Author: Nancy Germond
Insurance Challenges for Motel and Hotel Owners and Their Agents
Insurance for motels and hotels has become more complex and costly, not just for the property coverage, but for liability coverage, as well. In fact, many times the underwriter’s first reaction is not “No,” it’s “Heck, no!”
With price increases, coverage limitations and an underwriter’s outright statement, “I won’t entertain this risk,” becoming the norm, what’s today’s insurance agent writing hotels and motels to do? This shift stems from rising safety concerns and major events, such as the mass casualty incident at a Las Vegas MGM Resort in 2017. Large claims have led reinsurers to boost prices, which increased costs for primary insurers. This ripple effect is resulting in higher premiums, stricter policy terms and reduced coverage for hospitality businesses.
Look no further than a recent significant $177 million verdict against Hyatt Corporation which allegedly hired a security guard who had prior sexual misconduct arrests. He used a master key to access a woman’s room to sexually assault her, and this verdict will no doubt have underwriters even more concerned with habitational risks. Hyatt appealed the verdict, which included $28 million in compensatory damages and $149 million in punitive damages. However, the appellate court upheld the verdict with words to this effect: “substantial evidence demonstrated the company's "…conscious disregard" for guest safety. The panel noted that Hyatt "hindered police investigations and failed to assist the victim effectively,” according to the linked Expert Institute article.
Risks Pushing Premiums Higher
Significant losses in the hospitality sector like the one described above arise from a variety of exposures, including cyberattacks, security shortfalls and catastrophic events like hurricanes and wildfires. A reduced appetite among insurers for habitational risks, such as hotels and motels, has tightened the market. Many insurers no longer offer policies for such risks, which created market scarcity, drove up deductibles and premiums and forced businesses to accept lower limits of liability coverage.
In fact, one South Carolina venue, The Blind Horse Saloon, closed its doors in May after almost 30 years in business citing high insurance costs. South Carolina has joint and several liability, which creates the ability for the plaintiff to collect the entire award against one of multiple defendants, which creates more underwriting concern.
Finding a sufficient liability tower, too, is challenging, with many carriers no longer willing to assume as much risk as they might have in years past.
Additionally, newer policies often include more exclusions or sublimits. Some policies set specific caps, such as $50,000, for certain types of claims, like abuse or molestation allegations. Coverage that previously offered full limits could now be restricted or limited, leaving legal fees and claim settlements inadequately covered. For instance, a policy might offer $5 million in overall liability coverage but include a sublimit for specific claims—leaving business owners with inadequate financial protection.
Additionally, placing these policies with reduced limits or coverage limitations can expose the agent and agency to more risks of an errors & omissions claim, because often insureds do not read their policies and may not understand that the new or renewal policy contains significant new restrictions or exclusions.
According to Daniel Fink, an agent and expert witness in Glendale, Arizona, “The hotel insurance market is in turmoil. I know some hotels have paid five times more premium this year than last year. I have also heard of hotel owners trying to sell their hotels because of skyrocketing insurance costs.
“Many insurance carriers left the hotel market, which has complicated the market. I can think of six that were writing hotels a year or two ago that are not writing them now.”
While experienced brokers understand exclusions, limitations and the current difficult market environment, they continue to struggle to negotiate better deals while also explaining to their insureds the potential impact of coverage restrictions.
Key Risks Facing Motel and Hotel Operators
Hospitality businesses face various risks that compound the challenge of securing adequate insurance. “There are many underwriting concerns with hotels, including wildfire risks and human trafficking, in addition to traditional hotel exposures,” Fink explains. “The proliferation of hotel claims caused carriers to rethink the market. More hotels are insured in surplus lines (E&S), which means restricted coverage and much higher premiums. Hotels that are especially hard hit are hotels close to water (rivers, lakes, etc.), older properties and those with outside room access.”
Below are some of the primary exposures affecting the sector today.
Employer/Employee Security and Premises Liability including Sexual Assault
Housekeeping staff often face safety risks while on the job, with assaults against them drawing widespread attention in recent years. Since 2020, cities like Seattle mandated panic buttons for hotel staff, while New York hotels have adopted similar requirements through union contracts.
Sublimits often apply to claims involving assault and battery (A&B). Ensure that if your insured contracts out security that they understand the importance of reviewing the coverages their vendors provide when furnishing their certificates of insurance. Many insurers now either exclude coverage for A&B or place sublimits on A&B coverage, among other coverage restrictions.
Business owners should consult with brokers to address such issues and consider measures like security audits to identify and minimize operational risks.
Employment Practices Liability
Employment-related claims are common, ranging from wage disputes and age discrimination to sexual harassment allegations. Employment practices liability insurance (EPLI) can protect against these exposures, including lawsuits around non-compliance with federal laws like the Americans with Disabilities Act (ADA). EPLI claims can escalate quickly in cost and reputational damage, underscoring the need for robust coverage.
