Compulsory subscription to third-party civil liability insurance for construction | Denton

Construction activity is an activity that directly affects the property, health and life of employees as well as third parties during the construction execution process. Recognizing this need, the government issued Decree No. 20/2022/ND-CP (“Decree 20”) on 13/03/2022 on amendments to a number of articles of Decree 119/2015/ND- CP (“decree 119”) providing for compulsory insurance in civil liability as a third party for construction activities. Executive Order 20 came into effect on July 1, 2022.

Subjects required to purchase insurance

Previously, according to Executive Order 119, the purchase of civil liability insurance was the responsibility of contractors for engineering works, while the new contractor had to purchase insurance for a third party. However, from July 1, 2022, the mechanical engineering contractor is also required to take out compulsory third-party liability insurance resulting from negligence causing damage to persons and property.

According to Executive Order 119, which continues to be in effect in the new document, the third party, including all persons, surrounding properties, property and people walking through the damaged construction area, are injured in the body, life and property during the construction period. Some examples of careless errors towards third parties are driving a vehicle to cause an accident to third parties, carrying out construction work that affects the property of a third party.

Expenses paid for the purchase of the insurance

The addition of regulations on the subjects to take out compulsory insurance has led to the modification and increase of the costs of taking out insurance. Thus, decree 20 completes the regulations relating to the compulsory subscription of civil liability insurance vis-à-vis third parties similar to the costs of compulsory insurance for construction work on construction sites.

The construction contractor may increase the costs due to this fee, which affects the financial resources and the production and business plans of the construction contractors to carry out the construction they undertake. However, it should be noted that Decree 20 also stipulates that the cost of insurance is included in the cost of production and enterprise, creating the conditions for the contractor to be proactive in estimating the construction, the planning when participating in the tender.

Period of validity of the insurance

With regard to the insurance period, the compulsory civil liability insurance for third parties as prescribed in Decree 20 is a specific period of time from the start date to the end date of the construction period, based on the construction contract and indicated in the insurance contract.

Scope of insurance cover

The decree also supplements the scope of insurance coverage, excludes liability insurance. Accordingly, the insurance company undertakes to indemnify the building contractor for the amounts that, according to law, the building contractor is liable to indemnify the third party for non-contractual damage to health, life, property directly incurred during the construction process and relevant legal fees (if any) under the insurance liability as agreed in the insurance contract.