The impact of Covid-19 on the insurance sector from a Turkish law perspective
Covid-19-related legislative measures in Turkey
Two major laws have been published by the Turkish parliament to control the effects of the Covid-19 pandemic. They are the Omnibus (Law No 7226) and the Law on Mitigating the Effects of the Novel Coronavirus (No 7244).
As well as these laws, many administrative circulars have been issued by government authorities to protect public health while sustaining businesses. An outline of the legal measures is provided below.
Omnibus Law No 7226
Suspension of legal proceedings
All legal timeframes regarding the establishment, exercise, or abolishment of a right, periods for filing lawsuits, the initiation of execution proceedings, applications, objections, notifications, submissions, and periods of limitation, as well as all procedural periods and periods for mediation and conciliation were suspended from 13 March to 30 April 2020 inclusive. This legislative suspension was followed by an extension until 15 June 2020 by presidential decree.
Ban on tenant eviction
The eviction of tenants for defaulting on the payment of workplace rent due to financial problems has been banned under this law. The inability to pay workplace rent from 1 March to 30 June 2020 shall not constitute a reason to terminate an agreement or evict a tenant.
Short-term working allowance
In cases where working hours have been temporarily decreased by at least a third, or if work is temporarily closed, workers are to be paid a short-term working allowance by the Turkish government for up to three months.
In order to prevent a possible rise in unemployment due to the Covid-19 pandemic, Omnibus Law No 7226 has reconstituted the requirements to benefit from short-term working allowances, effective as of 29 February 2020.
Law on Mitigating the Effects of the Novel Coronavirus No 7244
The Law on Mitigating the Effects of the Novel Coronavirus No 7244, (‘The Omnibus Law No 7244’) was published on 17 April 2020. It introduced many new rules and amendments of which some of the most significant ones are:
Interim restrictions on dividend distribution
The Omnibus Law No 7244 restricts companies from distributing dividends until 31 December 2020. With this restriction, any dividends to be distributed by the Turkish companies cannot exceed 25 per cent of the company’s net profits generated in the 2019 fiscal year. Previous years’ profits and free reserves cannot be distributed, and the general assembly cannot authorise the board of directors to distribute advance dividends.
Ban on termination of the employment contract by the employer
To protect jobs, the Omnibus Law No 7244 imposes restrictions on terminating employment contracts by employers due to the negative impact of the Covid-19 pandemic.
In this regard, employers are banned from terminating employment contracts for three months (which has been extended to six months) for any reason other than immoral or malicious conduct stated under the Turkish Labour Law.
In addition to the above laws, Turkish government authorities have introduced many circulars, generally related to regulating:
- the declaration of official curfews;
- restrictions on social gatherings and meetings;
- bans on local and global travel; and
- the closure of public recreation and entertainment venues.
The effects on insurance policies
Although there has been no direct legislation or regulations to mitigate the impact of the Covid-19 pandemic on insurance contracts, most of the legislations and administrative circulars introduced in that sense have had an effect on the sector. An overview of the effects is outlined below.
Employers’ liability insurance
The employee/insured does have the right to compensate the loss from the employer’s liability insurer for their loss arising from occupational injury or accident, provided that the damage is caused at the workplace or due to an instruction of the employer.
In light of the above, under an employer’s liability claim, it is a crucial to determine the fault/negligence of the parties. For this purpose, following an occupational accident, the Turkish Social Security Institution, the authorised governmental body, is required to carry out an investigation and in case it determines a fault on the employer, it would be a very concrete proof in favour of the employee/insured.
This has been the case for H1N1 virus back in 2009 in which the Turkish Court of Appeals ruled in favour of the employee/insured relatives, where the insured lorry driver has died while in transit during that year’s swine flu outbreak.
However, on 7 May 2020, Turkish Social Security Institution published a circular ruling that Covid-19-related physical damages shall not be deemed as a cause for occupational accidents. This means that employers are very likely not to be deemed as the faulting party because of Covid-19-related losses, except for in very exceptional cases. However, there is not yet a Court of Appeals decision in this regard.
All that being said, it is safe to state that the employer’s liability insurance contracts have not been affected by the Covid-19 pandemic as many expected in mid-March.
Business interruption insurance
Many circulars have been published by the Ministry of Health and the Ministry of Interior Affairs in order to impose lockdowns to prevent the spread of Covid-19.
With these administrative circulars, many entertainment and service sector players are suspended from opening businesses such as gyms, hairdressers, restaurants and cafés, and games centres.
Even though there has been no court precedents such as the test case of several insurers in the United Kingdom, in FCA v Arch & others, we consider that these official lockdowns may be cause to trigger business interruption insurance indemnity under Turkish law.
Non-appearance/event cancellation insurance
Event cancellation/non-appearance insurances generally provide coverage for the loss of profit of the policyholder incurring from cancellation, postponement, replacement or interruption of a specific organisation (eg, a stage performance) or commercial activities due to certain causes.
The Turkish Commercial Code (the TCC), which regulates insurance contracts, adopts the ‘named perils’ principle and therefore all risks must be specified under the insurance contracts. In addition to this, there is no secondary regulation complementing the TCC and directly regulating event cancellation/non-appearance insurances. To the best of our knowledge, this matter has not yet been tested in Turkish courts, and is therefore a grey area in Turkey due to lack of legislation.
