The risk of any type of loss occurring in any industry is a constant danger that any business owner should pay attention to, and the use of some type of insurance is also a constant for that reason. It is used both in contracts and in day-to-day activities. Therefore, the insurance contract is of vital importance to cope with any eventuality in the exercise of the company's corporate purpose.
But what is the insurance contract? The insurance contract is defined as a bilateral contract where the insurance company undertakes to assume the risk of the insured person, known as the policyholder. That is, the insurance company undertakes to assume the civil and patrimonial consequences of potential risks in a specific activity. All of the above is known under the concept of warranties, and the insured undertakes to pay a monthly premium in consideration for what is assumed by the insurer. In turn, this contract is regulated by the Commercial Code, from article 1036 to 1162.
However, warranties are not considered obligations, but commitments based on good faith that do not possess the coercibility that legal obligations normally have. Furthermore, they change depending on the moment in which the insured event occurs and have certain necessary requirements for the realization of the insurance.
In that sense, warranties are classified into two types. First, there are affirmative warranties, which deal with facts prior to the conclusion of the insurance contract, and in that case, require the insured to corroborate a pre-existing fact with a declaration of intent. For example, in bidding processes, the bid bond, an instrument of mandatory nature depending on the amount of the contract, is a clear example of this, created with the aim of protecting the parties involved in the bidding process when one of them loses interest in continuing or starting its development.
Second, there are conduct or promissory warranties, which concern a future event and imply the burden that the insured perform certain specific actions described in the insurance contract and that are in effect during its term. All this with the purpose of reducing the risk of occurrence of the loss. Furthermore, it should be clarified that these are the most common warranties and occur, for example, when machinery or other items are insured in the exercise of the company's corporate purpose, through a property insurance contract, which requires that the damage has not been caused by a inherent defect in the use of the property, but rather that it has been derived from design errors, in order to receive the coverage of the policy. The foregoing reveals a conditioned behavior on the part of the policyholder, who must adapt their course of action to the contractual specifications of the insurance contract.
Thus, failure to comply with these requirements at different times of the loss events has adverse legal effects for the insured. For example, in affirmative warranties, the breach of the commitment made in the contract, which infringes the affirmative warranties regarding past facts, entitles the insurer to annul the insurance contract. On the other hand, failure to comply with conduct warranties regarding future facts entitles the insurer to terminate the contract unilaterally and retroactively from the moment the insured failed to honor their word in what was stipulated in the contract.
It is clear that the consolidation of behavioral guidelines and the clarification of facts is of vital importance when entering into this contract. Even, according to the Commercial Code in its article 1078, bad faith in the claim or verification of the right to payment in the event of a loss results in the loss of the right. That is, the principle of good faith is magnified in this type of contract, since its creation is subject to information from the parties that does not imply or require a real prior verification of it.
In conclusion, in the execution of an insurance contract, even if it is only a requirement in one of the clauses of some other type of contract, proper legal advice is imperative for effective compliance with the agreed behavioral and declarative guidelines to avoid negative consequences that cause detriment to the insured's assets.