Why hotels affected by the California wildfires need to take action

Recovering from the wildfires will be the largest project of its kind in California's history. (It's never too early to file an insurance claim in the wake of a disaster — but it is possible to be too late.)

Last month, wildfires streaked their way across California’s wine country, causing an estimated $3 billion in insured losses. That colossal number is expected to grow as more claims are reported by insurers, and hotels are urged to run, not walk, to do so.

Linda Kornfeld, partner at law firm Blank Rome and vice chair of the company’s insurance recovery practice group, said time is of the essence for hoteliers looking to have their insurance claims analyzed. Hotel operators, Kornfeld said, are often familiar with flood and hurricane insurance, but often lack experience when it comes to policies related to wildfires. She said hoteliers should come into these discussions expecting to debate the level to which their business has been disrupted, and have evidence as to why or how.

“Two weeks after the fires there were many properties still not filling rooms, and in many cases it was because people simply couldn’t get to these properties,” Kornfeld said. “Evacuations were taking place, roads were blocked due to fires, and in some cases there were undamaged hotels capable of receiving guests, but the guests were unable to reach the property, and that still counts as business being interrupted.”

Access to affected areas to properly begin recovery efforts is likely to be a concern because the damage from the wildfires was extensive. Santa Rosa, Calif., lost roughly 5 percent of its total housing supply due to the fire, and residents are currently unsure if they will be able to afford to remain in the region due to restrictive housing development regulations and high prices. On top of this, the fires claimed 728 commercial buildings, including businesses and multifamily buildings with four or more units.

Eventually, as access to these areas is restored and accessibility ceases to be an issue, Kornfeld said hotels should address how their policy protects them in the event of damage to surrounding areas, and their opportunities for reimbursement.

“Part of the advice we give to homeowners is to immediately reach out to their lenders and address the circumstances and the damage done to your property,” Kornfeld said. “Hotels should approach not only their lender, but their umbrella brands to see what sort of assistance they can get, and make sure those conversations are taking place.”

The region can't fully recover until the U.S. Environmental Protection Agency finishes sweeping the area for chemicals and materials left over from destroyed homes and businesses, which could pose a danger once the process begins.

Hazardous Wait

The region’s recovery isn’t expected to begin in earnest until next year; currently, federal workers are combing the fields of Sonoma and Napa for hazardous materials such as propane tanks, oil drums and toxic chemicals from homes and businesses. All homes, schools and buildings that were razed due to the fire must be surveyed before any debris can be removed in either of the cities, and special teams will have to remove toxic material once the sweep is completed. 

While the fires claimed 728 commercial properties, roughly 10,000 residential properties are being considered partial losses and a further 4,712 are considered total losses. This damage is expected to slow down the recovery for the areas that incurred the most damage, and getting back to business may be a little more complicated than completing a renovation.

This brings us back to timing, and Kornfeld said it is never too early for hotels to approach their lenders or file insurance claims. In fact, waiting can be detrimental to a hotel’s eventual recovery.

“There is a lot to do right now as far as assessing the type of losses and quantifying them, as well as working to get these businesses back up and running, but it’s important to read insurance policies early in the process and keep open communication with your insurance company,” Kornfeld said. “It’s all part of getting them to sign off on the various expenses that businesses will incur during recovery.”

If a hotelier wants to avoid making mistakes in the recovery process, Kornfeld said it is never a bad idea to read and reread a property’s insurance policy to better understand the vagaries in the coverage. From there, hoteliers can strategize with their lawyer or umbrella company to overcome claims that are not favorable.

“There are things that [operators] should and should not say in conversations with brokers and insurance companies that may impact your property’s recovery,” Kornfeld said. “The size of your claim dictates whether or not you should reach out to a lawyer or work with a broker, but err on the side of caution.”