7 January, 2016
Recent Developments
Effective from 10 February 2016, Decree No. 1191 imposes new requirements for compulsory insurance products in construction and investment activities. The overarching aim of Decree No. 119 is to address practical issues and improve the effectiveness in the implementation of these types of insurance products. Accordingly, this can create more opportunities for non-life insurers in the market. In particular, it aims to improve support from the insurance market to cover risks for construction facilities, repair damages quickly and sufficiently to ensure the thorough implementation of investment projects. It is also intended to help investors, contractors and workers feel more secure when participating in construction and investment activities in Vietnam. With these aims in mind, Decree No. 119 provides for, among others, certain regulations on investors and contractors’ responsibility for purchasing compulsory construction insurance products, as well as the conditions for insurers to provide such products, and standards for premiums and minimum insured amounts
.
Compulsory Purchase Requirements for Investors and Contractors
Under Decree No. 119, investors must purchase insurance products during the construction period for certain works and facilities, including:
- Facilities or part of facilities having an impact on public/community safety;2
- Investment and construction facilities having a significant impact on the environment and projects which are on the list of projects subject to environmental impact assessment;3
1 Decree No. 119/2015/ND-CP of the Government dated 13 November 2015 on compulsory insurance in construction and investment activities (“Decree No. 119”).
2 Under Annex II of Decree No. 46/2015/ND-CP of the Government dated 12 May 2015 on the management of the quality and maintenance of construction facilities.
3 Under Appendices 2 and 3 to Decree No. 18/2015/ND-CP of the Government dated 14 February 2015 regulating master planning on environment and protection, strategic environmental assessments, environmental impact assessments and planning on environmental protection, and any amendments thereto.
• Facilities with specific technical requirements and complex construction conditions.
An exception to this requirement is in the case where any such facility is related to national defence, public security or State’s secret.
In the case where the insurance premium is included in the price of the contract (between the contractor and the investor), the contractor must purchase insurance products for those facilities.
In addition, consulting contractors must purchase construction consultancy professional liability insurance for construction survey
or design works for construction facilities at certain levels (level II or higher levels), as classified by the Ministry of Construction. Construction contractors must also purchase insurance for their employees who work on these construction sites.
Specific Conditions for Insurers and Reinsurers
Under Decree No. 119, a local insurer or a local reinsurer must meet the following conditions to provide compulsory construction insurance products:
It has been licensed under its establishment and operation license to provide products under property and damage insurance or liability insurance classes (for a local insurer), or to provide non-life reinsurance services (for a local reinsurer);
It must satisfy all the conditions on financial capability, and on expertise and professional qualifications of its relevant professional staff as prescribed in the Law on Insurance Business and its implementing guidelines.
For offshore reinsurance, Decree No. 119 requires that in order for an offshore re-insurer to receive compulsory construction insurance ceded from a local insurer in Vietnam, such offshore re-insurer must be:
- lawfully operating under the laws of the country where it is headquartered; and
- rated at least “BBB” by Standard & Poor’s, or “B++” by A.M. Best, or gets equivalent ratings from other experienced and accredited rating institutions in the latest fiscal year of reinsurance.
Insurance Coverage and Exclusions
Under Decree No. 119, insurers are liable to pay out insurance coverage :
- for losses and damages to construction works and facilities arising from all risks (applicable to insurance for construction works and facilities during the construction period);
- to consulting contractors for sums which such consulting contractors are liable to pay arising from their work, for losses and damages to third parties plus related expenses in accordance with law (applicable to construction consultancy professional liability insurance); and
- to building construction contractors for sums which such contractors are liable to pay to their employees, for injury or deaths due to a work-related accident or occupational disease within
- the scope of the insurance liability (applicable to insurance for contractors’ employees doing building works on construction sites).
Decree No. 119 also provides for certain cases of exclusion of insurance liability. Particularly, insurers are not liable to pay insurance proceeds for:
- Losses arising from deliberate conduct;
- Losses not in the nature of accidental losses;
- Losses unable to be measured in monetary terms;
- Losses arising from a disaster; and
- Losses arising in a case where the insurance purchaser does not have an insurable interest.
Minimum Sum Insured
Decree No. 119 imposes minimum insurance requirements as follows:
(a) For construction facility insurance during the construction period, the minimum sum insured is the full value of the construction facility on completion and must not be less than the total value of the construction contract including any amended or supplemented value;
(b) For construction consultancy professional liability insurance, the sum insured must be at least equal to the value of the design or consultancy contract; and
(c) For the insurance for contractors’ employees doing building works in construction sites, the minimum sum insured must be VND100 million (approx. US$4,500) per person per case. The specific sum of indemnification is determined in accordance with the regulations of the Ministry of Finance, depending on the specific case whether the work related accident or occupational disease results in the injury or death of the employee.
For further information, please contact:
Frederick Burke, Partner, Baker & McKenzie
frederick.burke@bakermckenzie.com