In light of this, event cancellation/non-appearance insurance contracts are agreements that can be executed by and between the insurer and policyholder based on the liberty of contract principle. Therefore, the wording of each event cancellation/non-appearance insurance shall be vital in case of a claim.
Directors and officers liability insurance
According to Article 553 of the TCC, directors and officers are liable towards the company, shareholders, and creditors if they breach their obligations arising from the law and the articles of association.
Again, as with employer’s liability insurance, the notion of fault is crucial in (directors and officers) D&O. In a hypothetical case where if employer’s liability insurance is not existent but D&O insurance is, and in case of an occupational accident in the middle of the Covid-19 pandemic, it will be hard to set a direct fault on the instructing director because of the above mentioned Social Security Institution’s circular.
That being said, directors and officers shall still be liable and therefore the D&O insurer, if the director or officer instructs in contrary to government authority’s circulars or instructions. A hypothetical case may be forcing an employee to work at the workplace even though there is an official curfew or an already known case of Covid-19 has been diagnosed at the workplace.
In light of the above, we consider that the Turkish Social Security Institution’s circular dated 7 May 2020 is a lifeguard for Covid-19 related losses D&O insurance in Turkey but still all claims must be must be determined on a case-by-case basis evaluation by considering many aspects.
According to the Private Health Insurance Regulation, any losses arising from transmissible diseases are within the insurance coverage, except for if it is specifically excluded under the policy. That being said, transmissible disease losses are generally excluded under most of the major insurer’s template insurance contracts.
During the Covid-19 pandemic, most of the major insurance carriers declared that Covid-19-related physical treatments shall be paid ex gratia, in order to maintain customer satisfaction and retain customers. Therefore, Covid-19-related treatment expenses can be paid by insurers who have publicly declared ex gratia intention.
Covid-19’s indirect impact in terms of underinsurance
According to Article 1462 of the Turkish Commercial Code, underinsurance shall be in consideration when the sum insured is less than the insurance value, which results in the insurance indemnity to be paid in the proportion of the underinsured value
In Turkey, the average exchange rate of the US dollar to the Turkish lira was TRY 5.90 on 1 January 2020. As of 10 October 2020, the average exchange rate is TRY 7.90. Between January and October, the US dollar rate increased approximately 34 per cent.
This foreign exchange fluctuation, an indirect effect of Covid-19 in addition to many other aspects, will have an impact on all property insurances, which are denominated in Turkish lira but insuring products, which have variable market values subject to foreign exchange rates.
In such cases, the policyholders are advised to addend the insurance contracts with increased premiums.
Cyberattacks during the Covid-19 pandemic
The increase of cyberattacks during the Covid-19 pandemic cannot be ignored. According to president of Turkish Information Security Association (ISA), cyberattacks have increased 300 per cent with such a crime taking place in Turkey every 39 seconds. We have experienced some busy months over the summer of 2020 as there were several notable cyberattacks including:
E-bebek, one of the largest maternity product platforms in Turkey, was paralysed by a cyberattack on 5 July, according to public disclosures. Access to websites and network systems was denied for nine days. The loss of service also caused network interruption in the physical stores during the attack.
One of the largest job search platforms in Turkey kariyer.net was also been subject to a cyberattack. The company stated that the personal data of 50,000 individuals had been stolen. Immediately after the incident the regulator published a public announcement and we are awaiting its decision.
As can be seen, cyberattacks are emerging in Turkey as in the rest of the world, and the need for cyber insurance has become much more obvious.
Lease receivable insurance
Although lease receivable insurance is not a common coverage in Turkey, the need for it cannot be ignored. With the Omnibus Law No 7226, the eviction of tenants for defaulting on payments of workplace rent has been restricted once. Additionally, there is a huge increasing number of case files for eviction and lease collection. As with cyber insurance, the need for lease receivable insurance has become more pressing.
Motor liability and SCDW insurance
Within the scope of circulars regarding curfews and other Covid-19 measures, road traffic accidents have decreased significantly compared to the same period last year.
According to the balance sheet announced by the Traffic Education and Research Department of the General Directorate of Security, this year, road traffic accidents have decreased by just over half. This has positively affected insurance companies due to the related decrease in indemnity payments. For this reason, premium rates are expected to decrease next year.
The Covid-19 pandemic is far from over and we all know that there will be a significant impact on commercial life for some time to come. Businesses must not give up taking on all necessary precautions and adapting measures to minimise potential negative effects.
In order to mitigate these losses, the appropriate insurance coverage will play vital role in the future for all businesses. Insurers and the policyholders are advised to keep a keen eye on developing trends and consult their legal advisors.
 The Law on the Amendments on Certain Laws No7226, was published in the Official Gazette, 26 March 2020 and numbered 31080.
 ‘Corona virus treatment expenses of health insurance holders will be covered’, Milliyet, 5 April 2020, available at: www.milliyet.com.tr/sigorta/saglik-sigortasi-sahiplerinin-corona-virus-tedavi-giderleri-karsilanacak-6181619.
 ‘A cyber attack occurs every 39 seconds during the coronavirus process’, Hürriyet, 7 September 2020, available at: www.hurriyet.com.tr/teknoloji/koronavirus-surecinde-39-saniyede-bir-siber-saldiri-gerceklesiyor-41604647.
 ‘Cyber ??attack on Penti’, Haberturk, 5 August 2020, available at: www.haberturk.com/son-dakika-penti-ye-siber-saldiri-2764664-teknoloji.