COLOMBIA: An Introduction to Insurance

Can a liability exclusion not stated on the declaration page of a policy be controverted?

Daniel Felipe Tiriat Valenzuela - Attorney to the firm GHERRERA ABOGADOS &ASOCIADOS.

Coordinated by Luisa Fernanda Herrera Sierra; Catalina Chaparro; Maria Camila Manrique

This article examines the challenges undertaken by insurers and reinsurers when procuring protection to the financial consumers.

On 22 September 2022 the Supreme Court sentenced in favour of an insurance company in a claim involving a non-stated liability exclusion after a penetrating analysis of the interpretation regarding the requirements of policies defined by the EOSF (Financial System Organic Statute).

It is of great importance, given the fact that for years the courts had reflected on how to act upon matters not included on the declaration page of the policies. This sentence establishes a clear legal position that not only protects the financial consumer, but also offers judicial assurance to all those acting within the financial market.

The case, subject of study, involves a company named Uruapan Investors tied to the project “Marcas Mall Commercial Center” to be built in Cali, and Urbo Colombia S.A.S. as the promoting entity (who later yielded its position to Marcas Mall) signed a contract with Accion Fiduciary (in charge of presales fiduciary promoter MR- 799 Marcas Mall) whose purpose was to “associate future buyers of the commercial units” and engage in a professional civil responsibility insurance contract with SBS Seguros Colombia S.A.

Subsequently, Uruapan Investors commissioned several fund releases from Accion in favour of Marcas Mall on the condition that certain requirements would be met, but those requirements were not met. Nonetheless, the funds were fraudulently transferred.

Accordingly, Uruapan pursued a legal claim against Accion, who likewise called on SBS as guaranty. SBS argued that the claim was unfounded for it was not included to be covered within the policy since it had been excluded in sections 3.14 and 3.17 of the general provisions of the policy since the situation was not susceptible to coverage (article 1055 of the Commercial Code).

Liability exclusion was considered and SBS was absolved. The Court of Appeal, however, ruled that the exclusion was unproductive given the fact that it had not been included on the declaration page of the policy, which is common practice. Thus, SBS was sentenced to pay, but the sentence was later corrected by the Supreme Court, absolving SBS and establishing the following rules which would integrate the set of judicial elements relevant to the development of the insurance industry.

1. The insurer has the faculty of assuming or excluding the coverage of certain risks. Given the acknowledged contractual freedom in article 1056 of the mercantile statute, in most cases the provisions are imposed by the insurer, which makes it necessary for the protection of the weaker part - in this case the financial consumer.
2. As protection, the EOSF in article 184 fixed the requirements that policies must meet, otherwise a party would be liable of inefficiency as set out in the subsequent provisions, one of which states that protections and exclusions must be highlighted on the declaration page of the policy. Hence, the normal procedure is to include these on the declaration page in a clear and highlighted manner, otherwise it would be understood that protections and exclusions must be expressed on the declaration page, limiting, with no justification, the contractual freedom of the insurer.

Furthermore, the court makes the following distinction which is fundamental to the correct implementation of the rule there within. According to article 1046 in the Commercial Code, the policy is the document that constitutes the insurance contract, which contains (I) the declaration page; (II) general provisions or clauses; and (III) the annexes.

As a result, the following rule emerged: “…‘the declaration page of the policy’ should be understood for what it textually signifies. In other words, as the introductory page to the general provisions of each policy.” Therefore it is inferred that not all exclusions need to be found on the declaration page of the policy. These can be contained throughout the policy and in as many pages as needed, provided they appear on the first page of the provisions in a continued and uninterrupted manner.

The court’s interpretation of section b) (2), article 184 was optimum, because it put an end to normal practice, which was intended to protect the financial consumers’ rights as stated in article 37 of Law 1480, 2011, an excerpt that relates to receiving clear and sufficient information regarding the subscription of insurance contracts, especially those related to coverage and exclusions. Furthermore, it harmonises the rights of the consumer with the contractual freedom of the insurer.