The duty of the insured to properly maintain the insured property is usually established within the policy wording. The Commerce Code allows the insurer to cancel the contract if this duty is not fulfilled and reimburse the unused portion of premium.
The insured has a duty to correctly maintain the property, not doing so can imply an increased risk for the insured. The insured has an obligation of notifying the insurer of any relevant circumstances that may affect the risk within 10 days after discovery. Once the insurer has been notified they can chose to cancel the contract or recalculate the premium according to the new circumstances.
If the notification is not made to the insured in a timely and correct manner, the insurance contract comes to an end. Therefore, any loss occurred after the insured risk was altered will not be covered.
Underinsurance is not applied to this particular case. There is no special requirement to develop underinsurance provisions in the policy because they are expressly regulated by the Commerce Code.
First risk provisions are also allowed in Colombia. In this scenario parties agree that if a partial loss occurs the proportional rule will not be applied, however, the insurer will pay a pre-determined amount.
On the other hand, overinsurance could be applied if the value of the insured property decreased at the time of the loss due to unsuitable maintenance. If there is not bad faith on the insured’s behalf any of the parties can request a reduction in the sum insured and the premium.
If the parties had not agreed, in the contract, a reduction of the sum insured in these circumstances and a loss occurred, the insurer’s duty to compensate would be limited to the real value of the insured property.