Doing Business

Insurance requirements for construction contractors in Vietnam

Trường Lăng

November 16, 2022

Doing Business

Insurance requirements for construction contractors in Vietnam

Trường Lăng

November 16, 2022

Recently, the Vietnamese Government has approved Decree 20/2022/ND-CP (Decree 20), which demands construction contractors and investors to ensure the compulsory insurance for on-site workers, along with the compulsory civil insurance for surrounding residents and assets in construction investment activities. This new Decree amends and supplements the previous Decree 119/2015/ND-CP (Decree 119), valid from 01/07/2022.  

Specific requirements for the construction contractors

From July 1, 2022, construction contractors must purchase compulsory insurance for civil liability from third parties (before that, the construction contractor only has to buy insurance for the construction workers on the construction site, and the contractor is responsible for participating in civil liability insurance with the third party). According to Clause 7, Article 1 of the new Decree, the minimum sum assured regarding damage of health or life is 100 million VND/person/case, not limiting the number of cases of damage or losses. 

The minimum sum assured regarding damage of assets or related legal costs (if any) is: 

  • 10% of the value of the works for the entire valid duration of the insurance regarding works valued at less than 1.000 billion VND, not limiting the number of cases of damage or losses. 
  • 100 billion VND for the entire valid duration of the insurance regarding works valued at 1.000 billion VND or more, not limiting the number of cases of damage or losses.. 

The compulsory third-party civil liability insurance, according to Clause 4, Article 1 of this Decree, shall be within a specific period, from the start date to the end date of the construction time according to the construction contract and included in the insurance policy.

Legal implications in the new Decree

From the perspective of our legal experts, Decree 20 has introduced a synchronized, stable and transparent legal framework for agencies, insurance companies, organizations and individuals. The supplemented regulations have created favorable conditions for each stakeholder to participate in compulsory insurance in construction investment activities.  This will thus help to avoid the case of unexpected incidents during the construction process which can cause damage to nearby residents and properties yet not being compensated. 

For example, in the case of Hoa Anh Dao Real Estate Joint Stock Company as investors in the King Palace project, during construction activities, a large iron bar suddenly fell from the construction site onto the road. Fortunately, no single residents were harmed, yet this incident was an alarming warning for construction contractors and investors in considering compulsory insurance. 

What to be aware for investors

On constructing, accidents might happen out of expectation of construction contractors. Under that circumstance, the “out-of-damage” needs to be specified in the Insurance Contract between the contractor and the insurance company. Otherwise, the damage sufferers are not compensated. Yet, the investors still must consider purchasing the compulsory insurance along with the compulsory civil insurance. Or else, they may face legal suits and risk their investment. 

In accordance with Clause 3, Article 32 of Decree 16/2022/ND-CP, the construction contractors shall face an administrative punishment if violating the safety requirements on on-site work. Following the regulation, failure to purchase compulsory insurance for workers and civil liability insurance for the third parties shall lead to investors being fined from VND 50 million to VND 70 million. 

To avoid such penalties and legal suits due to the non-compliance, construction contractors are advised to consult leading experts in legal issues. Thus, understanding legal implications and a good awareness of legal issues will enable investors (as construction contractors) to avoid the pitfalls or issues that may arise later on. With 13 years of experience in over 100 sectors and various industries, Viettonkin is one of the top local consultants that can support you along your business journey in Vietnam. Our team of high-profile leaders who are well-informed and specialized in Vietnamese markets and legal systems can help you through the legal challenges and settle down your venture here. Let us be by your side! 

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