Contracts in Bolivia are regulated by the Commerce Act. The assumption is that all contracts are signed in “good faith”. The obligations are enforced not only by what is agreed in the contract itself but also by the nature of the contract, the law, common practice and equitable principles.
According to this Act, the policyholder’s fraud annuls the contract, irrespective of whether the fraud took place at the pre-contract stage, when signing or at the time of the loss. Gross negligence is also regulated.
The contract will be void if the risk disappears when formalising the contract or if the loss had occurred. The exception would be if both parties were not aware of these circumstances or if the policy coverage starts prior to the signing.
Policyholder’s fraud and facultative acts are not insurable. The Act also prohibits underwriting policies aiming to compensate possible criminal sanctions.
The policyholder’s pre-contractual disclosure has to be accurate and has to include all material information affecting the risk. The policyholder’s failure to disclose annuls the contract if the non-disclosure induced the insurer to enter the contract or to accept it with different conditions.
If the policyholder unintentionally fails to disclose, the insurer can annul the contract within 30 days of acknowledging the breach. They will have to return all paid premiums for the future period.
A policyholder who intentionally fails to disclose has no right to premium reimbursement. Also, if the loss took place and risk was intentionally increased by the policyholder, the contract is void.
Regarding the payment of the premium, the Commerce Act states that if the insurance contract is signed without the premium being paid, it is considered as a credit given by the insurer to the policyholder. According to the Act, if the premium remains unpaid, the policy is still valid until eight days after notification by the insurer.
The Insurance Act has modified this situation. Although the unpaid premium is still considered as a credit given by the insurer, it automatically suspends the policy. The suspension of the policy does not depend on any term or notification.
This new regulation seems more rational and balances the relationship between the policyholder and the insurer. It also frees the later from unnecessary bureaucracy when the insured does not comply with the contract.