The impact of the coronavirus pandemic has been felt by every industry across the board, with some industries being hit harder than others. One of the most impacted was hospitality—which has been hit particularly hard. With nearly all of America in some form of quarantine or lockdown for months on end, only essential businesses have been allowed to remain open. Additionally, most methods of transportation have been halted or reduced to avoid the spread of the virus. That, combined with many peoples’ fear of contracting it, has resulted in an extreme reduction of travel.
Hotels, in particular, have felt the brunt of this, with occupancy rates dropping at a record rate in April. Today, despite the nation’s slow reopening, occupancy rates remain immensely low, with no clear indicators of recovery. This has caused many hotels—both chains and boutiques—to close their doors for the time being, or even permanently.
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As expected, the extreme reduction in travel and lodging has resulted in hotel owners losing a large sum of capital. The next logical step in this situation has been to file a claim with their insurance company. While some policies outline an exclusion specific to a virus, many do not. During an occurrence as rare as a pandemic, it is encouraged to file a claim with your insurance company, no matter the exclusions that may be outlined in your business’ policy.
Unfortunately, it is likely that all business interruption claims filed against insurance companies will be denied. By denying liability and delaying the processing of claims, insurance companies are able to profit. To further complicate this process, courts across the country have not yet been able to take on these cases due to closures, leaving the battle between business owners and insurance companies in limbo.
Whether big or small, hotels that have been affected by COVID-19 are urged to take the following actions:
File a Claim No Matter What
Many business owners are being advised by their insurance broker not to file a business interruption claim. Some have been advised that if they file a claim, they may be dropped by the insurance carrier in the future. Others have been told that if they file a claim, their premiums will increase upon renewal—even if they don’t get paid on that claim.
It’s important to keep in mind that insurance companies and their agents don't work for you, they work for your adversary. The only chance a business has to receive any sort of compensation for the loss of capital while closed is to file a claim. There are many examples of insurance companies initially denying claims and then paying them in full after a lawsuit is resolved.
Since this is a rare, worldwide occurrence, there is a greater chance that insurance companies will end up having to pay out for claims—no matter the exclusions.
Keep Track of Your Financial Losses
Speak to your accountant about preparing a statement that outlines the losses your business has suffered while it has been closed. This information is important to have available in the event that your claim gets escalated to court and proof of interruption loss is required.
Don’t Give Up
Don’t take no for an answer—the government may step in and force insurance companies to pay out these business interruption claims. Remain hopeful that the federal and state governments will be reasonable and fair to the hotel industry.
While there is a possibility that compensation could take years, the resulting decision could have a significant effect on individual businesses and the broader hospitality industry.
As industries emerge and begin to recover from this unforeseen event, it’s important for all business owners and leaders to thoroughly examine their current policy and bring any questions to their insurance broker. The virus exclusion that was outlined in policies prior to the pandemic was buried in the middle of documents, and many owners were unaware of it. This is an opportunity for businesses to reassess their business plan and put appropriate measures in place to ensure that they are covered for whatever the future brings next.
Petro Zinkovetsky is the founder of New York City-based Zinkovetsky Law Firm.