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Hong Kong Hotel Blaze Could Lead to City’s Largest-Ever Insurance Payout

March 6, 2023 Events & Announcements

Hong Kong is poised for what could be the city’s largest-ever property-related insurance payout in a single case, after a four-alarm fire engulfed the Empire Group’s under-construction Kimpton Hotel in Tsim Sha Tsui on Thursday.

The claim could run from HK$200 million (US$25 million) to as much as HK$500 million because the 42-storey hotel was 90 per cent built, which entitles it to a high level of compensation, said Chan Kin-por, who represents the insurance industry in Hong Kong’s legislature.

The payout will be among the highest in Hong Kong history – if not the highest – because it will be paid under a category of insurance called “contractors’ all risks” insurance, he said.

“Usually, contractor-risk coverage only pays out at about HK$20 million or so,” said Chan, who worked for Hang Seng Bank’s insurance unit and Munich Re before entering public service. “The compensation amount will be high because the building is almost completed, as the amount will pay to rebuild the completed part. The later the damage occurs during the construction period, the higher the sum that will need to be paid.”

China Ping An (Hong Kong), a unit of the mainland’s largest life and property insurer, may be the insurer of the Kimpton, according to insurers contacted by the Post. The company declined to confirm or deny it is the provider. Empire Group did not respond to a request for comment.

The site is a redevelopment of the former Mariners’ Club into a 42-storey, 500-room hotel, which had been expected to open in 2024.

Chan said the compensation amount could reach between HK$400 million and HK$500 million if the building will need to be demolished and rebuilt. Even if only repairs are needed, the claim may reach up to HK$200 million, he said.

Developers who have bought all-risks contractor insurance can seek claims from the insurer in case of any damage to the materials of the under-construction building due to fire, typhoon or other reasons, according to Selina Lau Pui-ling, CEO of the Hong Kong Federation of Insurers, the industry guild representing 138 insurance companies in Hong Kong.

The insurance also covers third-party claims during the construction period until the project’s completion, including the loss or damage of nearby buildings due to fire. Burning debris and embers from the fire on Thursday night at one point threatened nearby buildings including the five-star Sheraton Hotel and Hermes House.
The insurer will determine the compensation according to a report from the Fire Services Department, Lau said.

While Chan and other sources believe the fire may result in the highest ever payout in Hong Kong, no data on past payouts was immediately available. The record holder for total insurance payout under multiple claims is 2018’s Typhoon Mangkhut, which resulted in HK$3.1 billion in overall claims, according to data from the HKFI.

Hong Kong authorities are checking the structural safety of the under-construction skyscraper and whether scaffolding is at risk of collapse after the blaze, which started at around 11pm on Thursday night and was finally put out nine hours later on Friday morning. The blaze was upgraded to a No 4 alarm fire on the one-to-five scale of seriousness at 1.46am on Friday.

When completed, the 340,000 sq ft Kimpton Hotel building will also house the historic Mariners’ Club, which was founded by the late Walter Kwok Ping-sheung, former chairman and chief executive of Sun Hung Kai Properties.

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