Machinery Breakdown Insurance Claim Rejected in Turkey? | 2026 Legal Guide for Foreign Companies

What can a foreign company do when a machinery breakdown insurance claim is rejected in Turkey? Learn about coverage disputes, expert reports, exclusions, evidence, Insurance Arbitration, commercial litigation, interest, and compensation claims under Turkish insurance law in 2026.

A serious machinery breakdown can stop an entire factory, production line, power facility, warehouse operation, hotel, industrial plant, or manufacturing business. When the damaged machinery is insured, the company normally expects the insurer to finance repair or replacement costs in accordance with the policy. However, disputes often begin when the insurer rejects the claim entirely, relies on a policy exclusion, argues that the damage resulted from ordinary wear and tear, or offers substantially less compensation than the actual loss.

For a foreign-owned business operating or investing in Turkey, a rejection should not automatically be treated as the final outcome. The insurer’s position must be examined against the insurance policy, endorsements, applicable general conditions, technical evidence, expert findings, and the mandatory provisions of Turkish insurance law.

Under the Machinery Breakdown Insurance General Conditions applied in Turkey, machinery breakdown insurance can cover sudden and unforeseen physical loss or damage arising from various causes, including operating accidents, defects in material or workmanship, lubrication failures, short circuits, voltage increases, insulation defects, foreign objects, centrifugal force, overheating or cooling, and negligence or mistakes by operating personnel or third parties, subject to exclusions and the individual policy wording.

For foreign companies, the most important step after rejection is therefore not simply asking the insurer to reconsider. The company should determine why the insurer rejected the claim, whether that reason is supported by the policy, and whether the technical evidence actually proves the alleged exclusion.

Why Are Machinery Breakdown Claims Rejected in Turkey?

Insurers may rely on several different grounds when refusing a claim. Common rejection reasons include allegations that:

• The damage resulted from gradual deterioration rather than a sudden event.
• The machinery was inadequately maintained.
• The insured machinery was operated beyond technical limits.
• The damaged component was a consumable or replaceable part excluded from coverage.
• The loss existed before the policy began.
• The incident resulted from an excluded external event.
• The insured failed to disclose a material circumstance.
• The claim notification was late.
• Repairs were performed before the insurer could inspect the machinery.
• The claimed repair cost is excessive.
• The machinery was already defective.
• The loss was caused intentionally or through serious misconduct.
• The damaged machine was not correctly included in the insured inventory.
• The claimed amount exceeds the insured value.

A rejection letter should therefore be reviewed clause by clause. A general statement such as “mechanical failure is excluded” or “insufficient maintenance caused the loss” may not be sufficient where the insurer cannot demonstrate how the specific exclusion applies to the actual damage.

What Does Machinery Breakdown Insurance Normally Cover?

The applicable general conditions provide relatively broad protection for machinery and installations specifically listed in the insured inventory while operating normally, undergoing certain maintenance or replacement activities, or remaining stationary.

Potentially covered causes include unexpected damage resulting from:

• Operational accidents
• Design or manufacturing defects
• Material defects
• Installation defects
• Workmanship defects
• Lubrication failures
• Short circuits
• Electrical arcing
• Voltage fluctuations
• Insulation failures
• Foreign objects entering machinery
• Centrifugal force
• Sudden overheating
• Sudden cooling
• Operator negligence
• Employee mistakes
• Third-party negligence
• Sabotage, subject to applicable policy terms
• Other sudden and unforeseen causes not specifically excluded

Coverage nevertheless depends on the actual policy, endorsements, deductibles, insured values, and exclusions.

This distinction is particularly important in industrial claims because insurers frequently attempt to characterize a sudden mechanical breakdown as gradual wear, inadequate maintenance, corrosion, fatigue, or another excluded condition.

Review the Rejection Letter Immediately

A foreign company should request a detailed written rejection decision if the insurer has communicated the refusal informally.

The rejection should identify:

1. The contractual provision relied upon.
2. The alleged cause of the machinery failure.
3. The technical evidence supporting that conclusion.
4. The relevant exclusion.
5. Any alleged breach by the insured.
6. The insurer’s expert findings.
7. Whether the claim is rejected completely or only partially.

The company should also request a complete copy of the claim file where legally available, including relevant expert assessments, photographs, correspondence, technical observations, and documents relied upon in making the rejection decision.

The objective is to transform a broad insurance disagreement into specific legal and technical issues that can be challenged.

Obtain an Independent Technical Expert Report

Machinery breakdown disputes are highly technical. Legal arguments alone are rarely enough.

