Hospitality is a “people” industry, in which both losses and gains are predominantly driven by individuals.
The high rate of employee turn-over in the industry escalates this challenge. Good behavior drives successes, and negligent/poor behavior exhibited by staff or third-party vendors can lead to serious claims against a venue.
Most hotels and restaurants have necessary critical liability coverages, including cyber, business interruption (BI), employment practices liability (EPL) and property indemnity, and yet simply having the policy isn’t enough. More often than not, hospitality liability limits are calculated incorrectly, and common exclusions are misunderstood.
Consider the following often overlooked limits and exclusions to common hospitality coverages:
Manage certificates of insurance
While general liability and property policies will cover first party exposures, i.e. actions of your employees on your property, third party exposures are common in hospitality venues and require a separate policy or coverage extension.
Consider the following scenarios: A hotel’s pool contractor uses the wrong chemicals and a guest gets hurt. A third-party window washer drops a bucket that leads to a fatal injury. A contracted gardener hits someone with their mower. An independent esthetician or masseuse botches a facial that leads to an injury.
A general liability (GL) policy will not cover these infractions. GL is a third-party coverage, meaning it covers claims brought by third parties against you for your negligence for that of your employees. Getting named additionally insured by a vendor working on your behalf allows you to tender claims on that policy instead of your own.
A property policy is first party, including coverage for a fire that burned down a hotel, for example. This becomes complicated when the property damaged belongs to others but was in the hotel’s care, custody and control. This is a hotel exposure, and may be a property or crime exposure.
Seeking evidence of coverage from venders working at your hotel and being added as an “additional insured” is free insurance and keeps your own policy from being primary if the negligent acts of your vendor or their “work” or “products” cause guest injury. This verification is difficult to mandate, and is time-consuming, but being vigilant can save significant time and money long-term.
Safeguard global consumer and financial data
Hospitality businesses are often underinsured in their cyber coverage. Hotels collect and store a tremendous amount of personal data – of both their patrons (think: frequent guest programs) and staff. With greater risk comes additional coverage needs.
This issue is exacerbated by the fact that hotel chains are often owned and managed by third-party franchisees. While corporate servers may be covered by the parent company policy, local franchise servers likely are not. Additionally, in-hotel restaurants may be owned independently, but share patron data with the hotel, making their exposure unique as well.
Because hotels and restaurants collect and store data from residents across the globe, when there is a data breach, they are liable for notification in every state jurisdiction and country in which a breach victim resides. This can include up to 51 state jurisdictions (including the District of Columbia), and international (including the EU’s GDPR !). In addition to proper notification, a data breach also requires crisis management, an IT forensics investigation, a privacy attorney, regulatory defense and more. Consider all cyber exposures prior to setting cyber insurance limits.
Maintain assurances for your employees and your contractors’ employees
EPLI is most commonly associated with lawsuits brought by an employee on the employer, but EPLI can also carry an endorsement for third party claims, which are common occurrences in the hospitality industry: A server says something offensive to a patron about the color of their skin or sexual orientation, or a hotel lacks ADA accommodations for a hotel guest. Hospitality businesses should consider third party EPLI for those claims brought not only by their own employees but by their patrons as well for discriminatory actions.
Business Interruption coverage
When it comes to Business Interruption coverage, hospitality venues are often grossly under - or over - insured. This is because many don’t accurately calculate BI coverage for their risk.
BI coverage insures a business’ profits and continuing expenses when the business interruption is due to a covered peril, including a fire, water damage or power outage.
Banks will often ask for gross receipts to determine desired BI coverage limits. However, BI coverage insures profits and continuing expenses, never gross revenues. On the other hand, extra expenses like having to book patrons at a nearby hotel if there’s a utility outage may be overlooked and not included in BI coverage calculation. Make sure your BI policy right-sized for your venue’s risk.
Protect Assets with Risk Management First
Insurance is one means of protecting your asset(s). In each of the above cases, proper loss control, staff training, adhering to safety protocols and managing the venue’s certificate of insurance program will all make a difference before coverage is even invoked.
Contact your HUB Hospitality Risk Specialist to find out if your hospitality coverages have the right limits, reflective of your unique risks.