Whether you own a small family-run motel or a chain of high-end resorts, you are always at risk of extreme losses due to disasters. In addition to suffering more than its fair share of hurricanes and hail storms, Texas properties are naturally more prone to flooding, potentially doubling the impact of an adverse weather event. Attorney Bill Voss explores the unique challenges hotel and motel owners face when filing flood insurance claims.
Cause of Flooding May Affect Insurance Payouts for Motels or Hotel Claims
Most private insurers to not provide coverage for flood damage caused by natural disasters. Businesses usually must buy coverage for weather-related flooding through the National Flood Insurance Program (NFIP), which provides up to $500,000 in property damage and an additional $500,000 for lost inventory to commercial properties.
No matter whether flooding is caused by adverse weather or burst pipes, hoteliers may suffer significant losses due to:
- Partial closures. In many cases, flooding in one area of the hotel may cause the temporary closure of the entire property for health and safety reasons. This costs precious even loss at a time when the owner most needs the income to make repairs, leaving rooms that are operational unable to be rented.
- Emergency repairs. Owners are encouraged to drain and sanitize their properties as soon as flood waters recede to prevent damage from getting worse. Before this can be done, owners should fully document the extent of the damage with pictures and video, including any landscaping problems (such as debris and lost signage). After all debris has been removed and professional drying and sanitation services have been performed, owners must only make temporary repairs to make the area safe for the insurance adjuster’s inspection. If you begin full repairs before you have been given a quote for your claim, your expenditures may overtake your claim value.
- Upgrade costs. If your hotel is more than ten years old, you may have to rebuild the damaged structure to be compliant with updated building and health code requirements. If you did not purchase law and ordinance coverage, you will likely be forced to pay for these upgrades out of pocket.
- Payroll coverage. You may want to retain certain key employees (such as concierges, an accountant, or managers) who may be tempted to seek employment elsewhere while you are closed for repairs. Payroll coverage is a valuable insurance add-on that allows you to provide regular checks to the workers you do not want to let go.
- Lost rooms revenue. Insurance companies may want to haggle over the amount paid out for lost occupancy. Many owners may think that they will be paid for the number of rooms that are unable to be rented due to direct damage or forced closure. However, the insurer may look at past occupancy rates and devalue the claim based on the average number of rooms rented in the damaged area during that time of year.
- Conference and event losses. Many hotels make a considerable amount from event hosting and catering services. Direct damage or mandatory closure may force hotels to turn down bookings for wedding receptions, conferences, golf tournaments, spa getaways, and other special events that may make up a large portion of their yearly revenue. Again, an insurer may only provide payment to refund reservations that have already been booked, and may not pay for events where no reservation has been made (even if the hotel is known to host certain events every year).
- Business interruption. Business interruption insurance is vital to overcoming a major loss at a hotel property. However, the terms of this insurance endorsement can vary greatly from insurer to insurer. Some will cover all losses in the period from the covered event to the reopening of the property—and many even allow for out-of-pocket expenses incurred during the restoration period. Others may allow the hotel to extend the loss period due to a drop in market share, while others have hard limits on the window of coverage. A delay in reopening can cost thousands of dollars if the policy does not allow for any extensions on the period of loss.
If you have suffered major losses due to flood damage, we can examine your policies to determine how much you may be owed from each one to get you maximum payment from your coverage. Fill out the form on this page today to contact the Voss Law Firm, or order a free copy of our book, Top 10 Mistakes You Cannot Afford to Make When Filing Your Insurance Claim.