I represented a Houston based hotel management company last spring regarding Hurricane Ike insurance claim disputes with eleven hotels they owned or managed in Texas. Some cases simply go right, and this one settled after two months. My client’s owners went out of their way to call to my attention that managers in the hospitality and real estate management business needed to be taught about the insurance claim game. The next thing I knew, they were putting a phone to my ear and I was talking to Stephen Barth of HospitalityLawyer.com.
Barth is a dynamo and runs the Hospitality Law Conference. He convinced me that I needed to participate, become somewhat of a legal sponsor and speak at the 2010 Conference in Houston. It is a wonderful conference. I highly recommend that general counsel, risk managers, loss prevention managers, franchisees, developers and outside counsel of hotels, resorts, condo hotels, timeshare rentals, restaurants, bars and other businesses that provide a place to eat or stay attend this very specialized legal conference.
Many plan details of their travel agenda and logistics far in advance. Not me. I was surprised when I found out yesterday afternoon that this conference was at the Omni Hotel next to our firm’s Houston office. The professional and friendly Omni Hotel staff has come to know me over the past year, and they were laughing that I was speaking at “their” type of conference.
The insurance considerations that pertain to the hospitality services industry are extraordinarily unique and complicated. The risks and operations of these businesses require study by professionals to appreciate how the insurance should be placed and property insurance claims handled. I can appreciate that many of the lawyers attending this conference devote their entire practice to the myriad of significant legal issues facing the operators and owners of these businesses. I can also appreciate the need for insurance agents and brokers who specialize in only this industry. Without such specialization, insurance brokers and agents would be much more likely to sell insurance coverage with gaps, leaving hospitality policyholders uninsured or underinsured.
My presentation was the “Insurance Litigation Survey.” I presented trends and lessons from recent hospitality property insurance cases. My co-panelist, David Shaneyfelt, taught about third party liability coverage. Just as last week at the Windstorm Conference, we presented practical points from cases rather than explaining legal reasoning. While I could cite from the eight case examples, this post will be a lot more important to most if I provide an outline of the points:
I. Insurance Disputes can be voided if Proper Coverage is Purchased.
A. Get an insurance agent or broker who thoroughly understands the hospitality industry. Most owners are not aware of all the risks facing them and needed coverages to properly insure their business. Most have little knowledge of or appreciation for the impact of exclusions and limitations contained in policies.
B. Develop and demand that the agent thoroughly review your particular business and push your agent to do so with letters and agreements setting forth exactly the type of relationship and service expected, the broadness of coverage desired, and the thoroughness of value investigation needed to be fully and safely insured.
C. Most property underinsured and uninsured situations occur because of:
1. Improper values for replacement/reconstruction.
2. Wrong ownership/title/ipterest on the Policy
3. Not covering all the property—some do not appreciate that many coverage forms exclude certain types of property or limit recovery. Endorsements or separate stand alone policies are often needed to have all the insurable property actually insured.
4. Inclusive coverage of all perils. For example, flood and earthquake are often not covered under a standard form, but may be insured through a difference in conditions policy. Economic loss arising from criminal or fraudulent conduct may have to be insured under various Crime Forms.
II. Trends of Concern Where Coverage and Claims are at Issue:
A. Occupancy and Vacancy clauses must be met or losses otherwise covered may be excluded. See my post FC&S Warns Agents and Policyholders to Watch the Vacancy Exclusionary Clause.
B. Post loss duties have time limits with harsh penalties in some states if not timely met.
1. Provide timely notification of a loss.
2. Proofs of loss time frames should be met or extended in writing.
3. Hire experts to segregate covered amounts from uncovered perils.
4. With any significant loss, consider whether the causation sequence could lead to a possible excluded loss. Hire coverage counsel if the insurer starts investigating anything other than value. Concurrent causation clause interpretations in some states provide insurers an incentive to retain engineers and experts to opine a cause or result of the loss is excluded.
III. Insurers are Starting to Place “Dispute” Clauses into Contracts. Check for:
A. Choice of law agreements.
B. Choice of forum for litigation.
C. Arbitration agreements.
Many of these are invalid under state insurance codes. However, many state insurance code protections do not apply to surplus lines policies. These types of provisions are becoming very common in excess or layered policy formats. Demand that these not exist and list that request to the agent or broker. The law where the property exists is usually the best because that is typically how the property is being underwritten and expected to be adjusted when calculating premium.
IV. Claims Practice Lawsuits are increasingly brought by Commercial Policyholders Following Delay and Partial Denial
A. Insurers increasingly are taking more time and denying parts of claims—even to the largest of clients. My post Large Complex Losses Invariably Suggest that the Policyholder Hire Licensed Professionals shows that even the business insurance media have surveyed support for this claims trend.
B. Document every person, activity, verbal promise, and statement made by the insurance company representative and consultants.
C. Obtain independent valuations promptly.
D. Obtain lines of credit to repair and operate because insurers may be slow to pay partial losses or will hold those to leverage or bargain for agreements lowering benefits otherwise owed.
E. Claims practice actions (wrongly dubbed “bad faith” lawsuits long ago) can often be brought to provide compensation for the various wrongful conduct by claims departments that refuse to do their job in good faith. Extracontractual losses and expenses are often incurred by businesses when the insurance company adjustment performance is delayed and otherwise wrongful.
The only economic incentive most insurers have today to provide a sufficient number of trained and motivated adjusters that will promptly investigate the loss and evaluate the damage so that the policyholder will be promptly paid the full amount of the benefits the insurance product was designed to provide is to have such “bad faith” claims brought and hold insurance companies accountable when they fail to properly perform.
Do not support Chamber of Commerce efforts to repeal laws that provide for such lawsuits because they hurt businesses and support notions that people should not be responsible for the harm they cause when they break rules they promise to perform. What kind of society would we have if rules could be broken and nobody accepted personal responsibility? Insurance industry interests in the Chamber of Commerce are behind some of these recent lobbying efforts, but such efforts are bad for corporate and business policyholders.
The last point I made was highlighted by reported hospitality case decisions. It was supported by the panel presentation that followed me. Further, I had a friend and very able colleague in the audience, Gary Thompson, who represented a large hotel chain at trial last year. The hotel chain won a $24 million verdict after litigating a partially denied claim. This major hotel chain actually did the reconstruction at its own expense and the insurer still would not honor its obligation. There are not many businesses that can go out and finance $24 million worth of construction in today’s business climate. Imagine how much leverage an insurer has to force a wrongfully compromised settlement upon a business when that business was only requesting the benefit it purchased: full and prompt payment for a covered loss. Knowing of that matter, I used his real life situation to demonstrate what is going on in the field during many claims adjustments.
I will write a separate post about the following panel lead by the excellent Arthur J. Gallagher hospitality insurance broker, Wes Brandt. If any insurance adjuster thinks that my rhetoric is pointed about the current condition of commercial claims practices, they should have been in the audience when Brandt and his panel delved into this topic.