A business takes a lot of work to keep running smoothly. Coordinating the various management, vendor and other teams involved in operating and maintaining any hospitality operation can be a complicated and ever-changing effort to mitigate risk. While you are undoubtedly doing everything you can to protect your business, the unique aspects of indemnity and insurance necessitate in many cases the involvement of a risk mitigation team capable of preparing and implementing a risk transfer program to protect your business when losses arise, as they inevitably do.
A hotel or other hospitality operation can be vulnerable to any type of lawsuit from patrons of the business, its employees and even perhaps unexpected claimants, like the government or one of its agencies. A robust insurance program designed to cover the risks most likely associated with your business’s operations requires a careful and thoughtful assessment by the owners, managers, brokers, and coverage counsel. While every program is different, just as surely as every operation has, to at least some extent, some potentially unique risk exposures, there are some common types of insurance coverage any hotel owner, manager or operator, or any other hospitality operation, should carry (These are in addition to workers’ compensation and employers’ liability coverage, which are in most states statutorily required (with respect to the former) and almost always advisable (with respect to the latter).).
Commercial General Liability (CGL)
With so much foot traffic coming in and out of, as well as through, a hotel, restaurant or similar type of operation, bodily injury claims are by far the most common type of claim. They are also, as a rule, the easiest to insure and the appropriate vehicle for doing so is most likely the commercial general liability policy. As any owner, manager or operator knows, even the most seemingly innocuous slip-and-falls can be the source of untold thousands of dollars to respond to and, if not defeated, then informally resolved. The premium for most CGL policies usually pale in comparison to such risks and make this vehicle one of the most basic ways of mitigating risk.
Building and Business Property
Fire damage, water damage, and natural disasters can all cause widespread ruin to the property inside a hotel or restaurant. Property coverage is, like CGL coverage, a very common tool for protecting insureds against loss or damage to their own property. This includes physical damage to the property, but it can also include other types of losses, such as the loss of use of the property (or a portion of it) if rooms (as an example) are taken off-line during repairs.
They can also include items like extra and expediting expense, which generally covers the added expenses of trying to get the businesses back to full operation during the repair process, as well as the effort to expedite completion of those repairs. It can also afford coverage for other kinds of soft costs, like delay damages, loss of business income and other forms of temporal damages. Especially in the case of more catastrophic losses, such coverages can be an invaluable source of risk mitigation for any hospitality operation, especially in an era of increasingly thin margins.
Umbrella and Excess Liability
Excess policies typically afford limits above and beyond those afforded by the scheduled primary policies. Such policies are a cheap way to increase the amount of coverage available in the event of catastrophic losses.
Umbrella policies, on the other hand, in addition to affording excess coverage, can also afford primary coverage for those losses covered by the umbrella policy, but not the scheduled underlying policies. Thus, umbrella policies can be a way of filling in gaps in coverage at the primary level, in addition to providing additional limits for more significant losses.
Pollution Liability Coverage
Many hotels (and other hospitality operations) are in or adjacent to sensitive environmental areas, such as rivers, lakes, natural areas, and the like. While most such operations likely do not view themselves as having significant pollution exposure, the reality is that any kind of operation could have pollution-type impacts, especially when the property or operation is near sensitive environments.
As one example, a client hired a contractor to expand and improve an existing parking lot, which happened to be located next to a river. The contractor allegedly caused construction debris to be pushed into the protected areas around the river and allegedly caused run-off into the river that damaged the water quality. The responsible government agencies aggressively pursued the hotel and its operator for these damages.
While there were both contractual and additional insured risk transfer mechanisms in place, which should have shifted the loss to the contractor, those were not worded broadly enough to encompass the alleged pollution event, leaving the hotel and its manager looking to its own insurers to fund the very substantial clean-up expenses. Pollution liability coverage can provide protection for the costs to respond to such pollution claims. It can also afford insurance protection for damage to the insured’s own property. Such policies can also afford protection for mold damage, which damage is often excluded by CGL and property policies.
Professional Liability Coverage
Any entity that assumes management or operational responsibilities makes a myriad of decisions in how any given location is run. The exact scope of these responsibilities can and do vary tremendously from location to location. However, whatever the scope might be, decisions that lead to injury or damage to third parties might (perhaps unexpectedly) be treated as a professional act and thus, not covered by standard CGL policies.
As just one example, California courts sometimes view professional services potentially excluded from CGL coverage as encompassing any “mental” activity versus some physical act or effort. As one might imagine, what activities might be more “mental” than “physical” can vary significantly. Accordingly, especially for those performing management-type services, a properly structured professional liability insurance program can be key in filling in unexpected gaps in an insured’s insurance program. Another advantage of professional liability policies is that they typically cover a broader range of damages than a standard CGL program.
Required Coverage From Vendors
Anyone that comes onto your property for any reason has the potential to cause loss or liability. In the case of vendors and contractors, an appropriate set of indemnity and insurance requirements can help you protect your own insurance program (and your own assets) from being exposed to losses and liabilities caused by the acts or omissions of others.
It is vital to design a program consistent with the permissible scope of risk transfer permitted by the state in which the operations are being conducted, as well as the right professionals to enforce those contractual and additional insured rights against the responsible vendors/contractors and their insurers when losses do arise.
Protect Yourself and Your Future
A robust, well-designed insurance program can provide not just peace of mind, but significant ways of protecting any insured from significant losses that could otherwise impact any company’s bottom line, if not its outright financial existence. The above are just some examples of the kinds of insurance policies that any hotel, manager, or operator (as well as any other hospitality operation) would want to consider carrying. Depending upon the nature of the insured and its operations, there are many other insurance vehicles to consider.
The key to a successful insurance program is the team that works to design and implement the program, as well as to enforce these protections when losses or liabilities arise. The team at MLG is here to help your team help mitigate risk and avoid losses from impacting your operation’s bottom line, contact us today, to get started.