Skyscraper fires like the blaze that struck the 63-storey luxury hotel in Dubai on New Year’s Eve, swiftly turning it into a towering inferno, are not rare. The New Year’s Eve tower fire in Dubai has raised new issues about the safety of exterior sidings put on high-rise buildings. Jon Gambrell / AP Photo
Skyscraper fires like the blaze that struck the 63-storey luxury hotel in Dubai on New Year’s Eve, swiftly turning it into a towering inferno, are not rare. The New Year’s Eve tower fire in Dubai has Show more

Owners of Dubai high-rises urged to check insurance after The Address Downtown fire



DUBAI // Owners of high-rise homes in Dubai have been urged to examine their building insurance policies before an expected barrage of litigation over the New Year’s Eve fire at The Address Downtown.

As a result of the fire, authorities ordered checks on every building, amid suggestions that the aluminium composite panels that clad hundreds of towers are a fire risk.

Even minor remedial fire-prevention work on aluminium-clad buildings would be expensive: the cost of replacing the cladding could be ruinous.

Lawyers now predict a scramble among building owners, developers, construction contractors, designers and material manufacturers to avoid liability, with insurers eventually footing the bill.

“All interim owners’ associations need to dust off their insurance coverage and have a good look at it,” said Michael Lunjevich, a partner at the law firm Hadef & Partners.

“Owners may not be aware of the insurance put in place for their building. There could be gaps that might allow insurers to dodge liability. Is this caused by faulty design, faulty materials, faulty installation or a structural defect? Each possibility has a different treatment under insurance, and should be investigated.

“If this issue is as big as people suspect, then everyone needs to pull out their contracts, whether that be the sale and purchase agreement, the construction contract or insurance contracts, and take legal advice.”

Read part one of Sean Cronin's fire investigation here

The legal fallout from the Address fire also illustrated the need for more clarity over the liability of building owners, and lawyers said more legislation may be required to settle the issue.

A law for jointly-owned properties in Dubai was enacted in 2007, creating freehold property rights for expatriates and requiring owners’ associations to manage the maintenance and operation of their buildings.

However, the associations have not yet been fully recognised as legal entities. They remain “interim” bodies, which limits their ability to start legal proceedings or take collective action.

“Both Rera and Land Department need to act to bring the Jointly-Owned Property Law into full effect,” said Mr Lunjevich.

“Also, Dubai Municipality and civil defence need to act on projects under construction to ensure that if there is an issue this is not repeated.”

Insurers are also considering the implications of the Address fire for underwriting risk for high-rise buildings.

Global insurance groups have taken a keen interest in building facade blazes after high-profile fires in Europe, the US and Asia in recent years. Groups such as Liberty Mutual, FM Global and Tokio Marine have funded research into facade fires.

Read part two of Sean Cronin's fire investigation here

Unlike many other cities, where panel-clad buildings may constitute only a small part of the building stock, most of Dubai’s high-rise skyline was constructed in the decade before the 2008-2009 financial crisis, using this type of facade. Many of these buildings have aluminium cladding with flammable material in its core.

Beyond the claims generated by the Address fire, insurers and reinsurers will now also be analysing the costs associated with the fire tests that will be conducted on buildings across the city, any remedial work that may be required as a result, and the retention of lawyers to advise owners’ associations.

“We have received some claims notifications and are analysing the situation,” said a spokesman for Zurich Insurance Group. “It’s way too early to make any statements on the role of the cladding in this incident.”

In the meantime, lawyers expected the fire to result in litigation. “Insurers will probably bear the brunt if the insurance coverage is in place. A unit owner may sue a developer, who in turn sues the construction contractor, who sues the designer, who sues the material manufacturer and they all call on their insurers to pay up if they are found liable,” said Mr Lunjevich.

“Developers, consultants, contractors, manufacturers and insurers will all play a part in this. This is not a standard building fire – here we are talking about a fire that has highlighted problems with materials, and lots of it is possibly still in the market.”

scronin@thenational.ae

Follow The National's Business section on Twitter

Test

Director: S Sashikanth

Cast: Nayanthara, Siddharth, Meera Jasmine, R Madhavan

Star rating: 2/5

'Worse than a prison sentence'

Marie Byrne, a counsellor who volunteers at the UAE government's mental health crisis helpline, said the ordeal the crew had been through would take time to overcome.

“It was worse than a prison sentence, where at least someone can deal with a set amount of time incarcerated," she said.

“They were living in perpetual mystery as to how their futures would pan out, and what that would be.

“Because of coronavirus, the world is very different now to the one they left, that will also have an impact.

“It will not fully register until they are on dry land. Some have not seen their young children grow up while others will have to rebuild relationships.

“It will be a challenge mentally, and to find other work to support their families as they have been out of circulation for so long. Hopefully they will get the care they need when they get home.”

UAE currency: the story behind the money in your pockets

Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.

Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.

Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.

Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.

“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.

Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.

From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.

Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.

BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.

Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.

Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.

“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.

Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.

“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.

“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”

The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”

MATCH INFO

Fulham 0

Aston Villa 3 (Grealish 4', Hourihane 15', Mings 48')

Man of the match: Jack Grealish (Aston Villa)