I. Current situation regarding breaches of terms in insurance contracts

In the context of natural disasters, epidemics, particularly the Covid-19 pandemic and the recent Yagi storm, insurance has played an important role in minimizing losses for citizens and stabilizing the socio-economic environment. However, Vietnam’s insurance sector remains relatively young and has not developed proportionately to the overall economy and society. Public understanding of insurance contracts remains limited, and many enterprises take advantage of this by including vague or ambiguous terms. Although the legal framework governing insurance activities has undergone necessary amendments and supplements, certain provisions remain inadequate and continue to affect the parties involved in insurance transactions.

II. Legal provisions relating to breaches of terms in insurance contracts

1. What constitutes a breach of terms in an insurance contract?

According to Clause 16, Article 4 of the 2022 Law on Insurance Business, an insurance contract is defined as an agreement between the policyholder and the insurance enterprise, the branch of a foreign non-life insurance enterprise, or a mutual organization providing microinsurance (collectively referred to as the insurer), under which the policyholder must pay insurance premiums, and the insurer must indemnify or pay insurance proceeds as agreed in the contract.

A breach of terms in an insurance contract refers to a party’s failure to perform, or improper or incomplete performance of, the terms and conditions agreed upon in the insurance contract.

2. Common Types of Breaches of Terms in Insurance Contracts

In practice, numerous disputes arise from breaches of terms in insurance contracts. Identifying specific breaches plays a crucial role in protecting the parties’ legitimate rights and resolving disputes effectively. Common breaches include:

  • The policyholder’s failure or delay in paying insurance premiums within the agreed period or grace period;
  • The policyholder’s intentional delay in notifying the insurer of the occurrence of an insured event, hindering the insurer’s ability to verify the event;
  • The insurer’s unjustified refusal to pay insurance proceeds when an insured event occurs;
  • The insurer’s deliberate concealment of ambiguous contractual terms to the detriment of the policyholder.

3. Determining Liability for Damages Arising from a Breach of Contractual Terms

Article 303 of the 2005 Commercial Law sets out the basis for determining liability for damages when a party breaches contractual terms, which applies correspondingly to insurance contracts. The following elements must be established:

  • A contractual breach has occurred;
  • Actual damages have arisen;
  • The breach is the direct cause of the damages.

Establishing these elements is critical for claiming compensation and effectively resolving disputes that may arise.

4. Legal Consequences of Breaching Insurance Contract Terms

Depending on the nature and seriousness of the breach, various legal consequences may follow, including:

  • Unilateral termination of the insurance contract pursuant to Article 26 of the 2022 Law on Insurance Business;
  • Cancellation of the insurance contract under Clauses 2 and 3, Article 22 of the 2022 Law on Insurance Business;
  • Invalidity of the insurance contract pursuant to Article 25 of the 2022 Law on Insurance Business;
  • Liability for damages under Clauses 2 and 3, Article 22 of the 2022 Law on Insurance Business;
  • Administrative fines ranging from VND 60,000,000 to VND 100,000,000 for failing to provide complete documentation to policyholders during contract conclusion or for failing to clearly and fully explain insurance benefits, exclusions, and rights and obligations, pursuant to Clause 2, Article 16 of Decree No. 174/2024/NĐ-CP on violations relating to the provision of insurance products;
  • Criminal prosecution for acts such as colluding with beneficiaries to claim insurance, falsifying documents, intentionally misrepresenting information to enable unjustified denial or payment of claims, or intentionally causing damage to property or health to claim insurance benefits, pursuant to Article 213 of the 2015 Penal Code (as amended in 2017) on insurance business fraud.

Breaching contractual terms in insurance contracts not only affects the legitimate rights and interests of the parties but may also give rise to serious legal consequences.

III. Questions Regarding Breaches of Terms in Insurance Contracts

1. Is the Policyholder Entitled to a Refund of Insurance Premiums in Case of Breach?

The policyholder may receive a refund if there is a clear legal basis and the insurer has breached contractual terms. Conversely, if the policyholder breaches the contract, such as by failing to pay premiums or committing fraud to obtain insurance benefits, they will not be entitled to a refund and may even be subject to compensation or penalties.

Therefore, policyholders should provide truthful information, carefully review contractual terms, and comply fully with contractual obligations to protect their rights and interests.

2. Do Breaches of Contractual Terms Render the Contract Void?

Not all breaches lead to the invalidity of the insurance contract. Whether a contract becomes void depends on the severity of the breached provision and the relevant legal regulations.

Article 25 of the 2022 Law on Insurance Business sets out the circumstances under which an insurance contract is deemed void, including:

  • The policyholder has no insurable interest at the time of contract conclusion;
  • The insured object does not exist at the time of contract conclusion;
  • The policyholder is aware of the occurrence of the insured event at the time of contract conclusion;
  • The contract’s purpose or content violates prohibitions or social morality;
  • The contract is a sham transaction;
  • The policyholder lacks civil legal capacity or capacity to act in accordance with the contract;
  • The contract was concluded under a fundamental mistake that prevents the achievement of its purpose and cannot be immediately remedied;
  • The contract was concluded under fraud, threat, or coercion;
  • The contract fails to comply with the required form.

Additionally, under Article 117 of the 2015 Civil Code, if a breach causes the contract to fail to meet the conditions for validity, the contract shall be deemed void.

However, in practice, only a limited number of breaches lead to contract invalidity. Most breaches result in civil consequences such as liability for damages or unilateral termination.

3. Which Authorities Have Jurisdiction to Resolve Disputes Arising from Breaches?

When disputes arise due to a party’s breach of contractual terms, the parties may first seek to resolve the matter through negotiation. Under Article 32 of the 2022 Law on Insurance Business, if negotiation fails, disputes may be resolved through:

  • Mediation;
  • Arbitration;
  • Court proceedings.

Accordingly, parties should clearly stipulate dispute resolution mechanisms in their contracts to protect their rights effectively.

4. Can an Insurance Contract Be Terminated Due to Breach?

Whether an insurance contract may be terminated depends on the seriousness of the breach, the applicable legal provisions, and the contractual terms. Under Article 422 of the 2015 Civil Code, termination of the insurance contract may occur in the following cases:

  • Mutual agreement between the parties;
  • Cancellation pursuant to Clauses 2 and 3, Article 22 of the 2022 Law on Insurance Business;
  • Unilateral termination pursuant to Article 26 of the 2022 Law on Insurance Business;
  • Other cases provided by law.

If the breach is not serious, does not defeat the purpose of the contract, and is remedied to the satisfaction of the non-breaching party, the contract will not be terminated.

5. Can Breaches of Contractual Terms Lead to Criminal Liability?

Typically, breaches of insurance contracts give rise to civil liability. However, if the breach involves fraudulent conduct as prescribed in Clause 4, Article 9 of the 2022 Law on Insurance Business, criminal liability may be imposed under Article 213 of the 2015 Penal Code (as amended in 2017) on insurance business fraud.

Therefore, parties should strictly comply with contractual terms and avoid fraudulent acts, as the consequences may include not only civil liability but also monetary penalties, non-custodial reform, or imprisonment.

IV. Legal Consultancy Services Relating to Breaches of Terms in Insurance Contracts

To safeguard your legal rights and minimize risks in disputes relating to breaches of insurance contract terms, you may seek legal services from Ngoc Phu Law Firm, a reputable law firm with extensive experience in insurance matters. Our team of seasoned legal experts and lawyers can provide consultation, dispute resolution support, and representation in litigation when necessary.