How Hotels Can Guard Against Costly Environmental Risks

By Justin Randall, HUB International

​Hotels are a veritable cesspool of environmental risks, and management may not be on top of the adequacy of their insurance policies to cover the extent of their exposure.

​The reality is that guests don’t necessarily treat a hotel with the same respect that they treat their homes. That creates one level of problem. But there are risks in solvents used for day-to-day disinfection of a property. Then, too, pollutants can migrate through water and air from sources under someone else’s control.

​A hotel’s management may not be on top of the increasing complexity of environmental insurance. Is the coverage up-to-date or adequate for today’s risks? Here’s what Wisconsin’s hospitality industry needs to know.

Environmental contaminants are increasing

It’s hard for hoteliers to escape all the environmental exposures out there, pollutants that insurers define as any “solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste.”

That makes for a pretty expansive list. Think the fat, oil and grease, or FOG factor that’s prevalent in commercial kitchens, that may be integral to a hotel’s operations. It’s especially bad when combined with various flushed and non-biodegradable solids and can form noxious “fatbergs” to block sewage pipes and septic systems.

Mold’s a big issue, too, particularly with the humidity and heat that characterizes Wisconsin’s summers. There’s a precautionary story in the Bahamas hotel that filed an unprecedented $20 million claim for mold remediation due to the dual factors of air conditioning working overtime while doors and windows were left open.

Other hazards:

• Microbial contamination can be an issue if equipment disinfection is not done properly.
• Chemical spills are another risk. This ranges from chlorine mixtures used in cooling water and other liquids being released in drains, and the accidental release of chiller chemicals such as ammonia and hydrofluorocarbons.
• Pesticides, especially when used near food prep areas, are hazardous to employees and patrons alike.

Understand insurance nuances

Insurers disallow pollutants from general liability policies, but environmental insurance will cover new or pre-existing conditions or both. That sounds fairly straightforward, but insurers – once pretty flexible on policy design – have gotten far more particular in their underwriting specifics.

That stems from a loss in appetite for insuring the hospitality industry against environmental hazards. “Best in class” properties are favored, but insurers are increasingly rigid in what they will and won’t cover, and higher retentions are the rule, not exception.

Not every broker is well-versed in the ins and outs of environmental insurance. There are variations in how policies are written and which specific risks are covered. A policy designed for a totally different business may be placed, and it may either over-cover or under-cover the hotels. Pre-existing conditions must be addressed. Coverage flaws – say, a mold exclusion – can slip through.

​Further, there’s a risk in buying based on price, without checking the details. Per-room deductibles for mold remediation can hit $50,000. Coverage sub-limits may be written in for mold or legionella. Legal defense costs may be capped. Some insurers cover third-party bodily injury but not property damage or clean-up – others, the reverse.

Manage the risks

​Insurance by itself is only part of the solution. A solid track record in managing the risks enables properties to tell insurers a positive story:

• Have plans for the biggest risks. A comprehensive chemical storage plan is key, based on best practices for cleaning, maintenance and disposal of chemicals – cleaning solvents and pool chemicals – and staff training in protocols. Likewise, water intrusion plans guard against mold problems – a common and costly claim. Document everything, and share the plans with carriers.  
• Make maintenance a priority. This catches issues before they become a problem. One hotel’s legionella plan called for flushing toilets and running showers and faucets in every unoccupied room. It offset the risk of legionella growing in the pipes.
• Prioritize environmental mitigation during renovations. Most hotels undergo a facelift every five or six years. It’s an opportunity to uncover potential problems.
• Put in controls. Heavy rains and humid conditions can cause mold. Regular air duct cleaning offsets the risk of mold contamination. Installing sensors to automatically shut off air conditioning when doors are left open will cut down the risk of moisture condensing to form mold.

​Another word to the wise: In case of emergency situations requiring immediate action to protect human health, the insurer should be notified immediately. The idea is to avoid having the cause of the claim addressed before that happens by a not-necessarily qualified or approved “expert.” In 99% of situations, the carrier should be involved immediately or the claim is unlikely to be covered.

About the Author:

Justin Randall leads the Hospitality & Real Estate Practice for global insurance brokerage Hub International’s Wisconsin Region, focusing on leading client strategy in those verticals. Justin’s 10 years of experience encompasses leading client engagements, advising clients on all aspects of insurance, risk management and overall enterprise growth. Justin works with several different franchises including clients with more than nearly $2B in revenues.  Justin is an active member of the Wisconsin Restaurant Association as well as a participant in the American Hotel & Lodging Association. Mr. Randall holds a Bacheler’s Degree in Business from Edgewood College in Madison, WI.

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