A fire that occurs in the core of an urban landscape is the source of fear and terror. It takes lives, causes severe injuries, and leaves behind a trail of destruction. The existence of older homes and closely packed wooden houses, where escape routes are often narrow or obstructed, pose particular risks. Notably, the much-reported karaoke fire in Binh Duong in 2022 caused over 30 deaths. On September 13, 2023, a lethal fire engulfed a mini-apartment building in Hanoi, killing at least 56 persons and injuring dozens more. In just the first half of 2024, 2,222 urban fires caused 57 deaths, 45 injuries, and billions of Vietnamese Dong in property damage.
In response, authorities have enforced stricter inspections and heightened awareness of the critical need for compliance with fire codes. A key requirement is mandatory fire and explosion insurance, which is required for certain businesses, commercial properties, and high-risk facilities. Beyond regulatory obligations, this insurance provides essential financial protection.
In this article, we explore compulsory fire and explosion insurance.
1. Who is required to buy compulsory fire and explosion insurance?
Fire insurance is available to owners of property that can be damaged or destroyed by fire. Indeed, the law requires such insurance for certain structures with fire hazards and when structures are open to the public1. For example, apartment buildings, hotels, business offices of seven floors and above; clinics with at least five floors; and karaoke bars with an area of 5,000 m³ (cubic meters) and above; and shopping centers and restaurants with an area of at least 5,000 m³. The owner must purchase insurance from a licensed insurer.
Homeowners can choose to obtain fire insurance to safeguard their home and its contents, but the law does not require them to do so. However, an exception applies to condominiums. For condominium buildings with at least seven floors or with an area of 10,000 m³ or more, individual condominium owners must obtain fire insurance for their respective units.
Fire insurance often serves as evidence of compliance with fire codes. Although not required by law, insurance companies often demand proof that a property meets these standards. This includes a review of fire safety inspection certificates and inspection reports made by the police authorities. Insurers may refuse to issue fire insurance if a property is found to be non-compliant with fire codes—or for any other reason.
2. What is the penalty for non-compliance?
Fire authorities conduct annual inspections to ensure that buildings and facilities comply with the fire code, including the purchase of the mandatory fire insurance where required.
If an individual owner fails to purchase the required fire insurance, she faces a fine of up to VND 40 million (approx. US$1,7002). For organizations, the penalty is doubled. This penalty is tiny, considering the significant risk—not only to the property owner but also to life and to the broader economy, where large-scale damage can have far-reaching consequences.
3. What does fire and explosion insurance cover?
Pursuant to Decree 67/20233, fire insurance indemnifies physical damage which occurs to the policyholder's property, building, apartment, factory, and other structures. This includes the structural and internal systems (electricity, lighting, water, etc.). The contents can also be covered: furniture in the case of private homes, machinery and equipment, inventory, raw materials, etc. in the case of businesses (“Insured Assets”).
Note, however, that neither death nor bodily injury insurance is required. Additionally, neither damage to third parties, visitors to the premises, nor their property is covered. Put simply, if a fire on your property results in injuries, fatalities, or damage to your own property, fire insurance will only indemnify the physical damage to your own property.
For broader protection against fire risks that could cause death, injury, or damage to others, you should purchase separate public liability insurance alongside fire insurance. While public liability insurance is optional, it covers claims relating to death, personal injury, and damage to third parties and their properties—risks not included in the mandatory fire insurance policy. Similarly, tenants renting houses or apartments can purchase public liability insurance to protect the health and safety of their family members or guests, as well as their personal belongings. Though not compulsory, this insurance offers additional protection against unforeseen events, enhancing both personal security and asset protection.
It is also crucial to review the indemnity terms in a public liability insurance policy to ensure comprehensive coverage, particularly when negligence is involved. Policies often exclude indemnity for damage caused by the insured's intentional misconduct. However, coverage may still be available for unintentional acts. For example, if a property owner inadvertently causes a fire, such as being unaware of the flammability of certain materials, indemnification may be possible. In such cases, however, any compensation awarded may be reduced, even if the fault was unintentional.
Victims suffering losses or injuries due to a fire can choose to file a lawsuit against the party responsible for causing the fire. In such cases, the victim must present sufficient evidence in court to establish liability and seek compensation for her damages.
4. What is excluded from coverage?
Not all losses caused by fire or explosion are covered under the standard fire insurance policy. There are some exceptions to coverage4:
- Fire damage to data, software, and computer programs;
- Burning of insured facilities by order of public authorities;
- Damage caused to machinery, electrical equipment, fixtures, etc., from fires caused by over-usage, overpressure, self-heating, etc.
- Loss or damage due to natural disasters (earthquakes, volcanic eruptions) or political, security, or social disorder.
Furthermore, losses caused by arson committed by the insured or by deliberate violation of fire codes that result in a fire are not covered. Legally, intentional fault occurs when an individual is aware that her actions are likely to cause harm to another person but chooses to proceed anyway, allowing the damage to occur.Conversely, if the insured unintentionally violates the fire code—such as carelessly discarding a lit cigarette—she may still quality for indemnification. It is essential to understand these exclusions to manage risks and ensure adequate coverage.
5. What is the sum insured in fire insurance?
The sum insured is the maximum amount an insurer is responsible to pay in the event of a loss. By law, value is measured by the market value of the Insured Assets when the insurance policy was purchased; that is, it is not the replacement value at the time of damage. If the market value is unknown, the sum insured will be determined as follows:
- For building structures, internal systems (electrical and lighting systems), machinery, and equipment, it is the value when the insurance policy is purchased; and
- For products and materials, it is the value according to original invoices and documents.
6. What are the premiums and deductibles in fire insurance?
The premium is, of course, the amount the policyholder pays the insurer based on an assessment of risk. A deductible is the amount that the insured must first pay towards the insured loss. These amounts are determined on a case-by-case basis, based on the sum insured, the level of risk5, and commercial discussions between the insured and the insurer. Of course, the higher the deductible, the lower the premium.
Conclusion
While the mandatory fire insurance regime is not perfect, it provides an important safeguard against losses one may suffer from fire. However, it is crucial to remember that only the original value—not the replacement value—is covered. Finally, to include death, injury, and loss to third parties on your premises at the time of a fire, separate public liability insurance is necessary and recommended.
Footnotes
1. A full list of specific facilities can be found in Decree No. 50/2024/ND-CP of the Government, dated 10 May 2024.
2. US$1 ≈ VND23,500.
3. Decree No. 67/2023/ND-CP of the Government dated 6 September 2023.
4. Full exceptions to the coverage of fire insurance can be found in Decree No. 67/2023/ND-CP of the Government dated 6 September 2023.
5. The specific premiums and deductibles can be found in Decree No. 67/2023/ND-CP of the Government dated 6 September 2023.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.