The insurance contract is based on risk and the Commerce Code determines that the insurer covers all risk associated with the insured property, unless otherwise established in the contract. These exclusions cannot restrict coverage in such a way that makes the policy unsuitable for its purpose.
The Law determines that wilful misconduct is not insurable.
The Commerce Code states the insured’s obligation to duly keep the insured property in good condition. Hence, any alteration to the property caused by the insured must be notified in writing to the insurer prior, to the alteration being made. In case the alteration is not caused by the insured, it must be notified to the insurer within eight days after discovery. If such notification is not made, the insurer’s duty to indemnify is suspended. The burden of evidence is on insurers.
Once the increase in the policy risk is notified, the insurer can terminate the contract or recalculate the premium according to the new conditions within 15 days after the notification. The insurance policy is not annulled until eight days have elapsed, from the insurer’s notification to the insured of the policy’s annulment. The duty to disclose these alterations in the insured risk is not applied to life insurance.
The intent of the Commerce Code is that a relevant alteration in the risk is caused whenever such an alteration would lead the insurer to refuse issuing the policy or issue the policy subject to different conditions.
The mentioned legal provisions do not prevent the insertion of exclusions in the wordings to reject all claims arising from inappropriate maintenance of the insured property.
The Law authorises applying the proportional or average rule wherever there is underinsurance or over insurance. In such situations the indemnity is recalculated according to the actual insured amount and taking in to consideration the real quantum of the damage.
It must be pointed out that pre-arranged value provisions are allowed under Bolivian Law. Hence, insurer and insured can freely agree the insured amount. If the insured agrees, the insurer can reserve it’s right to evidence that the insured amount greatly exceeds the real value of the insured property and have the indemnity reduced accordingly.
The above shows that the insured has the duty of keeping the property in good condition, and the insurer will be entitled to reject coverage where the property has not been duly maintained, or alternatively annul the contract as per the contract, otherwise by operation of the Code of Commerce.