CHARGE OF COMPULSORY THIRD-PARTY CIVIL LIABILITY INSURANCE EQUAL TO 5% CHARGE FOR COMPULSORY CONSTRUCTION WORKS INSURANCE

In order to concretize regulations on compulsory insurance in construction investment activities according to Decree 20/2022/ND-CP dated March 10, 2022 and Decree 119/2015/ND-CP dated November 13, 2015, recently, on August 11, 2022, the Ministry of Finance issued Circular 50/2022/TT-BTC (“Circular 50”) replacing Circular 329/2016/TT-BTC dated 26/12/ 2016 (“Circular 329”).

Accordingly, there are several highlights in Circular 50 that investors and construction contractors need to pay attention to:

1. Specification on compulsory third-party civil liability insurance

Before the promulgation of Decree 20/2022/ND-CP[1], third-party civil liability insurance was an optional type of insurance that investors could freely choose to use depending on at their needs. Therefore, the contents specified in Circular 329 were very sparse, arbitrary and allowed the parties to agree on their own.

However, basing on Decree 20/2022/ND-CP, Circular 50 has added detailed regulations governing the implementation of this type of insurance.

Accordingly, beside provisions of Decree 20/2022/ND-CP, Circular 50 clarified the following important contents:

1. Coverage: Amounts that the construction contractor is responsible for compensating to third parties for non-contractual damage on health, life and property directly incurred during the construction process and related legal expenses (if any);
2. Exclusion of insurance liability (detailed in section 2.2.(iv) below);
3. Insurance period: from the start date to the end date of the construction period based on the construction contract;
4. Insurance fees:

• Equal to 5% of the compulsory premium for the construction works in the construction period.
• Basing on the risk level of the insured subject, the insurer may either increase or decrease the premium up to twenty-five percent (25%) of the premium;

2. Specification on exclusion of insurance liability:

2.1. Circular 50 clarified 07 cases of exclusion of general insurance liability in accordance with Article 6.2 of Decree 119.

2.2. In addition to the 07 general exclusions, Circular 50 provided exclusions for each type of compulsory insurance as follows:

(i) For compulsory construction works insurance:

1. Loss caused by the consultants’ errors in design.
2. Loss due to corrosion, abrasion, oxidation.
3. Loss due to rot and occurring under normal pressure and temperature conditions (this regulation only applies to construction works specified on Article 10.1(a) of this Circular).
4. Loss due to hardness such as rust, scaling or other similar phenomenon (this regulation only applies to construction works specified on Article 10.1(b) of this Circular).
5. Cost of repairing, replacing or fixing defects in materials or workmanship. This exclusion applies only to loss of items directly affected, but not to loss of other items indirectly resulting from defects in materials or workmanship.
6. Loss or damage is only detectable at the time of inventory.

(ii) For compulsory professional liability insurance:

1. Loss caused by consultancy’ intentional acts of selecting untested methods of construction, measurement, calculation and design, and materials.
2. The cost of redesigning or fixing drawings, plans, technical instructions or catalogs of technical instructions.
3. Loss caused by mold.
4. Loss caused by consulting construction survey and/or design leading to pollution, contamination to the environment and third parties.
5. Loss related to asbestos or any material containing asbestos.
6. Loss arising from infringement of intellectual property rights.

(iii) For compulsory construction workers’ compensation insurance:

Loss related to asbestos or any material containing asbestos.

(iv) For compulsory third-party civil liability insurance:

1. Loss arising from pollution or contamination. This exclusion does not apply to damage to health, life, or property arising from pollution or contamination due to sudden, unpredictable risk.
2. Damage to property on the ground or to health or life caused by displacement or weakening of the load-bearing part and the structural geology.
3. Damage as the result of an accident caused by a motor vehicle or a vessel, barge or aircraft covered by the vehicle investor’s civil liability insurance against third parties.
4. Liability as the result of injury or illness caused to an employee of the investor or contractor in connection with the insured construction works.
5. Loss occuring to property owned by or under the lawful management and use of the investor or contractor or the employee or worker of one of the aforementioned.
6. Loss related to asbestos or any material containing asbestos.

Note: Circular 50 does not contain provisions allowing insurance companies to freely choose to add/remove or modify the aforementioned exclusions.

Circular 50 takes effect from October 1, 2022.

[1] https://ata-legal.com/from-07-01-2022-construction-contractors-must-buy-compulsory-civil-liability-insurance-for-third-parties