In insurance contracts, both the policyholder and the insurer are subject to mutual duties of disclosure and information. Given the extensive regulation of these obligations, it is of particular importance to examine their scope and ensure compliance, especially in light of the severe consequences that may arise from a breach.
- Duty of Disclosure by the Policyholder
In return for fulfilling the primary obligation of paying premiums, the policyholder acquires the right to claim indemnification for losses resulting from the insured risk. The policyholder’s duty of disclosure applies at different stages of the contractual relationship and is governed by Articles 1435 et seq. of the Turkish Commercial Code No. 6102 (“TCC”).
- During the Formation of the Insurance Contract
At the time of concluding the contract, the policyholder must disclose all material facts known or that ought to be known. Under the TCC, “materiality” is defined as circumstances which, if not disclosed or inaccurately disclosed, would have caused the insurer either to refrain from entering the contract or to enter into it under different terms. Any matter raised by the insurer, whether orally or in writing, is presumed material unless proven otherwise.
The consequences of a breach depend on the stage at which the insurer becomes aware of the non-disclosure:
| The moment the breach is learned by the insurer | Conclusion | ||
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The insurer may rescind the contract within 15 days |
The insurer may request an additional premium on account of increased risk; if not accepted within 10 days, the contract is deemed rescinded. |
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Where the breach results from negligence and there is a causal link to the occurrence of the risk, the indemnity is reduced in proportion to the degree of fault.
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Where the breach results from intent | |
| If there is a causal link, the insurer is released from liability altogether.
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If no causal link exists, the indemnity is proportionately adjusted according to the premiums paid versus the premiums that ought to have been paid. | ||
In addition to these general provisions applicable to all types of insurance, special rules exist for life insurance, such as incorrect declarations of age and limitation periods for the insurer’s right to rescind.
- During the Term of the Insurance Contract
While the contract is in force, the policyholder must disclose circumstances that aggravate the risk undertaken by the insurer. Such “risk aggravation” may be either objective (circumstances beyond the policyholder’s control) or subjective (resulting from the policyholder’s own conduct). Objective aggravation must be reported within 10 days of becoming known to the insurer; subjective aggravation must be reported immediately.
| The moment the breach is learned by the insurer | Conclusion | ||
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The insurer may terminate the contract within one month; however, if the aggravation ceases within that period, the termination right cannot be exercised. |
Alternatively, the insurer may demand additional premium within one month; if not accepted within 10 days, the contract is deemed terminated. |
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In cases of negligence with a causal link, the indemnity is reduced in proportion to the degree of fault. | Where the breach results from intent | |
| If there is a causal link, the insurer is released from liability altogether. | If no causal link exists, the indemnity is proportionately adjusted according to the premiums paid versus the premiums that ought to have been paid. | ||
- Upon Occurrence of the Risk
Once the risk materializes, the policyholder must promptly notify the insurer. While the aim of disclosure prior to and during the contract is to maintain the balance between premiums and risk, the purpose of disclosure after the risk occurs is to allow the insurer to mitigate or control the consequences.
Failure to notify or delayed notification results in a reduction of the indemnity if such failure has contributed to an increase in loss, with the extent of reduction depending on the degree of fault.
In liability insurances, such as motor vehicle liability insurance, special rules apply: the insured must notify the insurer of any incident giving rise to liability within 10 days, and must immediately report any claims made, unless otherwise agreed. Breach of this duty may similarly lead to reduction in indemnity.
- Duty of Information by the Insurer
Corresponding to the policyholder’s duty of disclosure, the insurer is subject to an information duty. Rooted in Article 11 of the Insurance Law No. 5684, this duty requires insurers and agents to provide information to policyholders, beneficiaries, and insureds, both at the formation and during the continuation of the contract, as further regulated by secondary legislation.
The former 2007 Regulation has been repealed and replaced by the Regulation on Information in Insurance Contracts, published in the Official Gazette on 14 February 2020 (“Regulation”). The key provisions are as follows:
The Regulation applies to all institutions and agencies undertaking risks under the TCC and special insurance legislation.
Written form is the general rule; however, oral disclosure is permitted through call centers or telephone provided the conversation is digitally recorded.
Insurers are required to establish a publicly accessible website, including mandatory information specified under the Regulation.
The information duty is divided into two stages:
| Before And During Conclusion of the Contract: | After The Conclusion of the Contract: |
| Information must be provided through a written Information Form containing mandatory particulars, prepared in duplicate, one copy of which must be retained by the insurer. | Insurers must notify the policyholder within 10 business days of any developments such as legislative amendments, insolvency, liquidation, or license revocation, as well as any matters directly affecting the rights and obligations of the insured. |
| If information is provided via a durable medium, the insurer must ensure retention of the Information Form. | Insurers must respond within 15 business days to all information requests and complaints and must establish a dedicated complaints unit. |
Where the information duty has not been duly performed, misleading or false information has been provided, or the Information Form contains inaccuracies that have affected the policyholder’s decision, the policyholder may rescind the contract and claim damages.
Conclusion
In addition to their primary obligations to pay premiums and assume risk, parties to insurance contracts are also bound by duties of disclosure and information. Failure to comply with these duties may result in serious consequences, such as rescission of the contract, demands for additional premiums, or reductions in indemnity. Accordingly, awareness of these obligations and case-specific assessment of compliance are crucial.
Kind regards,
Bozoğlu İzgi Avukatlık Ortaklığı