Insurance Litigation 2023 - Part 3

6. Insurers’ Recovery Rights

6.1 Right of Action to Recover Sums From Third Parties

The insurer’s succession is successio singularis and the insurer shall have the right to recourse in case of indemnity payments because of third parties’ illegal intervention.

The underlying reason for granting this right to the insurer is the prohibition of enrichment in casualty insurance. In the event of the realisation of the risk that the policyholder has covered with insurance, the losses incurred will be compensated by the insurer within the scope of the provisions of the insurance contract.

The necessary conditions for the succession principle are (i) valid insurance contract, (ii) incurred loss within the scope of the insured risk, (iii) insured’s right to claim compensation against third parties, (iv) payment of the insurance indemnity made by the insurer to the insured.

Insured rights to file a lawsuit and claims against third parties responsible for the hazard can be used by the insurer as a successor. If a third-party causes damage, the insurer can claim compensation up to the amount of the indemnity. In a case of a proceeding where the is insured is the subject, the insurer may continue to the proceeding.

6.2 Legal Provisions Setting Out Insurers’ Rights to Pursue Third Parties

As mentioned in 6.1 Right of Action to Recover Sums From Third Parties, Article 1472 of the TCC gives subrogation right to insurers.

7. Impact of Macroeconomic Factors

7.1 Type and Amount of Litigation

The Kahramanmaras earthquake on 6 February 2023 affected and still will affect insurance litigation enormously considering that 59,000 people lost their lives, an estimated 35,000 buildings totally collapsed just after the earthquake and more than 150,000 buildings were identified as heavily damaged. Moreover, thousands of production facilities and manufacturing lines’ businesses were interrupted. More than a million claims are expected regarding insurance policies.

In addition, a nationwide mourning period was declared due to the earthquake and all litigation trials were suspended between 6 February 2023 and 15 June 2023. In many of the cities affected by the earthquake, the state of emergency continues.

In every aspect, the Kahramanmaras earthquake heavily affected the Turkish insurance sector and litigation.

7.2 Forecast for the Next 12 Months

The impacts on insurance litigation of the Kahramanmaras earthquake should decrease eventually, with indemnity payments made by insurers.

7.3 Coverage Issues and Test Cases

Business interruption coverage becomes very controversial because of the duration of the business interruption and when it is unclear when the insured companies will be able to resume operations. In addition, since there are not enough sample cases for the calculation of business interruption compensation, claims become open to interpretation, which causes disputes between insureds and insurers.

The fact that approximately 35,000 buildings collapsed immediately after the Kahramanmaras earthquake on 6 February 2023, and more than 150,000 remaining buildings were damaged, disputes have arisen between insurance companies, municipalities and homeowners regarding the damage assessment of the remaining buildings. Such problems are expected to increase insurance disputes considerably. Moreover, due to the economic conditions in Türkiye in recent years, building costs are still increasing considerably, and since the reconstruction of many buildings has not yet started, the indemnities to be paid would be very insufficient. This will be a point of disagreement between insureds and insurers and may lead excess damages claims.

There are no sample cases regarding the impacts of the Kahramanmaras earthquake in insurance.

7.4 Scope of Insurance Cover and Appetite for Risk

After the Kahramanmaras earthquake, awareness about the necessity and importance of insurance has been raised again. For this reason, the amount of insurance policies taken out has broken records since the earthquake, and demand is expected to continue in future years. Therefore, premium income of insurers is expected to increase.

8. Emerging Risks

8.1 Impact of ESG on Underwriting and Litigating Insurance Risks

The authors have not noticed any specific changes to the underwriting and litigation of insurance risks within the country as a result of climate change events.

8.2 Data Protection Laws

Data protection and privacy are primarily governed by Turkish Personal Data Protection Law which was enacted on 24 March 2016. This relatively new law has had an impact on insurers in terms of assessing risks and collecting the necessary documents during the underwriting phase. Also, the swiftness of insurers’ claim assessment and payment has changed depending on their ability to obtain personal data quickly.

In addition, the main impact of the data protection law has been to make it difficult for insurers to obtain the necessary information and documents during the subrogation stage, obtaining information regarding person/entity to be subrogated.

However, despite these effects, insurers have adapted to the Law on the Processing of Personal Data and organised their internal operations accordingly.

9. Significant Legislative and Regulatory Developments

9.1 Developments Affecting Insurance Coverage and Insurance Litigation

Constitutional Court’s Annulment of the General Conditions of Motor Vehicles Compulsory Third Party Liability Insurance (MTPL)

The Turkish Statistical Institute (TUIK) announced that 1,232,957 traffic accidents occurred in 2022, 197,261 of which were fatal or injury accidents, and a total of 5,229 people lost their lives in these accidents.

One can imagine that the MTPL in Türkiye is a highly controversial policy and MTPL generates a lot of dispute in the litigation system.

The Ministry of Treasury and Finance tries to regulate the compensation to be paid to third parties through General Terms and Conditions of the MTPL. However, the Constitutional Court, in its decisions dated 10 June 2020, and later dated 29 December 2022, briefly ruled that the compensation of the third party cannot be determined by the General Terms and Conditions; the framework should be regulated with the Code of Obligations according to the hierarchy of laws.

Therefore, with these decisions of Constitutional Court, the expected risk of insurers in MTPL increased by 20–30%.

Regulatory Changes Regarding the Kahramanmaras Earthquake

Insurers have been most affected by the Kahramanmaras earthquake recently and regulatory changes related to that catastrophe. The insurance industry loss is estimated at USD5 billion from the earthquake. After its occurrence, the Insurance and Private Pension Regulation and Supervision Agency issued approximately 20 Circulars and Announcements on various dates.

Among the most important of these announcements is the one regarding the determination of the advance payments to be made from the Compulsory Earthquake Insurance in order to ensure unity in practice. Accordingly, buildings damaged in the earthquake were categorised as collapsed/heavily damaged, moderately damaged and slightly damaged, and advance payments were determined on a pro rata basis.

In addition, the Insurance and Private Pension Regulation and Supervision Agency announced the postponement of premium collections for ten cities that suffered from the earthquake. This is another important issue that affects insurers’ revenues.

Finally, after the earthquake, litigation processes were suspended in the ten earthquake-hit cities for four months, which reduced the subrogation collections of insurers.

In every respect, this catastrophic event had a huge impact on insurance sector in Türkiye, and has raised the necessity and importance of insurance once again. For this reason, the number of insurance policies taken out has broken records after the earthquake. This demand is expected to continue in future years. Therefore, premium income of insurers is expected to increase.