December 12, 2013

Hotel and Lodging Industry Insurance Coverage Issues: Insurance Best Practices for Disasters

Hotel Hotel Insurance Coverage Issues Example Photo

Some of the most significant threats to the lodging industry are insurable.  These include: (1) catastrophic health issues caused by virus and bacteria outbreaks, such as Legionnaires Disease, SARS, Bird Flu, Swine Flu, Mad Cow Disease, and Anthrax, and (2) property and income loss caused by Hurricanes and Typhoons.  These are the topics we chose to discuss at the 2013 Georgetown Law Hotel and Lodging Legal Summit, a permanent legal conference addressing cutting edge topics impacting hotels and resorts.

Unfortunately, when faced with either of these two kinds of scenarios, following insurance industry custom and practice is seldom the best approach.  Each of these scenarios raises complex multi-faceted legal issues, ranging from legal privilege that is all too often jeopardized by the involvement of insurance broker claims advocates, to favorable coverage law that may be unknown to brokers and ignored by insurers.

The paper we presented at the summit, “Georgetown Hotel and Lodging Legal Summit 2013” addresses some of these legal issues, and offers practical advice for lawyers tasked with understanding insurance claims.  The linked course materials provide step-by-step insurance guidance for those faced with either of these two kinds of disasters.  The take away from this presentation is summarized below.

Scenario 1 – Virus or Bacteria Outbreak Resulting in Multiple Deaths.

  1. Communications with insurance brokers may not be legally privileged, and the use of insurance broker claims advocates magnifies the problem.
  2. Communications with insurers, and information provided to them, may not be privileged either.  Nonetheless, insurers often demand privileged information that could jeopardize the underlying claim, irrespective of the fact that case law generally does not require a policyholder to forfeit legal privilege by disclosing information to its insurer.
  3. Securing defense counsel of your choice is of paramount importance. Insurers routinely refuse to permit highly competent counsel to defend in favor of inexpensive slip-and-fall panel counsel.  Insurer selected counsel may be ill-prepared to deal with the complexities of defense, and case law often permits policyholders to select counsel of their choice.
  4. Coverage issues relating to virus and bacteria outbreaks have been litigated, and the resulting case law strongly favors policyholders.
  5. In particular, pollution exclusions and fungi/bacteria exclusions have been held not to apply in the context of Legionella bacteria.

Scenario II – Catastrophic Hurricane Damage.

  1. Property claims are some of the most complex and difficult claims a policyholder can face.  They are filled with potential landmines and insurance industry misinformation.
  2. Diminution in the value of property is typically covered, even if the property is not physically injured.
  3. Loss of income (Business Interruption) is generally covered, even if property is not physically damaged.
  4. Calculation of business interruption losses by insurance industry trained adjusters is often done improperly.
  5. Sublimits contained in overlapping coverage grants may be compromised by insurance company adjusters.
  6. Case law addressing Ingress/Egress, Civil Authority, and Code Upgrade coverage needs to be carefully evaluated before settling with an insurer.   These coverage grants, in particular, are often minimized by insurers.

During the course of discussion, though, audience questioning quickly turned to some of the most timely and controversial issues in insurance law today, including:

  • Insurance Broker Claims Advocates – When, if ever, can policyholders safely use insurance broker claims advocates?
  • Transferring Risks to Others Through Indemnities and Insurance – In this complex area, when should outside counsel be consulted?
  • Relationships with Insurance Carriers – Who values them most, insurance brokers or insurers?
  • Landmines with Property Insurance Claims – Why do insurance companies get away with coverage minimizing strategies, when case law and policy language mandates otherwise?
  • Second Look Pre-Binding Legal Reviews of Coverage – What can be done to improve coverage before a claim is made?

Miller Friel, PLLC is a specialized insurance coverage law firm whose sole purpose is to help corporate clients maximize their insurance coverage.  Our Focus of exclusively representing policyholders, combined with our extensive Experience in the area of insurance law, leads to greater efficiency, lower costs and better Results.  Further discussion and analysis of insurance coverage issues impacting policyholders can be found in our Miller Friel Insurance Coverage Blog and our 7 Tips for Maximizing Coverage series. For additional information about this post, please email or call Mark Miller (, 202-760-3161).

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