Fires - whose insurance will pay?

As you are likely well aware, Hong Kong is not a cheap city when it comes to buying apartments. Not to mention the fact that many apartments are little bigger than shoe boxes. Because of the high cost, many families are forced to rent their apartment. For example, according to the latest figures from the Hong Kong Housing Authority, nearly 30% of all residents in Hong Kong live in Public Rental Housing. Close to 54% of people live in privately owned apartments, many of whom also likely rent.

Because there are so many people renting flats in the city and there is always the risk of a fire, two popular types of homeowner insurance have sprung up that will cover domiciles in the case of a fire.

As you can probably guess, landlord insurance is an insurance product that has been developed to offer coverage for the owners of a house/apartment that they rent out. In many ways, this type of insurance is similar to homeowners insurance, but it often offers other coverage elements including:

• Loss of rent - In some cases you can apply for coverage of loss of rental income. For example, if the domicile is made uninhabitable due to an emergency, or the tenant fails to pay rent and you have already pursued legal action.

• Coverage of existing content - If you are renting your property with existing furniture and fixtures, this type of insurance can cover accidental damage that results in either repair costs or a loss.

• Coverage of household improvements - Meant to cover the cost of improvements or repairs made to physical assets like walls, windows, ceiling, floors, and doors.  

• Owner's liability coverage - Covers claims against you that are the result of damage or injury caused to a third-party. For example, a tenant tries to sue you due to an accident that happened on your property.

• Building insurance - This covers, as the name suggests, damage to the building and physical parts of the property like walls, floors, ceilings, windows, etc.

Generally speaking, landlord insurance will offer most of the coverage elements above with others being optional. For example, we know of a few plans available for landlords in Hong Kong that cover the first three points above but make building insurance optional.    

Renter insurance, also commonly referred to as tenant insurance, on the other hand, is designed to help protect the renter. Like landlord insurance, this type of home-related insurance will cover a variety of elements such as:

• Your belongings - Should your contents in the apartment e.g., electronics, fixtures, furniture, etc. be damaged or lost, this type of policy will cover their replacement.

• Rental of another property - This type of coverage has been designed to help cover the rental of another property or hotel should the home you are renting be damaged to a point where it is not liveable. This will cover the cost while repairs are being made.

• Security deposit protection - Rental deposits in Hong Kong are nothing short of an investment. If your landlord goes bankrupt or is unable to pay back your deposit, you will be covered, and likely be able to recover your loss.

• Landlord fixtures and contents - Covers any loss or damage to the fixtures and furniture owned by the landlord that you are legally liable for.  

• Personal liability - Should there be an accident in your home that you are subsequently sued for due to negligence or accident, this will cover the costs.

As with other forms of insurance, plans in Hong Kong will offer different levels of coverage and limits. For example, some plans will attach a limit of say HKD 5,000,000 to your belongings or personal liability coverage.

Looking at the two major types of insurance that will cover fire damage in apartments, it becomes clear to see that both types of insurance offer fire protection. The question, therefore, is how will insurers handle claims? And, what will happen if a fire spreads from one apartment to another?

First off, it is important to look at whether renters insurance will cover fire damage. As long as your insurance policy has liability coverage that does not explicitly exclude fire damage in the terms and conditions, then your contents will be covered.

Landlord insurance that covers the building and property will also cover any fire related damage as long as the plan does not exclude it in their terms and conditions. The area where claims can become a bit messy, however, is when the fire spreads from one apartment you own to one you don't own.

In most cases, the landlord plan will indeed cover fire damage up to a certain amount; so will the other landlord. What will happen is the two insurers will apply for what is called subrogation. Subrogation is a process where insurers will work together to split the costs of a claim in a fair manner. If a tenant has renter's insurance that also covers the landlord's fixtures and furniture, this insurer will also be part of the process.

It should be pointed out here that the above situations and coverage will only be applicable if the fire or damage is deemed to be accidental. Insurers will usually send out claims adjusters to view the damage and talk with the Fire Department to try to determine the cause of the blaze. If it is found to be deliberately set by the policyholder, insurers will likely deny any and all coverage.

If you are looking to learn more about your fire insurance options, visit Kwiksure today.