A How-To Guide for the Hospitality Industry: Maximizing Insurance Proceeds for a Large-Scale...

MaximizingInsuranceProceeds for aLarge-ScaleFirst-PartyLoss

A HOW-TO GUIDE FORTHE HOSPITALITY

INDUSTRY

John E. Heintz, Dickstein Shapiro

Jacob Parsons, The Claro Group

Jared Zola, Dickstein Shapiro

Introduction

Hypothetical Loss Scenario

Initial Steps

Insured Obligations

Potential Coverage Issues

Common Mistakes to Avoid

Roadmap to Successful Claim Resolution

Questions

OVERVIEW

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PRESENTERS BIOS

John E . He int z is Dickste in Shapiro ’s InsuranceCoverage Pract ice Leader.

He has represented hospi ta l i t y indust r y c l ientsin secur ing coverage for proper ty and businessinter rupt ion losses ar is ing out of the 9/11attacks , hur r icanes , and other catast roph icevents .

heintz j@d ic ks te inshapiro .com

Jacob Par sons is a Director in The ClaroGroup’s Washington, DC of f ice .

He specia l i zes in he lp ing commercia lpo l icyholde rs in hospi ta l i t y and var ious otherindust r ies to quant i fy, prepare and presentmajor proper ty damage, bus iness inter rupt ionand th i rd -par t y l iab i l i t y c la ims.

jparsons@ theclarogroup.com

Jared Zo la is the nor theast reg ional leader forDickste in Shapiro ’s Insurance Coverage Group.

He leads the group’s Proper ty & BusinessInter rupt ion Pract ice and successfu l l y resolveddozens of large -sca le f i r s t -par ty losses .

zo la j@d ic ks te inshapi ro .com

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LARGE-SCALE LOSSES

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Acme Hospitality is a full service Real Estatecompany that owns hotels in Florida,Louisiana and Texas.

On August 1, 2014, Hurricane Barth madelandfall along the Texas Gulf Coast causingwidespread damage throughout the region.

Acme has two properties that were impactedby Hurricane Barth in different ways…

HYPOTHETICAL LOSS SCENARIO

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Seaside Hotel, Galveston

Acme closed this property in advance of Barth,pursuant to mandatory evacuation orders by CityManager.

Hotel suffered catastrophic structural damageand was deemed a total loss.

Acme plans to rebuild the hotel with a largerballroom and 15% more rooms.

Restoration is expected to take 12 -15 months.


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Inland Hotel, Houston

Sustained minimal property damage (missingshingles and loose gutters), but was without gridsupplied power for 10 days.

Hotel remained open and sold out for 3 daysimmediately following Barth, but was forced to closefor the next 7 days after fuel for the generatorbecame unavailable in the region.

The nearby MLS stadium suffered major roof damageand is expected to be closed for 6 months. Inlandtypically sells out for every Dynamo home game.


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WHAT STEPS SHOULDACME TAKE IMMEDIATELY

FOLLOWING THE LOSS?

Acme should assemble a cross-functionalteam compromised of internal and externalresources, to assist with the evaluation,analysis and preparation of its claim.

Team lead should be a senior member of theorganization who is committed tochampioning the claim to resolution.

STEP 1 – ASSEMBLE A CLAIMS TEAM

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Supporting team resources may include thefollowing: Internal Risk & Insurance Construction & Development Operations Finance & Accounting In-House Counsel

External Broker Forensic Accountant Coverage Counsel Engineering/

Construction Consultants

STEP 1 – ASSEMBLE A CLAIMS TEAM

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Coverage Seaside Hotel Inland Hotel

Property Damage ?

Business Interruption

Service Interruption

Civil Authority

Ingress/Egress

Extra Expense

Contingent BI/Dependent Prop.

Event Cancellation ?

STEP 2 – REVIEW POLICIES TODETERMINE IF LOSS IS COVERED

Potentially applicable coverages may include:

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Limits & Sublimits Real Property

Personal Property

Equipment Breakdown

Loss of Business Income

Extra Expense

Named Storm or Wind

Flood

Earth Movement

Demolition

Debris Removal


Employee payroll

Professional Fees

Errors & Omissions

Etc…

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Deductibles & Waiting Periods

Fixed $ amount

% of TIV (separate for PD and BI or combined?)

% of TIV with a min or max

# of days or hours

Exclusions

Coverage bars


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Acme should provide notice of the loss to allpotentially affected carriers as prescribed intheir policy(ies).