An independent mechanical, electrical, industrial, or specialist engineering report may determine:

• The immediate cause of failure
• Whether the failure was sudden
• Whether the defect developed gradually
• Whether maintenance contributed to the loss
• Whether previous maintenance was technically adequate
• Whether electrical fluctuation caused the incident
• Whether the machine was overloaded
• Which parts require replacement
• Whether repair is economically reasonable
• The actual repair or replacement cost
• Whether the insurer’s technical conclusions are correct

The applicable Machinery Breakdown Insurance General Conditions also contain a mechanism for determining the amount of loss through specialist engineers or technicians where the parties cannot agree on the amount of damage.

In high-value industrial claims, obtaining independent expert evidence before defective parts are discarded or machinery is fully repaired may be decisive.

Preserve the Damaged Machinery and Evidence

Foreign companies should avoid destroying or disposing of evidence.

Where reasonably possible, preserve:

• Damaged components
• Control units
• Circuit boards
• Motors
• Bearings
• Gearboxes
• Pumps
• Compressors
• Transformers
• Production records
• Alarm logs
• Maintenance history
• Sensor data
• Automation-system records
• Photographs and video
• CCTV recordings
• Service reports
• Manufacturer communications

The insured’s obligations following a loss include taking reasonable preservation measures, providing relevant documents, allowing investigations, and generally avoiding unnecessary changes to the damaged property before inspection. The general conditions also address circumstances in which urgent repairs may proceed.

For a factory that cannot remain closed, evidence preservation should therefore occur immediately before emergency repairs begin.

Was the Machinery Properly Maintained?

Maintenance is one of the insurer’s most common defenses.

The general conditions require the insured to take reasonable precautions to keep insured machinery properly maintained and operational, prevent excessive loading beyond accepted technical standards, and comply with applicable operational and inspection requirements.

Foreign companies should therefore collect:

• Preventive maintenance records
• Service contracts
• Manufacturer maintenance schedules
• Spare-part invoices
• Oil analysis reports
• Calibration records
• Inspection reports
• Maintenance software logs
• Technician reports
• Employee training documentation

An allegation of “poor maintenance” should be tested against actual technical records rather than accepted as a conclusion.

Wear and Tear Versus Sudden Machinery Breakdown

One of the most difficult disputes concerns the difference between gradual deterioration and a sudden insured event.

For example, a bearing may have experienced gradual fatigue but ultimately fail suddenly and damage multiple other components.

The legal question may then become:

• Is the worn bearing itself excluded?
• Is consequential damage to other insured components covered?
• Did an insured electrical event cause the initial failure?
• Was the alleged wear actually measurable before the accident?
• Could reasonable maintenance have detected it?

The answers depend heavily on technical causation and the wording of the policy.

Electrical Damage Claims

Industrial losses frequently arise from:

• Short circuits
• Voltage surges
• Voltage drops
• Electrical arcing
• Insulation failure
• Transformer failures
• Generator failures
• Control-system failures

The Machinery Breakdown Insurance General Conditions expressly contemplate several electrical causes, including short circuits, electrical arcing, voltage increases, and insulation failures.

Therefore, an insurer should not reject an electrical machinery claim merely because the immediate event was electrical. The precise cause and relevant exclusions must still be established.

Check Whether the Correct Machinery Was Declared

Machinery breakdown policies commonly contain inventories specifying insured machinery and values.

A foreign company should verify:

• Serial number
• Manufacturer
• Model
• Manufacturing year
• Capacity
• Location
• Insured value
• Replacement value
• Policy endorsements

A dispute may arise if machinery was replaced, upgraded, relocated, or added after the policy began without the insurance documentation being properly updated.

Underinsurance Can Reduce Compensation

Even when liability is accepted, a dispute may arise concerning the amount payable.

Where the insured value is materially lower than the value required under the insurance structure, the insurer may attempt to apply underinsurance provisions.

Companies with imported machinery should carefully analyze replacement costs because exchange-rate movements, freight, customs expenses, installation charges, and increased equipment prices may substantially raise replacement values.

A policy value that appeared sufficient when the contract was first issued may no longer reflect actual replacement costs when the loss occurs.

Is Business Interruption Automatically Covered?

No.

Machinery breakdown insurance normally concerns physical damage to insured machinery. Lost production, lost profit, contractual penalties, additional operating costs, or shutdown losses generally require separate business interruption or machinery loss-of-profits coverage.

This distinction can be financially significant.

A EUR 500,000 machinery loss can cause several million euros in production losses.

Foreign companies should therefore examine whether their insurance portfolio includes:

• Machinery breakdown insurance
• Machinery loss-of-profits insurance
• Business interruption insurance
• Increased cost of working coverage
• Property damage coverage
• Electronic equipment insurance
• Additional expense coverage

The rejection of the physical damage claim may also affect associated business interruption claims.

Notify the Insurer Properly

Under the Machinery Breakdown Insurance General Conditions, the insured is required to notify the insurer of the loss within the specified notification period after becoming aware of it and cooperate with the insurer’s investigation. The general conditions currently published by the Turkish Insurance Association state a five-day notification period.

