Business Interruption Insurance for Hotels: What You Need to Know
Hotels depend on occupants. However, when a natural disaster or other major event occurs that stops the flow of people coming to a hotel, occupancy rates can decrease. This can include an event that directly impacts a hotel or one that stems the flow of people coming to the hotel. Hotels in most of the United States have seen a complete shutdown due to the COVID-19 pandemic. When events like this happen, business interruption insurance may be the only way that a hotel is able to continue operation. At Bentley & More LLP, our California business interruption insurance lawyers want to discuss how this insurance coverage works for hotels.
How business interruption insurance works for hotels
Hotels could be directly impacted by a serious disaster such as an earthquake, fire, flood, machinery breakdown, and more. This will obviously lead to the need to shut down while repairs are made. However, because hotels depend on occupants from all over the state and country to be profitable, events that do not directly impact a hotel’s infrastructure can still cause an interruption in business.
What type of coverage is available?
For hotels needing business interruption insurance, we need to look at lost rooms revenue. There are two major factors that need to be considered – the occupancy percentage and the average daily rate (ADR).
- What would the ADR and occupancy of the hotel have been during the period of indemnity had there been no loss?
- Are the ADR and occupancy projections supported by occupancy trends in the area?
- Can the hotel document canceled reservations and other events on the books, such as conferences, events in the hotel, etc.?
Business interruption insurance can help ensure that the hotel maintains the revenue it is losing because of the significant loss. This insurance can be used to compensate workers who would otherwise have to be let go, to train employees on new equipment, to pay for a relocation to temporary office locations, and more.
How long will this coverage last?
Business interruption insurance is not permanent, and will typically only last until the property is returned to the condition that existed prior to the loss, typically called the period of indemnity.
However, a full return to operation may not be immediately after a resumption of operations, as many losses persist after repairs are complete as the property works to gain new bookings and rebuilt their reputation and market share. Additional coverage through an “extended period of indemnity” may be available for hotels.
Our business interruption insurance attorneys are ready to help
If you operate a hotel that has been negatively impacted by a major interruption in normal business operations, you may need to use your business interruption insurance. At Bentley & More LLP, our Orange County personal injury lawyers are here to help ensure your business is treated fairly and that you get the compensation you are entitled to. These claims will involve help from skilled accountants, economic experts, and more. As hotels throughout California and the US continue to grapple with the COVID-19 outbreak, we are staying current on all developments concerning business interruption insurance. When you need a California business interruption insurance attorney, you can contact us for a free consultation by clicking here or by calling 949-264-0226.