Applicable Law to Marine (Cargo) Insurance Contracts & Turkish Commercial Code’s Interference with the Selected Governing Law

Marine (cargo) insurance is  one of the commonly used contract types in international commercial law. Such insurance contracts are classified as insurances involving major risks. It is necessary to refer to the conflict of laws rules under Turkish law in determining the law to be applied to marine cargo insurances involving h a foreign element.

In this vein, apart from the Article 24 of the International Private and Civil Procedure Law No. 5718 (“the IPCPL”; RG: 12.12.2007/26728), which determines the law to be applied to contracts in general, there is not a special conflict of laws rule provided for insurance contracts unlike labor contracts, consumer contracts or some other types of contracts. Therefore, the IPCPL Article 24 will be applied to the marine cargo insurance contracts as in all other insurance contracts. The IPCPL Article 24/f. 1 regulates the subjective connecting factor rule (the arrangements regarding the law chosen by the parties to be applied to the contract as the primary connecting factor), the IPCPL Article 24/f. 4 regulates the objective connecting factor rule (the law to be applied if the parties have not chosen a law). It is also a fact that international marine (cargo) insurance is a type of contract in which the parties tend to choose the governing law with an express choice of law provision In practice, it is very rare if not impossible to   come across contracts where the choice of law and even the dispute resolution method and venue are not determined. It should be highlighted that the law to be applied to freight  contracts is regulated by article 29 of IPCLP, however this provision cannot be applied for the insurance contracts covering the transportation risks.

It is observed  that Turkish Law does not expressly define “major risks” and does not classify insurance types. The fact that risk classification has not been made in the regulation of insurance law also has an impact on conflict of laws. Most of the provisions regarding insurance contracts regulated in the Turkish Commercial Code No. 6102 (“the TCC”; OG: 14.02.2011/27846) are mandatory. Because, insurance contracts are among the contract types in which the weak party It is observed  that Turkish Law does not expressly define “major risks” and does not classify insurance types. The fact that risk classification has not been made in the regulation of insurance law also has an impact on conflict of laws. Most of the provisions regarding insurance contracts regulated in the Turkish Commercial Code No. 6102 (“the TCC”; OG: 14.02.2011/27846) are mandatory. Because, insurance contracts are among the contract types in which the weak party is protected in terms of the relationship in between the insurer/insured or the beneficiary. This principle is also reflected in the articles of IPCPL regulating international jurisdiction. A special jurisdiction rule has been provided for insurance contracts with an element of foreignness in Article 46 of IPCPL. Such that, in cases where an authorized Turkish court can be determined within the scope of this jurisdiction rule, the jurisdiction of the Turkish courts indicated in Article 46 of the IPCPL cannot be excluded by the agreements that are included in the insurance contracts authorizing foreign courts.

However, this principle, which is generally valid for insurance contracts, is not applicable for marine cargo insurances. Because, insurance contracts regarding sea freight carriage are classified as  transactions between the merchants. For this reason, it is not necessary to regulate such insurance contracts involving major risks with mandatory rules. Since there is no weak party to be protected in marine cargo insurances, it would be only exceptional to expect applicability of public order intervention within the scope of the IPCPL article 5 and the mandatory rules of Turkish law within the framework of the IPCPL article 6 have an impact in determination of the law to be applied and especially in implementation of the articles regarding the choice of law within the scope of article 24/1 of the IPCPL. Pursuant to article 5 of the IPCPL, “In case the article of the competent foreign law applicable to a particular event is clearly contrary to the Turkish public order, this article shall not be applied; where deemed necessary, Turkish law shall apply.” And in IPCPL Article 6 regulates that “in cases where competent foreign law is applied, that rule will be applied in cases that fall within the scope of the directly applied [mandatory] rules of Turkish law in terms of regulatory purpose and application area”.

On the other hand, many provisions of the TCC which are also applicable in terms of marine transportation insurance agreements, may nullify the entire contract or the relevant  contract term as the case may be However, this shall not mean that all mandatory provisions of TCC would have the same value in cases where conflict of law rules apply, neither shall it prevent application of all conflicting provisions of applicable foreign law merely because those provisions are conflicting with mandatory provisions of Turkish Law.

For instance, according to Article 1404 of the TCC, “Insurance cannot be made in order to insure a loss that may arise from an action contrary to the mandatory provisions of the law, morality, public order, and personal rights of the insurer or the insured.”  This provision determines a limit on protection of the insurable interest in general. In our opinion, this provision should not be interpreted in a way that all related provisions of TCC are mandatory. Neither should it be interpreted to generalize all contrary provisions of a foreign law to Turkish Law as violating international public order. Therefore, in deciding on any specific matter, interpretation of international public order and application of the relevant foreign law to the particulars of such case would be required It is possible that the content of a provision, for instance Article 1423 of the TCC which regulates the obligation of the insurer to inform, can be regulated differently in the foreign law chosen by the parties. If a subject that is considered within the scope of the obligation to inform in accordance with Turkish law is not disclosed to the insurer/insured within the relevant period, this would impact validity of the contract provision contrary to the obligation to inform. On the other handIt should be taken into account that the parties to the cargo insurance policies are qualified as merchants in determining whether the result of the application of the authorized foreign law would be against Turkish international public order. In this vein, in order to prevent implementation of the foreign law chosen by the parties, the existence of a "clear" violation of public order and an "unbearable result" must be sought within the scope of Article 5 of the IPCPL.

Due to authorization of either international commercial arbitration or foreign courts (typically English Courts)under international marine cargo insurance agreements, there are very few judicial decisions on the merits of disputes under Turkish Law. However, the following part in a decision of Istanbul 17. Commercial Court of First Instance (as a Maritime Specialized Court) is important in order to present an approach to the matter: “The fact that the terms of the bill of lading are prepared in written and standard form does not affect its validity. In fact, all international shipments in maritime trade are made with bills of lading with standard provisions and the insured of the plaintiff insurance company has agreed to the shipment of the goods knowing this. Extrajudicial insured is a merchant. All the conditions binding the merchant are also binding on the plaintiff insurance company, as its successor.” Accordingly, the parties and the qualifications of the contract are taken into account in terms of the effectiveness of the selected foreign law provisions in marine (cargo) transport insurance agreements.\ \ @Ömer Kesikli