Hotel and motel insurance: Owners should make sure policies will cover losses

Emmet Pierce

Writing hotel insurance policies that provide enough coverage for everything that can go wrong is a challenge, even for experienced professionals.

Because there may be numerous amenities — such as swimming pools, fitness centers, health spas and restaurants - hotels often are several businesses in one. That's why it's important to work with an agent or broker who understands property and liability exposure, says John O'Connor, a vice president at Travelers.

"Hotels are very, very complicated risks to write," O'Connor says.

Robert A. Rauch, president of R. A. Rauch & Associates Inc., manages six hotels in Colorado and California. He says the best thing you can do to make sure you're properly insured is to work with an experienced professional.

"I think the trick is to have a really good broker," he says. "I am not interested in insurance companies) unless I can develop a relationship. It is way too important."

It's also wise to check the financial health of insurance companies to make sure they'll be able to pay if you make a large claim, says Chris White, a commercial insurance agent with Bell-Anderson Insurance in Seattle. Several companies, such as A.M. Best, Moody's and Standard & Poor's, rate insurers.

Experience counts

Be sure to ask how much experience your carrier has in the hospitality industry, White says.

"Have they been writing hotel insurance for a long time?" he asks. "Do they have local claims adjusters or do they have to fly someone out from Chicago? That all is part of the equation."
You'll need to make sure your policy pays enough to get your business up and running after an accident or natural disaster, says Joel Brand, principal at Edgewood Partners Insurance Center, a brokerage in San Francisco. Some owners don't understand that a hotel's market value may not reflect the actual cost of repairing or rebuilding. Construction costs depend, in part, on the local price of labor and materials. A good broker will make sure these costs are aligned with your policy.

What coverage do you need?

Brand says there isn't a good rule of thumb for how much of your hotel's annual gross income should be spent on insurance needs. Each business has different risks that must be addressed. While controlling costs is important, it's usually a mistake to cut corners too closely.

"The old adage ‘You get what you pay for' is true," Brand says.

Brand says the following basic coverage is important for hotels and motels:

  • General liability insurance protects you against lawsuits and claims for financial losses or injuries. An umbrella policy provides added protection if your standard liability policy doesn't cover the loss.
  • Property insurance protects your structures and their contents, along with the costs of repairs or rebuilding. The policy should include loss-of-income coverage, in case you're forced to temporarily shut down or scale back operations. Typically, such compensation expires within two years.
  • Innkeeper liability insurance covers personal property losses suffered by guests.
  • Employment practices liability insurance pays claims resulting from hiring practices, dismissals, alleged harassment or alleged discrimination.
  • Employee dishonesty insurance pays for losses due to theft by workers.
  • Food spoilage or contamination insurance will be necessary if your hotel offers food service.
  • Business auto insurance protects you if you use vehicles, such as guest shuttle vans.
  • Workers' compensation insurance protects you when an employee is hurt on the job. States typically require that businesses have some type of workers' compensation coverage. Check with your state insurance department for more information.

Keeping workers happy

One of the most effective ways to hold down insurance costs has nothing to do with the coverage you choose, Brand says. It's about the way you treat your employees. A happy workforce often leads to lower premiums, since loyal workers are likely to report risks before accidents happen.

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