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3 Dangerous Hotel/Motel Coverage Issues—and How to Address Them

How can you make sure you effectively serve your hotel/motel accounts as they develop new ways to compete? Pay attention to three key coverage issues: pollution exclusions, lender requirements and statements of value.
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As hotels and motels attempt to keep up with the sharing economy through various innovations, independent agents need to respond accordingly.

How can you make sure you effectively serve your hotel/motel accounts as they develop new ways to compete?

Black and White

For starters, pay particular attention to three key coverage issues:

1) POLLUTION EXCLUSIONS. Ranging from a total pollution exclusion under a general liability policy to an exclusion in the standard ISO CG 0001 for hostile fires, pollution exclusions can have a huge impact on hotel/motel owners who don’t know they lack coverage.

Where are these commercial insureds exposed? “They may have above-ground or below-ground tanks, they certainly have water supplies, they have swimming pools, they have spas, they have chemicals that are applied to landscaping,” says Steve Coombs, president of Risk Resources, a risk management and insurance consulting firm.

For the typical consumer, unless it’s an underground tank with a toxic plume underneath, “they don’t think of those things as potential sources of pollution,” Coombs says. “A lot of agents don’t even understand how this all works.”

Consider a 2006 incident in which a 26-year-old guest at a hotel in Key West died as a result of carbon monoxide poisoning from an alleged faulty boiler venting. “The average person wouldn’t think a pollution exclusion would apply to that,” Coombs says—but it did.

Coombs also points out one client’s claim involving an elderly person contracting Legionnaires disease at an outdoor spa. “The insurance company—a very well-known name—tried to impose the pollution liability exclusion,” he notes. “And it isn’t just the pollution liability exclusion, because oftentimes the insurance companies will impose additional exclusions relating to mold or any kind of contaminants. At the end of the day, you may have nothing when it comes to pollution.”

Urge your hotel/motel clients to consider a standalone environmental policy—not only for their own protection, but for your agency’s as well. “Many brokers have been sued over this, with clients saying, ‘You should have warned me, you should have counseled me, I told you I wanted comprehensive coverage and you didn’t do it,’” Coombs explains. “Even if the insured brings a claim against the agent and the agent wins, it still keeps them up at night. It consumes their life for a year, and it’s expensive.”

2) LENDER REQUIREMENTS. Coombs says lender requirements have become increasingly tough over the last 10 years. “Particularly if there are any locations that are subject to flood, lenders are becoming more and more stringent in terms of what they require when they loan you money on a property,” he explains. “Sometimes it isn’t what’s even appropriate for the hotel from a risk management standpoint—you’re buying things just to satisfy the lenders.”

3) STATEMENTS OF VALUE. Consider an insured with 10 hotel locations worth $5 million each. “Historically, if I’m a counselor to the insured, I would say, ‘Let’s get a policy that has a blanket limit for $50 million for buildings, contents, business interruption and extra expense,” Coombs says. “Now I don’t have to worry if a single building is destroyed and the actual claim amounts to $5.5 million—I still have the coverage, because I have this blanket limit.”

But now, more underwriters are imposing limitations on recovery to whatever the insured includes on their statements of value. “If my statements of value are perfect, I’ve got nothing to worry about,” Coombs says. “But there’s no such thing as perfect, especially if you have a widespread calamity.”

For example, consider a hotel owner with properties located along the Mississippi River. After massive flooding, a contractor shortage makes repair costs skyrocket from $1 million to $2.5 million. “Particularly in these situations, you could be impacted by these limitations,” Coombs points out. “They are becoming much more common—perhaps even prevalent—in property insurance policies, and a lot of times the hotel owners don’t even know they’re in the policies until there’s a loss.”

Other Best Practices

Those are only three of many reasons why it’s important to do your homework in this niche.

As in most complex commercial insurance transactions, “the agent/broker must know who the best providers are and build strong relationships with the providers that best match up with their needs,” says Dusty Rowland, chairman and executive vice president of sales and marketing at Distinguished Specialty. “Agents and brokers should keep a list of the best providers, what segments they work in, minimum premiums and whether they have annual volume commitments of any kind.”

In order to effectively serve the hotel/motel market, Rowland offers these tips:

  • Join local hotel associations, such as the American Hotel & Lodging Association, and purchase lists of hotel companies from them.
  • Subscribe to Hotel Business and other trade magazines.
  • Sign up for relevant digital newsletters.
  • Ask around and search online for best insurance providers for the segments you want to pursue.
  • Build a relationship with the providers you think can help.
  • Build a marketing plan around your target list of prospects. Learn to be an expert in the space and center your marketing on education rather than self-promotion or price.

“Agents and brokers with an interest in this class should know there is great potential for book growth—and fun,” Rowland says. “Who doesn’t like visiting a nice hotel or experiencing all the great amenities of a luxury resort? The big opportunity for agents and brokers lies in differentiation through knowledge of the class. The best buyers in this class want their insurance providers to understand their business—and they have been known to be loyal to these types of agents and brokers as a result of the high degree of trust built through knowledge.”

Jacquelyn Connelly is IA senior editor.

Tuesday, June 2, 2020