Policies typically require notice to be:

Timely - “immediate”, “as soon as practicable” or “assoon as possible”; and

In writing

Some states require prejudice for insurer to avoidcoverage for late notice

STEP 3 – PROVIDE NOTICE

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If broker is handling notice, Acme should askto be copied on the notice tender and all othercorrespondence relating to the claim

Follow up with broker and/or carrier(s) if notice hasnot been acknowledged within 48 hours.

Calendar deadline for filing proof of loss

STEP 3 – PROVIDE NOTICE

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Take all reasonable steps to protect theproperty from further damage

Furnish list of all lost, damaged or destroyedproperty

Permit adjuster to inspect the damagedproperty and take samples for inspection,testing and analysis

Produce for inspection and copying, all of yourbooks of account, business records, bills andinvoices

WHAT ARE ACME’S DUTIES BEYONDPROVIDING NOTICE?

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Submit to examinations under oath

Abide by contractual limitation periods

File a signed, sworn, Proof of Loss within timeperiod, as extended

Cooperate with the investigation andadjustment of loss

WHAT ARE ACME’S DUTIES BEYONDPROVIDING NOTICE?

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Seaside Hotel Discrepancy between scheduled property value and actual

restoration cost Distinguishing replacement cost from the incremental cost

of betterments Impact of betterments on the period of restoration, extended

period of restoration and related business interruptionlosses Coverage for extra expenses (i.e. training new staff) Business interruption make-up at other locations Impact of event on local economy Impact of hotel performance prior to loss or claim Ramp-up to “reopening”

WHAT ARE SOME COVERAGE ISSUESTHAT ACME POTENTIALLY FACES IN THELOSS ADJUSTMENT PROCESS?

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Inland HotelLoss potentially subject to high deductible for

Wind or Named Storm

Burden to demonstrate that service interruptionand stadium damage were caused by an insuredperil

Extraordinary “gains” over first 3 days may offseta portion of the losses experienced over thefollowing 7 days

Lengthy and uncertain period of restoration

WHAT ARE SOME COVERAGE ISSUESTHAT ACME POTENTIALLY FACES IN THELOSS ADJUSTMENT PROCESS?

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Underinsured

Late notice

Disjointed commutations with adjuster

Premature estimates of loss

Unrealistic expectations -- confuse the actualloss with the covered loss

Passively allow the Adjuster’s team toquantify the loss

Missed deadlines

WHAT ARE SOME COMMONMISTAKES THAT ACME SHOULDSTRIVE TO AVOID?

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ROADMAP TO SUCCESSFUL CLAIMRESOLUTION

Timely and Strategic Communication

Team lead should control all communication withthe carriers

Keep the carriers apprised of your plans and seekinput or buy-in on major decisions

Be cognizant that every email, memo, analysiscould be viewed by the carriers in a litigationcontext

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Be Proactive About Managing the ClaimProcess

Do not rely on the insurance company’s adjuster tolook out for your best interests

Establish early on that you are carefully and fullypreparing a fair, credible claim for all losses towhich you may be entitled under relevant policies

Implement critical path milestones to keep thingsmoving forward

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Fully and fairly respond to carrier requests

Deal with carriers in good faith and respond to allreasonable requests in a timely manner

Propose alternatives (i.e. sampling approach) ifrequests are overly burdensome

Push back if demands are irrelevant to your claim

Consider using a web-based file share site tocommunicate and organize claim and claim supportdocumentation

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Prepare and periodically submit claimsummaries and support packages

Prepare a preliminary estimate of loss as soon aspracticable so that carrier can consider thisinformation when they set a claim reserve

Periodically update claim estimate; distinguishincurred costs and realized losses from estimatedfuture costs/losses

Submit claims in well-organized and supportedpackages

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Demand payment for undisputed elements ofclaim

Identify and document hard costs - low hanging fruit

Interim payments should be requested once sufficientclaim dollars documented excess of applicabledeductibles

Document loss as you go

Obtain written confirmation of significant decisionsfrom carrier

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Be prepared for settlement negotiations

Develop internal analysis of claim value and establisha target settlement range

Set internal expectations on strengths andweaknesses of claim

Anticipate challenges and be prepared to offersolutions

Consider all relevant factors, not just coverage, legal,technical, but also relationships, market factors,renewal, etc.

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Conduct Negotiations on Principal-to-Principal BasisWith True “Decision Makers” present from all Parties Cuts through the usual “filtering” done by both sides’

advocates

Important that claim is mature enough before such meetingtakes place

Be Flexible In any complex claim, there are inevitably new, unexpected

issues that arise or your perspective on things changes asmore information about claim is developed

Be prepared to walk away and come back to table at later time

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QUESTIONS

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A How-To Guide for the Hospitality Industry: Maximizing Insurance Proceeds for a Large-Scale...

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