There is no substitute for careful vetting of employees, especially those in sensitive positions with access to master keys, guest data, or guest rooms. In short, all employees who work in hotels should undergo background checks, including inquiries into criminal and employment records of former states where the employee may have lived.
Any hotel that has a bar or sells alcohol has a liquor liability exposure. You may hear it called dram shop insurance, which stems from dram shop laws governing the serving or selling of alcohol to those underage or intoxicated. Dram shop laws create a legal duty to ensure servers do not provide alcohol to those who show signs of intoxication, or to minors.
As of January 1, 2021, 45 states have dram shop laws,[i] legislation largely passed due to the many impaired driving accidents that can cause catastrophic injury or death. For a comparison of state liquor liability laws, visit this link. These laws place strict duties on establishments selling or serving liquor.
The insurance marketplace for liquor liability is very hard, as any producer who works in hospitality will report. “A liquor liability exclusion requires a stand-alone liquor liability policy if [the establishment] serves liquor or sells it in their gift shop,” according to Fink.
Human Trafficking Liability
The rise of human trafficking is a pressing concern in industries from long-haul trucking to the hospitality industry. Probably because of the Trafficking Victims Protection Act of 2000 (TVPA), many state governments have imposed training requirements so that employees and hotel managers are alert and act when they suspect trafficking activities. In one case tried recently, a jury found Days Inn Hotel in Philadelphia must pay eight underage victims $24 million for their failure to stop illegal activity for three years. This type of award would make any underwriter wary.
Many hotels work with outside vendors for services and supplies, increasing the need for proper risk transfer to avoid financial exposures. Hotel management must ensure vendors provide certificates of insurance and maintain adequate liability limits. Requiring additional insured status on vendors’ policies can help protect against claims that exceed a vendor’s own coverage. However, in today’s era of shrinking coverages, it is important that the organization’s risk manager requests complete copies of policies, including endorsements, to adequately review the vendors’ coverages. There is not much worse than presenting your vendor's certificate of insurance to an insurer only to be faced with the vendor carrier’s coverage declination or a failure to accept a tender to defend and indemnify.
Cybercriminals increasingly target the hospitality sector due to its vast customer data and online systems. Cyberattacks can range from online booking hacks to ransomware that cripples hotel operations. For example, ransomware can disable electronic key systems, effectively shutting down operations.
To combat these risks, hotel operators must strongly consider both first-party and third-party cyber insurance. First-party coverage addresses costs tied to recovering systems and lost income, while third-party coverage protects against guest data breaches and regulatory actions. Since cyber policies vary widely, working with a wholesale broker helps ensure you recommend coverage tailored to your client’s needs. In today’s world, the limited coverage provided under a businessowners policy will no doubt be insufficient for smaller hotels or motels.
Always recommend a standalone cyber policy and work with a wholesaler who understands the risks that habitational organizations face in managing their data. If your insured declines the coverage, ensure you document that declination with a coverage offer declination form such as those provided on the Big “I” E&O Guardian website or at a minimum confirming the rejection by email.
Premises Liability Claims
Premises liability claims, from slip-and-fall accidents to assaults in poorly lit areas, remain a frequent issue. Hotels catering to families or older guests may also face heightened safety responsibilities. Staying proactive by documenting regular safety inspections, maintaining proper lighting, keeping floors clean and as slip proof as possible and upholding health protocols can reduce risks. Additionally, robust cleaning and sanitation practices are vital in bolstering defenses against bedbugs, food poisoning and other health-related claims.
Active assailant incidents can occur at any location, so we recommend you offer a quote for active assailant coverage to your hospitality clients.
Preparing for Tough Insurance Renewals
Given the current hard insurance market, you should prepare your motel and hotel operators for challenges during policy renewal periods or when writing new hospitality business. Starting the search early and consulting with experienced wholesale brokers can help identify and mitigate gaps in coverage while securing competitive terms.
Fink has some advice for agents who are writing hotels or considering soliciting them. “The many hotels that now have E&S coverage will find additional exclusions, limitations and sub-limits, such as assault and battery, animal liability (many guests travel with their dogs or other pets) and /or a liquor liability exclusion.
“Other excess/surplus lines exclusions hotels face are total pollution, punitive damages, human trafficking, bed bug restrictions and special events limitations. Hotel owners also face great scrutiny of their inspection processes and often carriers will not provide medical payments coverage.
“Agents writing hotels must do their due diligence with a thorough market search, remembering they may have to use E&S markets. Ethics require an agent to warn the insured if there are unusual exclusions that the insured would not find in a standard policy,” Fink advises.
If you operate a hospitality business and are concerned about your insurance needs, work with a knowledgeable wholesale broker for guidance. The right assistance can help you face these challenges with confidence.
However, your insurance proposal must showcase your clients in their best light. For an in-depth article on making your underwriting proposal stand out, visit this link.
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