Maritime Law – Right Of Direct Action Against Liability Insurers Under Turkish Law

Right of Direct Action against Liability Insurers under Turkish Law

The new Turkish Commercial Code (“TCC”) brought up numerous new discussions with its entry into force on July 1st, 2012.

Lately, the ‘Right of Direct Action Against Liability Insurers’ introduced in the article 1478 of the TCC and the increased numbers of cases brought near the Turkish Court for its application has raised concerns especially for Liability Insurers.

The now famous case of “YUSUF CEPNIOGLU” where the insurers obtained an anti-suit injunction from the High Court of Justice in London and where the Court of Appeal of England recently maintained the same anti-suit that restrained the charterers to resume legal proceedings against the insurers in Turkey is one of the known incidents involving the Art.1478. The possible effect of such decision in Turkish jurisdiction is one of the prominent topics which raised attention.

Prior to TCC, right of direct action of the third parties against the liability insurers were mentioned in acts and regulations and their applications were limited to the type of the liability insurance which they were stipulated for. Their applicability to other types of liability insurances was open to discussion.

When Art.1478 became an integral part of the Turkish Law with the TCC, such distinction between the liability insurances ceased and the right of direct action to the liability insurances has been granted to the third parties regardless of the type of the liability insurance. It should also be noted that Art.1478 is applicable to the all types of liability insurances regardless of whether they are compulsory or optional.

Before getting into more detail about the application of Art.1478, it may be beneficial to have the full wording of the article to get a better understanding of it.

Right of Direct Action
Art.1478 – Suffered party may claim the indemnification of the damage upto the insured amount directly from the insurer, within the period which was foreseen for the time bar of the insurance policy.

1 – Is it possible to prevent the application of Art.1478 by incorporating a provision into the liability insurance policy? (Effect of the Jurisdiction clause)

Whereas the wording of the article seems straight forward and does not leave any open doors for any getting around, the dispute arises when you evaluate the matter under the Art.1486 which lists the mandatory provisions of TCC concerning liability insurances that the parties cannot alter by their own intentions.

Art.1478 is not listed as one of the mandatory provisions under Art.1486, it is therefore alleged that parties of the policy are entitled to incorporate the provision that can prevent the application of Art.1478. Despite the fact that both approaches have been adopted in the doctrine, prevailing opinion is that the legislator didn’t want any alteration from the Art.1478 and drafted the article accordingly. Nevertheless, the Art.1478 is relatively new and the interpretation of Art.1478 by the judges of the Courts and Court of Appeal on the matter will be seen.

Undoubtedly marine P&I insurers, who are liability insurers as per TCC, are concerned by the application of Art.1478. Since Art.1478 is a provision provided by the Turkish Law, its application should be limited to the insurance policies which are subject to the Turkish Law or to the disputes where the Turkish Law will be applied. Most of the P&I insurances are not subject to Turkish Law, it may therefore seem that Art.1478 is trivial to the P&I insurers. However, Art.34 of the Turkish Code of International Private and Civil Procedure numbered 5718 (“TCIPCP”) makes Art.1478 vital for P&I insurers. Par.1 of Art.34 provides that “The obligations arising from tort are subjected to the law of the place where the tort is committed.”  and Par.2 of Art.34 provides that “If the law applicable to the tort or the contract of the insurance permits, the suffered party may directly invoke his request to the insurer of the responsible party.” In this respect, there are some opinions on the doctrine that pursuant to the Art.34 of TCIPCP, incidents concerning tort can be subject to Turkish Law and thus, third parties may take direct action against the foreign liability insurer in Turkey pursuant to the Art.1478.

2- What would be the effect of an Anti-suit injunction in Turkish jurisdictions?

The Court of Appeal of England, in the Yusuf Cepnioglu Case, has recently maintained the anti-suit injunction granted by the High Court of Justice of London and the charterers should therefore be restrained to resume legal proceedings against the insurers in Turkey.

Despite such injunction which prevents the recognition and enforcement of the decision which may be rendered by the Turkish Court against the insurer in England, its effect on the legal procedure in Turkey will be open to discussion. Recognition and enforcement of foreign court decisions are regulated under TCIPCP and as per the relevant articles of the TCIPCP, the foreign arbitration award which is requested to be recognized/enforced should be final and binding and should not be against the Turkish public order. Whereas anti-suit injunctions are not ‘final and binding’ in terms of TCIPCP and a decision limiting a party’s right to take action may be deemed controversial as per the order brought by the Turkish Law, recognition/enforcement of the anti-suit injunctions awards will be open to discussion. Therefore, it is possible to say that anti-suit injunctions that are rendered by other jurisdictions may not be fruitful to prevent the third parties to take direct action against liability the insurers in Turkey.

3- How Liabilities Insurers can best protect their position when Art. 1478 is referred to in Turkish jurisdiction?

As we have established here above, anti-suit injunctions which are rendered by other jurisdictions may not prevent the third parties to take direct action against Liability Insurers in Turkey, therefore, it is essential for the Liability Insurers to defend their position in Turkish jurisdiction.

Main defenses may be as follows:
(a) Jurisdiction clause incorporated into to the insurance policy and the applicable Rules
(b)Turkish International Private and Civil Procedure Code states that the law which will be applicable to an insurance policy, is the law which is chosen as per the policy terms. Therefore, Turkish Law and accordingly, art. 1478 of TCC will not be applicable on current matters.
(c) Application of the Rights of Third Parties Act 1999 if incorporated into the insurance policy or Rules.
(d) No contractual relationship between the Claimants and the Insurers and lack of title to sue against the insurers directly.
(e) Pay to be paid rule, etc.

Nevertheless, in addition to the above various defenses may be raised by the insurers depending on the merits of the subject matter.

4- Is there any specific condition to request application of the Art. 1478 to the Turkish Court?

As you will notice from the wording of the Art.1478, there is no other restriction or conditions imposed on the Claimants than the respect of the time period in which to request application of the Art. 1478. The contractual time bar can therefore be opposable to claimants who referred to Art 1478 after the time frame imposed in the contract.

There is no other restriction and the claimant will be in position to request application of the Art.1478 without having to demonstrate any financial difficulties from the initial defendant.

5 – How Turkish decisions will be enforced?

Enforcement of the decisions that will be rendered by the Turkish Courts against the liability insurers is another aspect of the issue that should be considered. Of course the enforceability of the decision rendered by the Turkish Court in different jurisdictions should be evaluated under the jurisdiction which the enforcement requested. However, decision of the Turkish Court will be directly applicable against the assets of the insurer within Turkish jurisdiction. Despite the fact that this issue might seem trivial for the insurers who do not have any solid asset in Turkey, the risk continues for the premium receivables of the insurers. By taking into consideration that the receivables from third parties are also deemed as the assets of the debtor and can be seized in line with the Turkish Enforcement and Bankruptcy Code, insurers’ premium receivables from the members in Turkey can be subject to the seizure pursuant to the decision of the Turkish Court.

With the Art.1478, there are still a lot of pending questions. However, Turkish Courts and Court of Appeal of Turkey will clarify the vague issues concerning Art.1478 together with their decisions on the disputes related to Art.1478. It is known that The Maritime Specialized Court in Istanbul (i.e. Istanbul 17th Commercial Court) is currently dealing with claims that are concerning Art.1478 and the outcome of such claims will light the way for the upcoming incidents.