a reduction of the risk, the premium is reduced and, where applicable, refunded.
2. Disclosure/Declaration Obligation
The policyholder is obligated to disclose to the insurer, at the time the contract is concluded, all material matters that they know or should know. If a matter material to the insurer has not been disclosed or has been disclosed incorrectly, the insurer may withdraw from the contract within fifteen days or demand a premium difference. If, after the risk has materialized, the disclosure obligation has been breached due to the policyholder's negligence, and this breach is of a nature that could affect the amount of the compensation or sum, or the materialization of the risk, a reduction is made to the compensation according to the degree of negligence.
If the policyholder's fault amounts to intent, and there is a connection between the breach of the disclosure obligation and the risk that materialized, the insurer's obligation to pay compensation or the sum is extinguished; if there is no such connection, the insurer pays the insurance compensation or sum taking into account the ratio between the premium paid and the premium that should have been paid.
3. Obligation to Provide Information and Allow Investigation
Following the materialization of the risk, the policyholder must, pursuant to the contract or at the insurer's request, provide the insurer within a reasonable time with all information and documents necessary for determining the scope of the risk or the compensation, and which can be expected of the policyholder. In addition, depending on the nature of the information and documents obtained, the policyholder is obligated to allow the insurer to conduct an examination at the place where the risk materialized or other relevant locations, and to take appropriate measures that can be expected of them.
4. Obligation to Prevent and Mitigate Loss and Protect the Insurer's Recourse Rights
Where the risk has materialized or there is a high likelihood of it materializing, the policyholder is obligated to take measures, to the extent possible, to prevent the loss, mitigate it, prevent it from increasing, or protect the insurer's recourse rights against third parties. The policyholder must comply with the insurer's instructions in this regard to the greatest extent possible.
The insurer is obligated to indemnify, separately from the insurance compensation or sum, the reasonable expenses incurred by the policyholder in connection with preventing or mitigating the loss, even if these expenses prove to be of no use.
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