In a recent 2025 decision, the Colombian Supreme Court of Justice (hereinafter, the “CSJ”) addressed a dispute among (i) the contracting party, insured, and beneficiary under a performance bond (in the form of insurance) (here in after “performance bond); (ii) its contractor, the policyholder; and (iii) the insurance company that issued the policy.

The dispute arose from the breach of a contract for the construction of a hydroelectric power plant, executed within the framework of an infrastructure leasing agreement under which the financial institution, as owner of the assets, entrusted the contractor with the execution of the works under a delegated administration arrangement.

The project experienced multiple delays, and by the expiration of the final contractual term, the works were still incomplete. Due to the contractor’s failure to deliver the works, the contracting party/insured filed a claim with the insurer seeking payment of the total insured amount, arguing that the contractor’s breach caused it losses consisting of: (i) additional interest paid to the financial entity under the leasing agreement; and (ii) additional costs incurred in purchasing energy required to offset the lack of generation from the hydroelectric plant.

The court of first instance denied the insured’s claims on the grounds of insufficient proof of the loss and its amount, a decision that was upheld by the appellate court. The contracting party/insured then filed a final appeal, arguing that the appellate court had confused past actual losses with future actual losses and had improperly imposed a “legal standard of proof” by requiring invoices and accounting documents to substantiate the damages claimed.

Based on the following considerations, the CSJ decided not to overturn the judgment:

1. Proof of the occurrence of the insured event and the principle of indemnity
   
   The CSJ recalled that, in performance bonds, proving the contractor’s or policyholder’s breach of contract is not sufficient to establish the occurrence of the insured event and claim indemnification. It is essential to demonstrate that such breach caused an actual and direct pecuniary loss to the contracting party/insured, as only that loss defines the insurer’s indemnity obligation, up to the insured amount.
   
   Thus, while the contractor’s breach constitutes the insured event, the existence and quantification of the loss determine the amount of indemnification. In that regard, the CSJ restated that, in property and casualty insurance (the category to which performance bonds belongs), the principle of indemnity applies—meaning that the purpose of the insurance is to compensate the insured for the actual loss suffered, without resulting in unjust enrichment.
    
2. The contracting party failed to prove the amount of the losses
   
   The contracting party/beneficiary of the insurance proved the contractor’s breach but failed to establish the amount of the alleged loss or its direct connection to that breach. It merely requested a declaration of the occurrence of the insured event and payment of the insured amount, without providing sufficient evidence of the actual damage sustained.
    
3. Burden of proof and absence of a legal standard 
   
   The CSJ clarified that, although there is no legally prescribed standard of evidence to prove the occurrence of the insured event or the amount of the loss in performance bonds, certain types of evidence are more suitable than others depending on the nature of the loss. For instance, in this case, to prove the purchase of energy replacement, an invoice or accounting record of the purchase would have been more persuasive than a third-party testimony.
   
   In this matter, the CSJ found that the evidence submitted (statements, certifications, and reports) lacked the precision and conclusiveness required to establish that the claimed expenses and interest payments corresponded to losses resulting from the contractor’s breach.
    
4. Causal link between the losses and the contractual breach
   
   The CSJ emphasized that, given the nature of the leasing agreement entered by the contracting party, the payment of interest was an inherent effect of the contract. Therefore, it was necessary to prove that the delay in the execution of the works caused the payment of additional interest attributable to the contractor’s breach. The same applies to the energy purchase costs, for which no causal connection was demonstrated between the expenses incurred and the delay or breach of contractual obligations.
    
5. Conclusion
   
   In summary, the CSJ reaffirmed that, to claim indemnification under performance bonds, the insured/beneficiary must prove three elements: (i) the contractor’s breach; (ii) the direct pecuniary loss resulting from such breach and its amount; and (iii) the causal link between the loss and the alleged breach.