In a recent decision, the Superior Court of Bogotá (hereinafter, the “Court”) addressed a dispute between: (i) the policyholder and insured under a property insurance covering theft of heavy machinery; and (ii) the insurer that issued the policy.

During the term of the insurance, the machinery was leased and subsequently stolen from the property where the lessee had parked it. Following the claim, the insurer denied payment of indemnity to the insured, arguing that certain warranties agreed upon and incorporated into the insurance policy had not been fulfilled, specifically, the lack of armed surveillance for the machinery in a rural area. Additionally, the insurer challenged the evidence of the loss and the amount of damage.

The Court ordered the insurer to pay the indemnity, based on the following considerations:

1. Proof of the loss and standard of proof
   
   The Court recalled that, pursuant to Article 1077 of the Colombian Commercial Code, it is the insured’s burden to prove both the occurrence of the loss and the amount of the damages, while it is the insurer’s burden to prove the facts that exempt it from liability. The Court further noted that both parties are entitled to use any admissible means of evidence to support their claims.
   
   In this case, the Court assessed the criminal complaint, the certifications issued by the Prosecutor’s Office, and various documents and testimonial evidence submitted by the insured/beneficiary, concluding that the theft had been duly proven by the insured and that the insurer had failed to provide sufficient evidence to rebut the occurrence of the loss.
    
2. Alteration of the state of the risk
   
   The Court analyzed whether the leasing of the machinery to a third party constituted a material alteration of the state of the risk that should have been informed to the insurer.
   
   In this regard, the Court found that under the specific terms of the insurance policy, the insurer authorized the leasing of the machinery and its operation throughout the national territory. For that reason, the Court concluded that the insurer could not consider such activity to be a change of the insured risk, nor was the insured required to notify the insurer of each individual lease agreement entered. Accordingly, the Court rejected the termination of the insurance contract on these grounds.
    
3. Warranties in the insurance
   
   The insurer argued that the insured had breached one of the insurance warranties, which required the machinery to be under armed surveillance to maintain coverage in rural areas.
   
   However, based on official certifications and witness testimony, the Court concluded that the location where the theft occurred was not a rural area nor was it outside the urban perimeter as defined in the policy. Therefore, the armed surveillance requirement was not applicable. Moreover, it was established that security measures and tracking systems had been in place for the machinery.
    
4. Amount of indemnity
   
   The Court applied the indemnity principle of insurance, which, pursuant to Article 1089 of the Colombian Commercial Code, limits compensation to the actual value of the insured item at the time of the loss. In this regard, the Court relied on the purchase invoice and the accounting depreciation of the asset to determine the value of the machinery. Finally, it applied the deductible percentage agreed upon in the insurance policy as a deduction.

For more information, please contact our insurance and reinsurance team.