No hoteliers in Texas are praying for rain. After Hurricane Harvey dumped nearly 50 inches of water across the state’s eastern coast, many of them are scrambling to get their businesses up and running again, while others are reeling from total property loss. A week later, Hurricane Irma left hoteliers in Florida and the Caribbean in a similar state. Their biggest fear is that while raging waters left hotels without the ability to book new guests, properties heavily damaged from the storm still have to pay rent — and in many cases, franchise fees.
Doug Jones, managing partner at JAG Insurance Group in Coral Gables, Fla., said storms can be good for hotels because travelers flock to them for shelter, but they also run the risk of being damaged and shut down in the wake of natural disasters. The biggest challenge for hotels in Miami, according to Jones, is that by the time Hurricane Irma reached land it was downgraded to a Category 1 storm in many places. Because of this, winds from the storm were strong enough to damage many properties but in many cases the damage wasn’t extensive enough to reach the lofty deductibles covering hotels, which are much higher than the average deductibles for homeowners.
“It’s leading to a large out-of-pocket cost for hotels,” Jones said. “For example, some insurance plans require a 72-hour loss of power to reach a deductible, but I’m not sure how many hotels were down for 72 hours. That’s a big loss of income for hotels during that period.”
Jones said part of the problem is that consumers in general, not just hotels, simply don’t understand the policies they have. Furthermore, many hotel operators don’t realize that there are clauses built into policies that require them to “mitigate further damage” in the event of a natural disaster. For example, if a hotel lobby is flooded it is up to the hotel to ensure the property’s carpet doesn’t generate mold and mildew after humidity returns. If operators fail to mitigate further damage in this way, they could run into difficulty when an insurance adjuster finally arrives to survey the damage.
“You can’t wait for an adjuster to come out and give you the green light to fix things,” Jones said. “If your carpet is wet, work with a water restoration company to get that cleared up. Fix broken windows and clear up any water as soon as possible.”
Rahul Patel, managing partner at law firm Patel Gaines in San Antonio, agreed that mitigating damage is crucial for successfully filing insurance claims following the hurricanes. This is particularly true, he said, for the many hotels that relaxed their pet policies. Patel said operators’ No. 1 concern right now is to prevent further damage and to protect their assets, and then to investigate the types of assistance available during the recovery process. Organizations such as the Federal Emergency Management Agency and other state and federal government assistance programs exist to be of use during times like these, and Patel said to look into those first before relying on insurance companies.
In early September the U.S. House of Representatives approved a $15 billion relief bill for those affected by Hurricane Harvey, according to the BBC, and Patel said whether or not the hospitality industry sees any of that money will come down to how well the hospitality industry can articulate its needs and amplify its voice.
“We need folks in Washington to know that our industry housed people, allowed them in at maximum capacity during this period,” Patel said. “We were the first line of defense during this storm, but it will take a collective effort… to ensure a portion of those funds are allocated to lodging, or it will be earmarked to those with louder voices. Homeowners, public schools, roads, apartments… all of it was under water and is now asking for relief.”
Some of Patel’s concern stems from his claim that many hotel operators will still be on the hook for franchise and association fees as well as mortgage payments. This is true even if an asset has been completely destroyed by a storm, making it fully the operator’s liability. At publication time, a Hilton spokesperson said the company is now preparing for the incoming Hurricane Maria, which has reached Category 5 status, and isn't prepared to comment on the state of franchise fees. No other hotel companies have responded to requests for comment.
“I have seen some brands make financial contributions to recovery efforts, but I have yet to see a brand step up and make a statement on franchise fees in the wake of this,” Patel said. “I’m seeing the opposite, in fact. I see [brands] making investments in their public image, but they aren’t coming to the aid of franchisees.”
Jones urged operators to look to industry associations and speak with those affected by the storm when purchasing plans for the future because they are in the best position to inform others about insurance liability. Jones also said hotel operators need to think about other operational concerns following a disaster, such as where they will do their laundry if local laundry companies are damaged or without power, or how to help staff get to the hotel if they lack personal transportation.
“It’s time for people to stop thinking these things can’t happen to them,” Jones said. “Three days before Irma hit south Florida, we had people calling us asking if they were covered. That’s a very broad question that is impossible to answer in that short period of time. Insurance is so broad and exclusions are very specific. Was your power shut off from damage on property or from something off site, for example? All of that matters.”
Meanwhile, Patel wanted to tell operators whose insurance claims are denied that litigation is an option. Interested parties should begin gathering all relevant documentation regarding their hotel's insurance policies, loans and any costs incurred due to damage. However, Patel said that due to the extent of the damage wrought by the hurricanes, there is an unprecedented number of attorneys and insurance adjusters soliciting anyone and everyone they can find, so he urged hoteliers to show a level of discernment when considering their legal partners.
“Some of those who will reach out to hoteliers aren’t always licensed contractors, or may not know the process to success in litigation with a hotel client,” Patel said. “It’s different than with regular real estate.”
Jones agreed with Patel’s call for caution. “From a legal perspective, you can always find a lawyer who will say yes to every case,” he said. “I’ve been telling people not to be too quick to hire an attorney. Wait until your insurance company does their job first, because if you show up with an attorney right out of the gate that sends a message to them that you are looking to fight, and you don’t want to do battle with those deep pockets until you know for sure you are out of options.”
Lastly, Patel said that hoteliers should look to industry associations for guidance should they need it. “I’ve never seen the leaders of the [American Hotel & Lodging Association] or [Asian American Hotel Owners Association] turn anyone away from seeking advice just because they weren’t a member,” he said. “This is an absolutely difficult time these communities are facing. It will be a difficult and lengthy process for everyone. Seek out the right people, the right time, and find a way to get your property in working condition.”