Persons whose vehicle has not become a total loss (perte totale) following an accident and who are not fully at fault for the accident may claim compensation for the diminished value of their vehicle. Under the Highway Traffic Law No. 2918, this loss may be recovered, in proportion to the other party’s fault, from the operator of the other party’s vehicle or from the insurance company (under the other party’s compulsory motor third-party liability insurance or, if any, voluntary third-party liability insurance). In practice, diminished value claims are generally brought against insurance companies, by way of insurance arbitration, court action or enforcement proceedings without judgment.
Before the Constitutional Court decision published in the Official Gazette of 9 October 2020, the diminished value of a vehicle was determined using the Diminished Value Calculation Formula (the “Formula”) set out in the General Conditions of Compulsory Motor Vehicle Third-Party Liability Insurance (the “General Conditions”). Since the Formula excluded vehicles with a mileage of 165,000 km or more from the scope of diminished value, and did not take into account repairs to plastic bumpers/parts, glass, radio/stereo, tyres, airbags, rims, and mechanical, electrical, electronic and upholstery components, it fell well short, in most cases, of compensating the “real” loss suffered by the injured parties’ vehicles.
In other words, under the former regime, while the operator’s civil liability for damage caused to third parties by the operation of a motor vehicle — being liability in tort — required the scope of the compensation debt to be calculated under the Turkish Code of Obligations No. 6098, the scope of the insurance company’s compensation debt under the compulsory liability insurance was determined according to the General Conditions. This led to a discrepancy between the scope of the operator’s compensation debt calculated under the Turkish Code of Obligations and the scope of the compensation debt, calculated under the General Conditions, of the insurance company with which the operator had contracted precisely to secure that debt. In essence, the rules introduced by the General Conditions, which are a regulatory act of the administration, departed from Law No. 6098 as regards the calculation of compensation.
Finding this situation unlawful, the Constitutional Court, by its decision No. 2019/40 E., 2020/40 K. published in the Official Gazette of 9 October 2020, annulled the expressions “General Conditions” in Articles 90 and 92 of the Highway Traffic Law No. 2918. Consequently, diminished value calculations will henceforth be made not according to the Formula in the General Conditions mentioned above, but according to the tort provisions of the Turkish Code of Obligations, which constitute the general rule.
Under Article 49 of the Turkish Code of Obligations, a person who causes damage to another by a culpable and unlawful act is obliged to compensate that damage. Accordingly, the person liable for compensation must restore the situation that existed before the act giving rise to the compensation debt. In other words, the person liable for compensation must pay the difference between the market value of an undamaged vehicle and the market value of the repaired vehicle — regardless of the vehicle’s mileage, age or which parts were replaced. Similarly, the Court of Cassation defines diminished value as “the difference between the undamaged second-hand market value of the vehicle before the accident and its second-hand market value after the accident occurred and the vehicle was repaired”.
The most important consequence of this Constitutional Court decision is that diminished value calculations will be made under the Turkish Code of Obligations, rather than under the rules of the Formula, which in some cases made it impossible to establish the vehicle’s real loss of value, so that the actual diminished value of the vehicle can be determined.
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