by David DeMoss
Hotels and resorts are often at risk for legal action on many fronts. A primary risk factor that places properties in a potentially litigious position is when daily operations turn into hazardous situations for guests or employees. Transferring risk to third parties, such as vendors that are contracted by your property, can help financially shield hoteliers from claims they may not be responsible for.
For example, your landscaper injures a guest and himself while driving his lawnmower, because he was texting while mowing. Your hotel will, of course, get served the lawsuit, because the guest has no idea he’s just a contracted vendor and not an employee. Unfortunately, it turns out that your landscaper does not have insurance. They let it lapse at renewal and because you didn’t ask for a certificate of insurance, naming you as Additional Insured, you were unaware. You send the claim to your carrier, but it turns out that your policy excludes mobile equipment, which is what the riding mower is considered. Now you’re on the hook for the lawsuit yourself. To make matters worse, the landscaper’s employee that was driving the lawnmower hurt himself and wants Workers Compensation. Since his employer never bought a policy, the injured landscaper’s employee’s claim will be going on YOUR Worker’s Compensation policy. Yes, that happens.
It’s a good idea to make sure your vendors and suppliers carry the following insurance coverages:
- General Liability – Covers most of their actions that could result in injury or property damage
- Auto Liability – In case they have an accident while driving on your property
- Worker’s Compensation – You don’t want their injured employees on your policy.
- Excess or Umbrella – Additional coverage for the GL, Auto and WC policy
Being named Additional Insured can be viewed as even more protection for your business, and it’s free! (Your vendor may incur a small charge) While you won’t be named as Additional Insured on the WC policy, you can be named on the other three types of policies.
Exposures vary from property to property, depending on size and amenities. It can be difficult to determine what limit of coverage to request from your vendors and suppliers. A reasonable minimum expectation would be:
- General Liability – $1 million
- Auto Liability – $1 million
- Worker’s Compensation – $1 million (all three limits)
- Excess or Umbrella – $1-5 million depending on exposure (This can be difficult for some vendors to obtain)
* Keep in mind, Excess and Umbrella policies often attach at $1 million. This means that they provide additional coverage, or attach, to the GL and Auto policies after $1 million. So, by requesting a minimum of $1 million from your vendors and suppliers, it will prevent any gaps in coverage between their primary coverage (GL, Auto and WC) and their excess, if they have any. It may also help with your excess in the event of a large claim that goes beyond your vendor’s limits.
Ideally, you will have a solid contract and proper insurance for all of your suppliers and vendors. But it’s not a perfect world, so here are couple things to keep in mind:
- What if your vendors or suppliers don’t have proper coverage?
If they won’t agree to your minimum requirements, consider finding a new vendor or supplier. The little you may be saving by using them won’t cover the claim they could cause you.
- What if your vendor or supplier won’t alter the contract clauses to better suit your liability concerns?
I don’t want to tell you how to negotiate, but don’t be afraid to walk away and find another option. You can talk with your insurance broker, carrier and your risk management team to make sure everyone understands the potential exposure and the options to avoid, prevent, mitigate and/or transfer it.
Most hotel operations have many vendors and suppliers, and keeping track of all those certificates and contracts can seem like a daunting task. Don’t let lack of time and organization be the cause of your downfall. There are software programs available that can handle most of the maintenance of these tasks quickly and easily.
Keep in mind that these are generally severity concerns, not frequency. You’re probably not going to have a vendor or supplier causing injury or property damage often, but when they do, it can be costly. While not all risks can be transferred, taking these precautions can help hoteliers be properly prepared and help to avoid liability from a lawsuit that could shut down a property. Don’t let an unreviewed contract or lack of proper insurance coverage from your vendors be the cause of financial hardship for your hotel. Concentrate on transferring the risk to its rightful owner!