Trending Topics in Colombian Insurance Law

The legal landscape of the Colombian insurance sector has undergone significant advancements in recent years, with courts and legislative bodies addressing emerging challenges and gaps in insurance law. This article provides an overview of three trending topics in insurance law in Columbia.

Fair presentation of the risk by the policyholder’s representatives

The Supreme Court of Justice of Colombia held in a decision of 16 December 2022 that the declaration by the legal representative of the policyholder regarding the state of risk is binding on the policyholder company.

The policyholder as defendant in this case reported not being aware of any circumstances that could give rise to claims against them, their subsidiaries, or branches. However, competent authorities found in various investigations the improper use of client resources, failure to fulfil duties towards clients of the brokerage firm, and other acts constituting violations of securities market rules and self-regulation by former directors, former officials, or individuals responsible for activities related to securities in the brokerage firm.

The court considered whether anomalous acts of employees are not deemed to be carried out by the company they represent and concluded that such an argument would not be reconcilable with the role of agents, and lead to the absurd conclusion that the insurance policy in question was not acquired by the defendant policyholder, but rather in the name of the person (as individual) who acted as its legal representative. Therefore, any declaration of the state of risk made by a company through its legal representative, administrator, manager, etc., at the time of obtaining an insurance policy, is binding for the policyholder.

All-risk insurance in construction, aggravation of risk and breach of warranties

On 22 November 2022, the Supreme Court of Justice of Colombia analyzed an all-risk construction insurance contract that provided protection to a builder, contractor, and subcontractor providing insurance cover from commencement throughout the execution of their works against potential material damages and tort liability risks inherent in their activity. Following a notification of a loss, the insurer did not respond to the notification and objected to indemnifying the policyholders. As a consequence, the policyholders initiated legal proceedings against the insurer, who in its defence argued that there was an aggravation of the risk and a serious breach of warranty clauses.

The court stated that it was pertinent to differentiate between the concepts of aggravation or increase of risk and breach of warranties. The court observed that the policyholders had granted warranties regarding compliance with designs and constant monitoring of the construction, but the construction and excavation procedure did not follow the recommended sequence, constituting a breach of warranties rather than an aggravation of the risk. In conclusion, the court noted that the situation constituted a typical breach of the warranties granted by the policyholders and did not qualify as aggravation of the risk.

Directors and Officers Liability Insurance – Insured v Insured

The role of arbitration tribunals in resolving claims related to Directors and Officers (D&O) liability insurance is becoming more prominent in Colombia. By Arbitral Award of 30 March 2023,3 an arbitration tribunal of the Chamber of Commerce of Bogotá decided a claim brought by the policyholder of a D&O insurance policy against its former executive and its insurers. The claim was brought by the policyholder on the grounds that the executive allegedly caused economic harm to the company, as a result of a series of decisions made in the course of their duties.

The tribunal dismissed the claim and released the insurance companies from the payment of compensation on the grounds that it was demonstrated that: (i) the conduct of the executive was not the efficient cause of the additional financial cost suffered by the company; (ii) the corporate bodies of the company expressed no disagreement regarding the executive's management, and; (iii) there was no evidence that the executive had exceeded his duties.

In its decision, the tribunal clarified that D&O insurance is a professional liability insurance that provides compensation to the beneficiary arising from “pure economic harm” and does not cover losses or damages to property, physical injuries, or death. Furthermore, the tribunal established that, for insurances of this nature, typically, the managed company will be the policyholder and will transfer to the insurer the risks inherent in the management activity performed by its management organs.

If you have any questions on any of the above discussed decisions, or other insurance law queries in Colombia, please do not hesitate to contact the authors.