By means of a recent legal opinion, the Financial Superintendency of Colombia (hereinafter, the “SFC”) issued a statement regarding the capacity of insurance companies to participate in consortiums and temporary joint ventures.
This opinion originated from a query submitted to the SFC regarding the reasons why it is considered an unsafe practice for insurance companies to be part of these public procurement schemes when they are not authorized to operate in the business line involved.
In this regard, the SFC responded:
- Joint and several liability in consortiums and temporary joint ventures
The liability of the members of a consortium or temporary joint venture is joint and several, which means that each participating insurance company may be required by the government entity to perform the entirety of the obligations derived from the public contract entered into.
- Limited Corporate Purpose
Insurance companies may only engage in activities authorized in their corporate purpose, which is defined by the rules governing insurance activity. Participating in a consortium or temporary joint venture does not expand that capacity; therefore, an insurance company may not underwrite insurance in business lines for which it is not authorized (paragraph 3, article 38 of the Organic Statute of the Financial System).
- Unsafe and Sanctionable Practice
In conclusion, when an insurance company participates in a consortium or temporary joint venture, it must be authorized in the business lines under which it offers the products required by the government entity. Joining a consortium or temporary joint venture without authorization in any of the business lines subject to the contract is considered an unsafe practice and may result in administrative sanctions by the SFC.
For more information, please contact our insurance and reinsurance team.