subject: The Oil Spill and Hotel Guarantee Programs [print this page] The Oil Spill and Hotel Guarantee Programs
As oil from the Gulf of Mexico's spill inched toward land, hotels along the Gulf became increasingly nervous. By the beginning of June, hotels were already reporting higher cancellation rates and more vacancies during peak season than ever. Amid increasing media coverage and high speculation on not if, but when the oil would make landfall, two hotels in Key West made a pre-emptive move they are offering guests a clean beach guarantee.
Both the Casa Marina Resort Reach Resort in Key West have seen a 50-percent drop in reservations after the announcement of oil balls found on area beaches. Despite the oil being from some other source, the media coverage was such that travelers are avoiding Gulf resorts. It's why the hotels have decided to offer the guarantee, which promises to refund hotel room rates and taxes (minus any food and beverage charges) should the oil slick somehow reach the shores and cause damage. They'll also waive their standard 72-hour cancellation policy should any oil-related event occur.
Yet in the case of an oil-laden beach taking a huge chunk out of the hotel industry's profits, how will a guarantee help? What does that do to insurance coverage? And can hotels recoup the losses due to such a guarantee under their business interruption or general liability policies?
Most insurance policies will cover events such as lost business due to damage from an event. However, there's no clear indication yet whether those losses from a guest guarantee program would be covered. In fact, under any guarantee program, hotels need to understand the financial risks they're accepting by offering guarantees. While it may result in more business at the outset, the processes need to be in place to ensure that the guarantee program need never be used. In the case of an uncontrollable event, such as the oil spill or a hurricane, there is little a hotel can do to prevent such events and lower their liability.
If you're considering such a guarantee, check with your hotel insurance broker and carrier first. Understand the financial ramifications you're undertaking. Don't assume your insurance coverage will respond; rather, assume your coverage won't respond and be prepared to pay the costs associated with these guarantees.
