Construction activity is an activity that directly affects the property, health and life of the employees as well as third parties during the process of construction execution. Identifying this necessity, the Government issued Decree No. 20/2022/ND-CP (“Decree 20”) on 13/03/2022 on the amendments a number of articles of Decree 119/2015/ND-CP (“Decree 119”) providing for compulsory insurance for civil liability as a third party for construction activities. Decree 20 has been effective from 1 July 2022.

Subjects required to buy insurance

Previously, according to Decree 119, the purchase of civil liability insurance was the responsibility of the engineering construction contractors, while the new contractor had to buy insurance for a third party. However, from 1 July 2022, the engineering construction contractor is also responsible for purchasing compulsory civil liability insurance for third parties arising from negligence causing damage to people and property.

According to Decree 119, which continues to be effective in the new document, the third party including all people, surrounding properties, property and people walking around the damaged construction area who is injured about the body, life and property during the construction period. Some examples of careless mistakes to third parties are driving a vehicle to cause an accident to third parties, carrying out the construction that affects property of a third parties.

Costs paid for purchase of insurance

The addition of regulations on subjects to buy compulsory insurance has led to the amendment and supplementation of insurance purchase costs. Accordingly, Decree 20 supplements regulations on compulsory purchase of civil liability insurance for third parties similar to compulsory insurance costs for construction employments on construction sites.

The construction contractor may increase costs because of this fee, which affects the financial resources and production and business plans of the construction contractors to carry out the construction that 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 business, creating conditions for the contractor to be proactive in estimating the construction, planning when participating in the bid.

Insurance validity period

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

Scope of insurance coverage

The Decree also supplements scope of insurance coverage, excludes liability insurance. Accordingly, the insurance enterprise shall perform the liability to compensate the construction contractor for the amounts that, according to the law, the construction contractor is responsible for compensate for the third party for the non-contractual damage to health, life, property directly incurred during the construction process and relevant legal costs (if any) within the scope of insurance liability as agreed in the contract insurance.