Insurance recovery issues following Vietnam unrest

by Reed Smith
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Recent turmoil and violence at manufacturing parks throughout Vietnam over the last few weeks is impacting both local and global manufacturers and the complex supply chains currently utilised by MNCs could mean relatively small local losses might result in larger global losses.

Whether or not the relevant manufacturers and/or suppliers can recover these losses from their insurers will depend on the specific language in their insurance policies, and the application of the relevant governing law, be it the laws of Vietnam, Singapore, PRC or another country.

The following questions will need to be considered carefully to determine whether or not an insured can recover under its insurance policy in Vietnam, be it a Material Damage/Property Damage All Risk policy, Trade & Credit Risk policy or Political Risk policy:

Material Damage/Property Damage and Business Interruption insurance. An insured will need to carefully review its policy to determine:

  • Is there “physical damage” to the insured property?
  • What is the predominant peril that caused the damage to the property?
  • Is the peril that caused the damage excluded?
  • Does the policy contain an exclusion for damage caused by Strike, Riots and Civil Risks, as defined in the policy (SRCC)?
  • If a business interruption policy exists what supplier or customer extensions have been declared to insurers?
  • Are there issues of “wide area damage”, “loss of attraction” or “denial of access” which impact the loss?

Credit and/or Political Risk insurance. Hotels, manufacturers, contractors, investors and institutional lenders will need to review carefully their insurance programmes to identify whether they have adequate Credit and/or Political Risk insurance. If they have it, is it able to respond to asset damage or equipment and inventory loss in overseas territories including Vietnam and/or counter-party default or contract frustration caused by specified political and credit risks in that jurisdiction. Insurers will focus in particular on:

  • Pre-contractual disclosure
  • Post-contractual control of risk compliance by the insured

The governing law of the insurance policy. The most important fact to identify is the governing law of the relevant policy as this will determine what legal principles apply when considering coverage issues. Vietnamese insurance law is based on the civil code which does not address specifically the meaning of the perils identified in the standard SRCC exclusion clause. One therefore needs to consider:

  • If the predominant peril which caused the loss was caused by an Excluded Peril was the Excluded Peril brought to the attention of the insured at the time of placement, as required under Article 16 of the Vietnam Insurance Code
  • What is the scope of the application of the Special Conditions within the SRCC Exclusion, and in particular, is the imposition onto the insured of the burden of proving the non-existence of the SRCC peril(s), valid as a matter of Vietnamese law?
  • There is no clear provision under Vietnamese laws dealing with the meaning of “riot”, “rebellion”, “insurrection” or “civil commotion” in insurance policies so regard will have to be had to definitions in other laws. For example, the Criminal Code No.15/1999/QH10 defines “rebellion” as those who conduct armed activities or resort to organised violence with a view to opposing the people’s administration. Similarly, the Counter-terrorism Law No.28/2013/QH13 has an extensive definition of “terrorism“
  • If Vietnamese laws are silent on these points will a court or arbitration tribunal have regard to international insurance practices and common law cases, such as Lord Mustill’s decision in Spinney?
  • Is a relevant Exclusion Clause ambiguous? In which case it shall be interpreted in favour of the policyholder under Article 21 of the Vietnam Insurance Code

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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