Transfer of Ship Mortgage to Insurer in Maritime Law

Transfer of Ship Mortgage to the Insurer in Maritime Law

Entrance

Maritime trade constitutes the most important pillar of international transportation. Due to their high economic value and strategic roles, ships are used not only in commercial activities but also as collateral in financing transactions. Ship mortgages, are a limited real right providing strong security to the creditor.

One of the most critical aspects of a ship mortgage's security function is the insurance compensation that comes into play in the event of loss or damage to the ship . In this case, the mortgage right continues on the insured amount replacing the ship. However, in some special circumstances, the mortgage right may be transferred to the insurer as a result of payment made to the insurer or within the framework of the insurance relationship.

General Framework of Ship Mortgages

Turkish Commercial Code Article 1013: “A ship may be used as collateral for a debt. In this case, a mortgage is established on the ship.”
A ship mortgage gives the creditor the right to have the ship sold through forced execution and to collect the proceeds with priority.
However, when the ship disappears (sinking, burning, expropriation, etc.), the function of the mortgage shifts to providing insurance compensation.

The Relationship Between Insurance and Ship Mortgages

An insurance contract protects the ship owner against damages. However, in the case of a mortgaged ship, insurance compensation benefits the mortgagee as well as the owner.

According to the provisions of the Turkish Commercial Code and the Turkish Civil Code, the mortgage right continues on assets that replace the vessel (e.g., insurance proceeds).

The Concept of Transferring Ship Mortgage to the Insurer

1. Definition

"Transfer of ship mortgage to insurer" refers to the partial or complete transfer of the mortgage right to the insurer as a result of a payment made by the insurer or legal arrangements.

2. Legal Basis

Turkish Civil Code Article 885: The debt secured by the mortgage is extinguished upon payment. However, the person making the payment may, by law, substitute for the creditor (subrogation).
Turkish Commercial Code Article 1472: The insurer shall be subrogated to the rights of the insured against third parties to the extent of the compensation paid to the insured.

Under these provisions, the mortgage right may pass to the insurer if the insurer makes a payment to the mortgage creditor or acquires subrogation due to the insurance relationship.

Conditions of Transfer

Insurer's Payment: If the insurer makes a payment to the mortgage creditor to cover the ship's damage, the insurer becomes subrogated to the mortgage right to the extent of the payment.
Principle of Subrogation: When the insurer pays the insurance amount, the insurer's rights against third parties (e.g., the perpetrator of the tort) are transferred to the insured. This can also be applied to mortgage relationships.
Contract or Legal Provision: The provisions stipulated in the policy or law may determine the scope of the transfer.

Transfer of Ship Mortgage to Insurer in Practice

Protection of Creditor Rights: The transfer of the mortgage to the insurer secures the payment made by the insurer.
Prevents Double Payment: After paying the compensation, the insurer retains the right to collect the amount again from the ship owner or third parties through a mortgage.
From a Banking and Finance Perspective: Banks that provide ship financing secure both the right to compensation and the transfer of mortgage rights by adding a creditor entry to the insurance policies.

Transfer of Ownership in Light of Supreme Court Decisions

The 11th Civil Chamber of the Supreme Court of Appeals, Case No. 2005/3650 E., Decision No. 2006/4643 K., stated that the insurer can transfer the rights held by the insured in accordance with the principle of subrogation, and that the mortgage can be transferred within this scope.
The 19th Civil Chamber of the Supreme Court of Appeals, Case No. 2014/13263 E., Decision No. 2015/7892 K., stated that the insurer, upon making the payment, would replace the mortgage creditor and be able to benefit from the same security rights.

These decisions explicitly confirm the insurer's transfer of the mortgage right through succession.

Problems Encountered

Scope of Subrogation: The extent to which the insurer's mortgage right is transferred may be debatable.
Policy Deficiencies: If the insurance policy lacks a record of the mortgage creditor, the insurer's right of transfer may be weakened.
Multiple Creditors: If there are multiple mortgage creditors, the order and priority of the insurer's transfer rights may create problems.

Proposed Solutions

Insurance policies must include a clause specifying the secured creditor.
In mortgage agreements, the insurer's right of subrogation must be clearly regulated.
In a practice supported by judicial decisions, the scope and limits of succession should be clarified.
In cases with multiple creditors, the order of succession for the insurer must be clearly defined in the relevant provisions.

Conclusion

In maritime law, a ship mortgage covers not only the ship itself but also any assets representing the ship. By making a payment, the insurer can subrogate the mortgage right to the position of the mortgage creditor.

This protects the insurer while also preventing the creditor from collecting a double fee.
The Supreme Court's precedents also accept the transfer of the mortgage right to the insurer and emphasize the importance of subrogation.
In practice, the transfer of the insurer's mortgage right plays a vital role in terms of both financial security and the protection of creditors' rights.

In conclusion, the transfer of a ship mortgage to the insurer is an institution in maritime law that strengthens the insurance and mortgage relationship and balances the interests of creditors and insurers.

SEO Keywords

transfer of ship mortgage to insurer
maritime trade law ship mortgage
insurer's succession ship mortgage
Turkish Commercial Code ship mortgage
Supreme Court rulings on ship mortgages
insurance compensation mortgage

Single Blog Title