A year later, reconstruction of gutted high-rises hanging fire

Insurance policy hurdles delay a final agreement on reconstruction and reimbursement

More than a year has passed, and the burnt down Al Baker Tower still stands aimlessly between the other high-rises of Sharjah’s Al Taawun area.

Former residents of the tower have moved on; and with them seem to have gone any hopes of bringing back the bustling life that was once its hallmark.

The tower was ablaze on January 18, 2012. Although investigations have since concluded, it is unclear if and when the building will be reconstructed.

The reason: the building’s management, insurance company and other parties involved have not yet reached a settlement.

The same is the case with Saif Belhasa Building in Tecom. Having caught fire on October 6, 2012, the tower became uninhabitable for its residents, and since nothing has been decided on the reconstruction process.

What these two buildings have in common is that new building regulations came into place after a fire heavily damaged the structures. In case of damage, these regulations need to be adhered to in the reconstruction phase. This requirement has implications for the insurance coverage of the damaged buildings.

At the time of this writing, the respective municipalities had not yet responded to queries on the matter.

AXA Insurance (Gulf) is the insurance company of both Al Baker Tower and Saif Belhasa Building. Dean Prendergast, Head of Commercial Offering, Operations & Claims at AXA Insurance (Gulf) explains: “It is an industry standard that insurance companies protect the customer from additional costs that are incurred as a result of a change in regulations. It is common that insurance policies include a clause which states that any difference in price resulting from a change in regulations will be covered. If cladding, which is often the case, needs to be replaced because it was not fire-retardant, the clause states that the insurance company will pay for the difference in costs between the old and the new cladding material.

“However, the challenge lies herein that this coverage only applies to the damaged part of the buildings, while building owners are required to replace the [cladding of the] entire building according to the new regulations. Building owners find themselves between a rock and a hard place.”
According to Prendergast, this is partly why a conclusion has not been reached until now over the reimbursement of the insurance coverage of Al Baker Tower and Saif El Belhasa building.

“The negotiations have taken unusually long. As both of the claims for the Saif Belhasa Building and the Al Baker Tower are still under settlement negotiations, I cannot comment in detail, but I can confirm that AXA is in ongoing discussions with the building owners as well as other specialists such as loss adjusters, structural engineers and building contractors in order to agree the most appropriate methodology for reinstating the damaged buildings in the most economically prudent manner, taking into account the changes to the building regulations and the terms and conditions of the insurance policies that were in place over the buildings.”

Prendergast adds that AXA Insurance (Gulf) estimates that there are over 500 high-rise buildings that would be affected by the regulation change if damage were to occur, due to the recent changes in the building regulations.

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