As with any business in the hospitality industry, hotels and motels face many risks that can lead to financial hardship or bankruptcy for the company. For example, in 2011, Tara Kimkee Tan, a former hotel manager at the Standard Hotel in New York City suddenly went into labor during her shift. She gave birth in a guest room at the hotel, and then sued the hotel for $10 million, claiming she was rushed out carelessly by the hotel supervisors after delivery, wasn't offered maternity leave, and was fired four months later.
Even something like a unauthorized guest could be fodder for a lawsuit - as was the case when a Starwood Hotel gave an unknown man a key to Wall Street banker Alison Fournier's room, where he later climbed into bed with her. She turned around and sued the company for damages. It's important as a hotel owner to be prepared for these situations, as the hospitality industry faces high profile lawsuits each year. Be sure to protect your lodging business with a suitable hotel insurance policy.
The Hotel and Motel Industry in America: A Snapshot
- In 2011, lodging industry revenue increased to $137.5 billion, up from $127.7 billion the year before - the largest increase in a decade
- In 2012, there were 52,529 hotels and motels in the country
- These provided 4,900,642 guest rooms
- The average occupancy rate of these rooms was 61.4% nationwide
- American hotels reported $65.16 billion in revenue in 2012
- This average room rate in that year was $106.15
What Types of Insurance Do Hotel Owners Need?
As the owner of a hotel or motel, you will need to obtain the following types of insurance:
- Unemployment insurance: This coverage is required by law and is included as part of your state taxes. Once you establish and register your hotel or motel with your state’s workforce agency and begin paying taxes, your business will be covered.
- Disability insurance: This coverage is required by law only if your hotel is located in California, Hawaii, New Jersey, New York, Rhode Island or Puerto Rico. Otherwise, it is optional.
- Medical insurance: If your hotel or motel employs more than 50 people full-time, the Affordable Healthcare Act requires you to offer them employer-subsidized health insurance.
- Business insurance: This coverage is necessary to protect your business from extreme financial losses resulting from disasters, accidents and other expensive problems you may face in the course of running your hotel.
What Is Hotel Business Insurance?
Hotel-motel insurance is a very specific type of business insurance policy that has been tailored to meet to the unique coverage needs of hotel and motel owners. There are many different coverage options available, allowing you to build a policy that is sufficient to meet your unique requirements.
Hotel Business Insurance Provides Liability Coverage
There are many different liability risks faced by the owners and managers of hotels and other hospitality businesses. Having sufficient hotel liability insurance is vital to keeping your business financially healthy. Some of the many different types of liability coverage that are available with most hotel insurance policies are:
- General liability: This will protect your business from injuries or property damage sustained by guests while on your hotel’s property.
- Workers compensation: If an employee is injured on the job, your business is required to cover any ensuing medical expenses. Every state has its own workers compensation requirements. Your hotel business insurance can include this coverage to meet your state’s mandates.
- Commercial auto liability: Many hotels have limo or shuttle service available. If your hotel owns the vehicles to transport guests, you will want to be sure to have liability coverage that meets your state's minimum coverage requirements.
- Liquor liability: If your hotel includes a bar or offers alcoholic beverages with your room service orders, you will need liquor liability insurance. It protects you if a guest becomes intoxicated and causes property damage or bodily harm to himself or others.
- Food-borne illness liability: Many hotels include a restaurant and room service. If the food you serve is contaminated with E. coli or salmonella, or any other food-borne illness sickens your guests, this coverage will shield you from the ensuing liability costs.
- Premises pollution liability: If your hotel becomes contaminated by mold spores or other airborne pollutants that can sicken guests, you may face liability charges. This insurance will provide coverage for ensuing medical bills and punitive fees and will help cover clean up costs.
- Cyber liability: If your computer and data management system is breached, it can give cyber criminals access to your guests' personal information, including names, addresses and credit card numbers. If this happens, you will be responsible for providing all affected guests with credit protection services and could face harsh penalties. Cyber liability insurance provides protection from internet-related losses.
- Employment practices liability: This insurance protects you from losses associated with lawsuits brought against your business by disgruntled employees.
In each case, your hotel liability insurance coverage includes compensation for any associated court costs and legal fees.
Hotel Business Insurance Covers Your Property and Assets
Opening a hotel requires a substantial financial investment. You will want to be sure to have protection for financial losses associated with property loss and loss of income. Some coverage options that can afford you this protection include:
- General property coverage: Your hotel is filled furnishings, electronics, décor, carpeting and amenities. If property is lost or damaged due to theft, vandalism, fire, severe weather or other catastrophic event, this coverage will provide you with compensation for your losses. You will want to have sufficient coverage for the many things in your hotel.
- Equipment breakdown coverage: An equipment breakdown can have a serious effect on your bottom line. If you have an equipment failure in your kitchen, it can affect your restaurant and room service revenue. A failure of your computer system can cause lost reservations and angry customers. Equipment breakdown coverage will provide funds to repair faulty equipment and to make up for lost income that resulted from the failure.
- Business interruption coverage: If a covered event forces you to temporarily close your hotel for repairs, or impassable roads keep your guests away, you can rely on business interruption coverage to provide you with sufficient income to allow you pay your monthly expenses and employee salaries. This coverage is typically limited to one year.
- Crime coverage: You can protect your hotel from losses stemming from guest and employee theft. If an employee engages in illegal behavior while working at your hotel, this insurance can provide compensation for your losses.
- Food spoilage coverage: If a power failure or equipment breakdown causes food in your hotel’s restaurant to go bad, you could face a large financial loss. Food spoilage coverage will compensate you for lost or spoiled food.
- Utility interruption coverage: A utility outage can have serious consequences. If there is no running water, your hotel will need to close its restaurant and may need to move guests to a new location if the problem is not resolved quickly. Utility interruption coverage provides compensation for any losses accrued due to a sustained utility outage.
Other Coverage Options Are Available
Many hotel and motel insurance companies will offer several other coverage options from which you can choose. Some of the more popular include:
- Umbrella coverage: You may want to consider purchasing an umbrella insurance policy to meet any excess liability charges you may be faced with. This additional coverage can save your business from bankruptcy following a catastrophic event.
- Hotel guest relocation services: If a problem such as a fire or a utility outage forces you to relocate your guests, this insurance coverage will provide you with compensation for the costs associated with moving guests, as well as the losses incurred by your hotel as a result.
- Event cancellation insurance: Many hotels rely on the income generated by renting out halls and banquet rooms for events. If an event must be cancelled due to damage to your hotel, equipment failure or power outages, this insurance will cover the associated costs, including an lost revenue that would have been generated.
Do I Need Hotel Insurance for My Bed and Breakfast?
Bed and breakfast establishments and small country inns tend to have slightly different insurance coverage needs. These businesses take in far fewer customers each night and provide different amenities to them. For example, a bed and breakfast will typically not offer room service, swimming pools or fitness centers, but will offer home cooked-meals, lovely scenery and personalized service.
Many insurance companies offer special bed and breakfast insurance policies designed specifically for these smaller businesses, and they come at a lower rate than hotel insurance policies.