Late notification does not necessarily mean that the insurer may automatically avoid every claim. The legal consequences depend on the applicable rules, the reason for the delay, and whether the delay caused prejudice or increased the loss.

Nevertheless, notification should always be made promptly and in writing.

When Does the Insurer Have to Pay?

Under Article 1427 of the Turkish Commercial Code, insurance compensation generally becomes due after the insured event occurs, the relevant documentation is delivered, and the insurer completes the necessary investigation; for non-life insurance, the statutory framework also provides an ultimate maturity mechanism linked to the notification of the insured event.

Turkish Court of Cassation case law has applied the statutory 45-day rule when assessing when an insurer’s payment obligation becomes due and when default interest may begin.

This issue becomes especially important where an insurer keeps an industrial claim under investigation for months without issuing a clear decision.

Can a Foreign Company Claim Interest for Late Payment?

Potentially, yes.

Where insurance compensation has become due and the insurer fails to pay, default interest may become recoverable depending on the circumstances.

For commercial enterprises, the applicable interest regime should be evaluated together with:

• The Turkish Commercial Code
• The policy
• The nature of the transaction
• The date the claim became due
• Whether the insurer entered default
• The relief requested in arbitration or litigation

For large machinery losses, interest accumulated during a prolonged dispute can become financially significant.

Challenge the Insurer’s Expert Report

The insurer’s loss adjuster or technical expert is not necessarily the final authority on the cause or value of the loss.

A company may challenge conclusions concerning:

• Cause of failure
• Maintenance
• Repair methodology
• Depreciation
• Replacement cost
• Salvage value
• Betterment
• Useful life
• Underinsurance
• Deductibles
• Excluded components

A detailed rebuttal prepared by an independent specialist can materially change the claim.

Manufacturer Evidence Can Be Critical

Where specialized imported machinery is involved, the original manufacturer may possess evidence that local loss adjusters do not.

Useful manufacturer evidence may include:

• Failure analysis
• Diagnostic records
• Error codes
• Remote-monitoring data
• Factory specifications
• Maintenance requirements
• Engineering opinions
• Replacement quotations
• Parts availability
• Repair feasibility

For highly specialized industrial equipment, a manufacturer’s technical opinion can become one of the strongest pieces of evidence.

Can Foreign Companies Apply to Insurance Arbitration in Turkey?

Potentially, yes, where the legal requirements for access to the Insurance Arbitration Commission are satisfied.

The Insurance Arbitration Commission resolves disputes arising from insurance contracts between participating insurance organizations and insured persons or beneficiaries through independent insurance arbitrators. The Commission emphasizes that documentary evidence supporting the claim should be submitted with the application.

Before applying, the claimant must generally first submit the dispute to the insurer and satisfy the applicable procedural requirements.

For significant commercial claims, the availability and strategic suitability of arbitration should be reviewed individually.

2026 Insurance Arbitration Thresholds

Foreign companies should pay attention to the monetary thresholds applicable when challenging arbitration awards.

The Commission’s current 2026 information states that arbitral awards involving disputes of TRY 35,000 or more may be challenged once before the Commission’s appeal mechanism, while appeal decisions concerning disputes exceeding TRY 383,000 may be subject to further judicial review before the Court of Cassation, subject to the applicable statutory framework and the threshold effective on the application date.

These monetary thresholds may be revised periodically and should always be checked on the date of filing.

Can the Company File a Commercial Lawsuit Instead?

Depending on the circumstances, litigation before the competent Turkish court may be available.

A machinery breakdown claim may involve disputes concerning:

• Policy interpretation
• Coverage exclusions
• Causation
• Fraud allegations
• Underinsurance
• Expert valuation
• Repair costs
• Replacement value
• Interest
• Business interruption
• Multiple insurers

Commercial litigation frequently requires court-appointed expert examination because machinery breakdown claims combine insurance law with complex engineering questions.

For foreign companies with very large industrial claims, preparing the technical evidence before proceedings begin can significantly improve the quality of the case.

What Evidence Should a Foreign Company Collect?

A strong machinery breakdown insurance file may include:

• Full insurance policy
• General and special conditions
• Endorsements
• Machinery inventory
• Premium payment evidence
• Initial claim notification
• Rejection letter
• Insurer’s expert report
• Independent technical reports
• Photographs and videos
• Maintenance logs
• Service agreements
• Manufacturer reports
• Operator statements
• Production records
• SCADA or automation logs
• Electrical records
• Repair quotations
• Replacement quotations
• Purchase invoices
• Customs documents for imported machinery
• Spare-parts invoices
• Accounting records
• Business interruption calculations
• Correspondence with the insurer

Evidence should be collected before memories fade, electronic records are overwritten, or damaged components disappear.

