A public adjuster recently asked me about a hotel that was under a specific brand and the contract to maintain the brand required the rooms and furniture to match. Following a loss, the insurance company has refused to pay for the portions of the physically undamaged property and the policyholder paid millions to match the old undamaged property with the new replacement property. Should an insurance company pay to match hotel property following a loss—especially if the policyholder has legal obligations to match all property which sometimes cannot be done because of age and obsolescence?
My first response after hearing that the insurer was an international commercial insurance company with thousands of hotel clients was to suggest a post and a website, warning hotel managers and risk managers that have insurance with this carrier that they have "cheap" insurance and will deal with a stingy claims department. Most brand hotels must match property following a casualty loss and the insurance industry knows this. Some insurers just refuse to pay for it despite proclaiming in public advertisements they understand the insurance needs of hotels.
Adjusters International published an excellent article, Pair, Set and Match: Replacement of Undamaged Hotel Furnishings to Ensure a Uniform Look, written by a colleague, Michael Raibman, who analyzed this problem:
Hotels…ensure that all of the rooms in a given hotel are furnished the same way (excepting suites or other “specialty” rooms). Moreover, hotels have responded to customer demands for better furnishings not by changing the “case goods” in random rooms, but instead by announcing with great fanfare that they will change over all of their rooms to include stylish new furniture, at panel TVs, and improved bedding. See, for example, “Marriott Unveils Hot New Room Design @ the mSpot,” an article describing Marriott’s launch of its new room décor by building a sample room in New York’s Times Square.
In all instances, the brand approves a hotel’s furnishings, whether or not it requires identical furniture in all of its hotels. And no quality brand will approve mismatched furniture. So it should come as no surprise that when a hotel is damaged by a hurricane or other major disaster, the hotel seeks to ensure the furnishings in the repaired hotel match throughout the hotel. Nor should it be any surprise that hotel owners purchase insurance that covers the cost of doing so.
Insurance companies, however, suggest that hotel owners seek a “windfall” when they claim the replacement cost of matching hotel furnishings. This article explains why the insurers are wrong and proposes policy language designed to minimize disputes regarding this issue.
I agree with Raibman’s conclusion: :
If damage covered by a form property damage insurance policy includes damage to hotel furniture, the policy provides for the replacement of all damaged and undamaged furniture to ensure uniformity in the hotel’s décor. Insurers, however, refuse to recognize this coverage, even though to leave a hotel with mismatched furniture is to leave the hotel in a condition inferior to that which it was in before the hotel was damaged—a result antithetical to the purpose of insurance. Policyholders thus should not accept their insurers’ position, but should instead stand ground for their matched furnishings. To do otherwise is to risk either unhappy guests or the expense of being forced to refurnish a hotel out-of-pocket. In addition, policyholders should bear in mind that they can avoid such costs in the future by seeking coverage that expressly underlines their right to matching furniture.
I strongly suggest those in the hotel business to only insure with carriers that recognize the value of brand image and have claims departments that will look to fully indemnify commercial clients. Those wanting to know the name of the insurer should show up at the First Party Claims Conference West this Thursday in Marina Del Rey where I will speak about this topic and what public adjusters can do to ethically handle property insurance claims.
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