Pre-contractual Obligation of Declaration of the Insurant and the Insurer's Rights in case of Violation of the Obligation

April 2019 Duygu Öner
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Introduction

During the conclusion of an insurance contract, the insurance company does not have any information about the goods, life or liability subject to be covered by the insurance coverage. For this reason, the insurer is obliged to rely on the information given to him by the insurant and to provide an insurance coverage accordingly. It is only possible for the insurer to correctly determine the risk subject to the insurance contract and the premium to be received from the insurant, by providing the insurer accurate and complete information on the insurance subject. In this context, the insurer will include the insurant into a certain group of insurants by “classifying” it according to the evaluation of the information obtained from the insurant; will calculate the premium and determine the situations to be excluded from the insurance coverage and the contractual duties to be undertaken by the insurant in the contractual relationship.[1] The legislator which has taken that into account, entrusted the insurant with the duty to inform the insurer of the risk to be undertaken with the contract before the insurance contract is concluded and granted certain rights to the insurer in the event of insurant’s breach of this obligation.

Scope of the Obligation of Declaration

Pursuant to Article 1435 of the Turkish Commercial Code (“TCC”), the insurant is obliged to inform the insurer of all important circumstances that it knows or should know at the same time of conclusion of contract. The circumstances, which are not disclosed or are disclosed incompletely or wrongly to the insurer, are considered as important. Matters that are not notified to the insurer, or that are incomplete or misrepresented, are considered to be important, if they have the nature requiring that the contract be not made or be made on different terms. The matters asked by the insurer in written or in verbal are considered as important until proven otherwise. The matters that may affect the insurer"s decision on the contract are considered to be “important”[2].

The third paragraph of the relevant article accepts the presumption that the questions posed by the insurer are important for the insurer. That’s because, the insurer will decide whether or not to undertake the risk and the conditions of undertaking within the framework of the questions asked. However, it is likely that the person making the declaration will have some hesitation in identifying and determining the issues to be considered as important. For this reason, the insurers usually provide a list of questions that they consider as important to the insurant. Therefore, there is the presumption that the questions posed by the insurer are important for it[3].

Article 1436 of the TCC stipulates a regulation on the questions to be asked only in writing by the insurer. According to the relevant article, if the insurer has provided the insurant a list of questions to answer, no liability can be imposed on the insurant for matters other than the questions listed. However, if the insurant has kept an important matter in bad faith, the insurant shall remain to be liable for the matters that have not been declared. The insurer may also ask additional questions if there are any issues he/she wants to learn. These questions should also be written and clear. The insurer is obliged to answer these questions.

Rights of the Insurer in case of Breaching the Obligation of Declaration

The rights granted to the insurer and the sanctions that may be imposed by the insurer in case the insurant acts in contradiction with the pre-contractual obligation of declaration differ according to the stage at which the insurer learns the breach of the obligation of declaration.

Learning the Breach before the Risk Occurs

If the insurant’s act in breach of obligation of declaration is learned by the insurer before the risk occurs, the insurer may withdraw from the contract within 15 days from the date of learning the breach or request a premium difference. In order to exercise these rights granted to the insurer, it is not necessary that the insurant and other related persons have fault in breaching the declaration obligation. In other words, even if the obligation of declaration has been violated without the insurant"s fault, the insurer may withdraw from the contract or request a premium difference. However, the insurer cannot withdraw from the contract, claiming a breach of the obligation of declaration, if the insurer is already aware of the situation that the insurant does not report or misrepresent. This is because the idea underlying the obligation of declaration is to ensure that the insurer is informed in order to reach a conclusion about the risk. The substantial point is to reach the necessary information, no matter how the information is obtained. Therefore, even if the insurant did not report it, if the insurer acquired the information that could affect its decision, the objective has been achieved. For this reason, it is no longer possible for the insurer to rely on a breach of the obligation of declaration[4].

If the insurer uses his / her right of withdrawal, the premiums paid by the insurant must also be recovered since the insurance contract will retroactively terminate. However, if the insurant has deliberately violated the obligation to declare while the insurance contract is being established, the insurer shall be entitled to premiums for the period in which the risk is carried[5]. In some cases, the legislator has deactivated the right of withdrawal that granted to the insurer. The insurer may not exercise the right of withdrawal if he or she expressly or implicitly waive, caused the breach that caused the withdrawal, has concluded the contract even though some of his or her questions have been left unanswered.

The insurer may request the payment of the premium difference instead of withdrawing from the contract within 15 days of learning of the breach of the obligation of declaration[6]. However, the insurant may not be willing to accept to pay the premium difference requested by the insurer. The legislator has accepted that if the insurant does not accept the premium difference within 10 days, it will be considered as withdrawal[7].

Learning the Breach after the Risk Occurs

If the insurant"s behavior contrary to the pre-contractual obligation of declaration is learned after the risk has been occurred, the rights of the insurer shall be determined according to the extent of insurant’s fault.

If the obligation of declaration has been violated by the insurer"s negligence, a reduction is made according to the degree of the neglect, the amount of the compensation or the price, or the degree of neglect that may affect the implementation of the risk. If the insurant has acted with intent and there is a connection between the breach and the risk occurred, the insurer"s obligation of compensation or payment shall be eliminated; if there is no connection, the insurer shall pay the insurance indemnity or price taking into account the ratio between the paid premium and the premium to be paid[8].

Conclusion

The insurant"s obligation of declaration is very important for the insurer to identify the risk to be covered by the contract and to determine the premium. Taking this into consideration, the legislator has included detailed regulations in the TCC regarding the obligation of declaration without making any distinction between insurance types. In this context, the insurant is obliged to inform the insurer of all important matters that he knows or should know during the conclusion of the contract. If the insurant breaches the said obligation, the insurer shall have the opportunity to withdraw from the contract, to request a premium difference or to make a reduction in compensation or to get rid of the payment of compensation, depending on the stage at which the breach was learned and the extent of the insured"s fault.

[1] Ünan, Samim: Türk Ticaret Kanunu Şerhi, Sigorta Hukuku, Cilt 1 Genel Hükümler Madde 1401- 1452, XII Levha Yayıncılık, 1. ed., İstanbul, October, 2016.

[2] Article 1439 of the TCC.

[3] Article 1435 of the TCC.

[4] Article 1438 of the TCC.

[5] Article 1441 of the TCC.

[6] Article 1439(1) of the TCC.

[7] Article 1439(1) of the TCC.

[8] Article 1439(2) of the TCC.

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