What Should Foreign Companies Avoid Doing?

Several mistakes can weaken an otherwise valid claim.

Companies should avoid:

• Immediately accepting the insurer’s rejection
• Signing a full and final settlement without analysis
• Disposing of damaged parts
• Repairing everything before documenting the damage
• Providing inconsistent explanations
• Allowing evidence to be overwritten
• Missing arbitration or litigation deadlines
• Accepting a low valuation without independent assessment
• Assuming the insurer’s loss adjuster is legally decisive

Senior management should treat a major machinery claim as both a technical project and a legal dispute.

A Practical Response Strategy After Rejection

When a foreign company’s machinery breakdown insurance claim is rejected in Turkey, the most effective approach usually involves four parallel steps.

First, conduct a coverage analysis of the policy, general conditions, exclusions, endorsements, and insured machinery schedule.

Second, conduct an independent engineering investigation into causation.

Third, quantify the entire financial loss, including repair, replacement, emergency expenses, and any separately insured business interruption.

Fourth, select the appropriate legal remedy, which may involve renewed negotiations, Insurance Arbitration, or commercial litigation.

The objective is not merely to dispute the rejection but to build a documented case demonstrating why the loss falls within coverage and how much compensation is legally payable.

Frequently Asked Questions

1. Can an insurer reject a machinery breakdown claim because the machine was old?

Not automatically. Age alone does not establish that a breakdown resulted from excluded wear and tear. The actual cause of failure must be technically examined.

2. What if the insurer says poor maintenance caused the damage?

The company should request the technical basis for that conclusion and produce maintenance logs, service reports, manufacturer records, and independent engineering evidence.

3. Can a foreign company challenge the insurer’s expert report?

Yes. The insurer’s report may be challenged through independent technical evidence and, where proceedings are commenced, through the applicable expert examination process.

4. Can electrical failure be covered by machinery breakdown insurance?

Yes. The applicable general conditions specifically contemplate certain electrical causes, including short circuits, electrical arcing, voltage increases, and insulation failures, subject to policy exclusions.

5. Can the insurer reject a claim because repairs started immediately?

Not necessarily. Companies may sometimes need emergency repairs to prevent greater loss or restore essential operations. However, the damage should be documented and the insurer should be notified before repairs whenever reasonably possible. The applicable general conditions also contain specific rules relating to inspection and urgent repairs.

6. Can lost production be claimed under machinery breakdown insurance?

Not automatically. Lost production or profit generally requires appropriate business interruption or machinery loss-of-profits coverage.

7. Can a foreign-owned Turkish company use Insurance Arbitration?

Potentially, yes, provided the statutory and procedural conditions for the particular insurer and dispute are satisfied.

8. Can the insurer be required to pay interest?

Where insurance compensation has become due and remains unpaid, a claim for applicable default interest may arise. The maturity date and commercial nature of the transaction should be examined carefully.

9. Should damaged machinery parts be preserved?

Yes. Damaged parts may provide crucial evidence concerning the cause of failure. They should normally be preserved until the relevant technical investigations are completed.

10. When should a foreign company instruct an insurance lawyer?

Legal counsel should ideally become involved as soon as a significant claim is disputed, substantially underpaid, delayed, or rejected. Early intervention can preserve evidence and prevent procedural mistakes before arbitration or litigation.

Legal Support for Foreign Companies Facing Rejected Insurance Claims in Turkey

A rejected machinery breakdown claim can expose an industrial business to substantial repair expenses, production losses, contractual liabilities, and cash-flow pressure. A rejection letter from an insurer does not necessarily mean that the company has no right to compensation.

Fırat Fesih Kaya Law Office provides legal assistance to foreign-owned companies, manufacturers, industrial facilities, investors, energy companies, logistics businesses, hotels, factories, and other commercial policyholders facing disputed insurance claims in Turkey.

We assist clients with policy analysis, machinery breakdown claims, independent expert evidence, insurer negotiations, underpayment disputes, Insurance Arbitration proceedings, commercial litigation, business interruption claims, and recovery of high-value insurance compensation.

Obtaining strategic legal and technical advice at an early stage can protect evidence, strengthen the claim, and help prevent the loss of substantial insurance rights.

Phone: +90 312 434 22 22
Mobile: +90 532 769 22 22
Email: info@firatfesihkaya.av.tr
Address: Yıldırım Tower, Mevlana Boulevard No:221, Office No:148, 06520 Balgat, Çankaya, Ankara, Turkey

This publication provides general information and does not constitute legal advice. Machinery breakdown disputes should be assessed individually according to the policy wording, endorsements, technical cause of damage, insurance value, expert evidence, and the legal framework applicable at the date of loss.