By means of a recent order issued in 2025, the Council of State (hereinafter, the “CE”) ruled on a negative jurisdictional conflict between the civil and the administrative courts.

When analyzing the conflict, the CE made several clarifications concerning insurance law, particularly regarding who are the parties to a performance bond insurance contract and the legal nature of such kind of insurance.

The CE’s main considerations were as follows:

1. Parties to the insurance contract
   
   The CE recalled that, pursuant to Article 1037 of the Colombian Commercial Code, the parties to an insurance contract are the insurer and the policyholder.
   
   In the case under review, the contracting public entity did not have the status of insurer or policyholder of the performance bond insurance but was merely designated as the insured and beneficiary. Although this designation grants the right to claim indemnification, it does not imply that the public entity is a party to the performance bond insurance contract.
    
2. Insurance on behalf of a third party
   
   When the policyholder enters into an insurance contract in the name of a third party without authority to represent such third party (Article 1038 of the Colombian Commercial Code), the third party only becomes a party to the contract if it ratifies the agreement entered into on its behalf.
   
   In this case, the contractor did not take out the insurance in the name of the contracting entity nor sought its ratification; it merely procured a performance bond “for the account of a third party” (Article 1039 of the Colombian Commercial Code) to cover the insurable interest of the contracting entity. Therefore, the contracting entity/insured did not assume any obligations as policyholder, nor did it become a party to the insurance contract.
    
3. The performance bond insurance is an autonomous contract
   
   Performance bond insurance is a principal, autonomous, and independent contract from the underlying public contract it secures.
   
   The insurer’s obligation is its own and consists of a conditional duty to pay indemnification to the insured upon the occurrence of the loss, equivalent to the assumption of the contractor’s obligations by the insurer. This autonomy prevents the insurance contract from being considered part of the public contract and precludes the insurer from being regarded as a party thereto.
    
4. Performance bond insurance is not always a public contract
   
   The public purpose of protecting state assets and the close relationship with public procurement do not transform the performance bond insurance into a public contract. According to the CE itself, it would only qualify as a government contract if a public entity acted as the insurer or the policyholder:
   
   “The necessary conclusion derived from Law 80 of 1993, in conjunction with Article 1037 of the Commercial Code, is that only when a public entity occupies the position of the insurer or the policyholder may it be concluded that such legal transaction is a government contract.”
   
   In this case, since both the policyholder and the insurer were private companies governed by private law, the insurance contract could not be considered a public contract.
    
5. Conclusion
   
   The CE referred the case file to the Constitutional Court so that it may determine the competent jurisdiction in this matter.