Fiscal liability proceedings in Colombia

In recent years, the amount of fiscal liability proceedings have increased substantially. Insurance companies have been called into those proceedings, which has resulted in many awards against insurers, some of which have ignored the rules and principles of insurance contracts and decisions by the Council of State and Supreme Court.

This situation has caused understandable concern in the market - the most relevant aspects of these proceedings are explained below.

What are fiscal liability proceedings?

The Office of the Comptroller General (CGR in Spanish) has a constitutional mandate to supervise the correct management of state property, including funds. Through fiscal liability proceedings, the CGR seeks to determine whether public officers and private parties that deal with public property funds have managed them properly. If damage or financial detriment has been caused to the State due to fraud or gross negligence of those being investigated, those persons will be asked to pay monetary compensation for the damage caused.

The proceedings end with an administrative decision that, as in other civil code countries, is subject to appeal before the contentious-administrative courts.

Who can be held fiscally liable?

In this context, government agencies will never be liable as they are the victims—only public officers (civil servants) and private persons (whether people or companies) can be made liable. Sometimes the CGR adopts a broad interpretation of the notion of what is handling or administering public funds to broaden the spectrum of potentially liable parties and include persons who strictly are not performing those activities, thus going beyond its powers.

Insurers’ role

Article 44 Law 610 2000 states that in cases where there is an insurance policy covering the possible liable person or the property or contracts that are being investigated by the Office of the General Comptroller, the insurer shall be called into the proceedings as a potentially liable third party and may be ordered to pay compensation to the state.

Types of policies likely to be involved in fiscal liability proceedings

  1. Surety
  2. D&O Policies for Public Officers
  3. Crime policies
  4. D&O

Contraloría’s decisions that affect the insurance market

Several decisions of the Contraloría have caused concern of late with high profile cases related to corruption being investigated. The most popular matters concern:

  1. Multiple policies’ periods: In cases involving losses occurring over time by continued actions or omissions of public officers—or individuals that manage or administer public funds—the DGR has triggered multiple policy periods, accumulating insured limits. By doing so, the Contraloría ignores the insurance contract rules and principles, the agreed terms and conditions, and the insured limits.
  2. Title V of the Colombian Commercial Code regulates the insurance contract. The CGR determined that its provisions were not applicable to them, deeming that the provisions of the Code were only applicable to private contracts and theirs are investigations of public nature.
  3. Exclusions: In some matters, the CGR has ordered insurers to pay in instances were exclusions were applicable, therefore ignoring the terms and conditions of the insurance contract.
  4. Claims made: CGR has also ignored claims made clauses arguing that they are not essentialto the insurance contract, they limit insurer’s responsibility unduly, are abusive, and that insurance contracts shall answer to the general interest.

The approach of the CGR goes against multitude of well settled principles of insurance and commercial law.

What is being done?

In addition to contesting the admin CGR decisions before the courts, local and international markets have been active before the Insurers Association (Fasecolda) and several government agencies to raise awareness of the implications and promote dialogue with CGR and congress. Kennedys is acting for several markets in different appeals and initiatives.

Currently in Congress

There are two bill initiatives currently in Congress.

The first initiative was filed by the former Comptroller Edgardo José Maya (Bill No. 099 of 2018). This bill (i) modifies the requirements to start a fiscal liability proceeding making them more strict in respect of evidence of the damage, (ii) changes the fiscal liability limitation period, (iii) specifies that the payment for anticipated termination of the fiscal liability proceeding includes indexation, (iv) determines that the testimony of the investigated persons is not a requirement to issue an accusation writ or indictment and that those testimonies can take place after the accusation writ or indictment is issued, and (v) modifies the quantum required for a second instance appeal.

The second bill seeks to amend the Constitution and was filed by current Comptroller Carlos Felipe Córdoba (Constitutional Amendment No. 355 of 2019). The initiative (i) establishes that Fiscal control will be concomitant and preventive and not only subsequent and selective, (ii) unifies the Jurisdiction of the CGR specifying that said Office will have prevailing competition to exercise fiscal control over any territorial entity, and (iii) determines that the CGR will have judicial functions and judicial police functions.

Very much a developing story that we will be following closely.

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