Hotel Industry Turns to 9/11 Legal Framework to Navigate Pandemic Insurance

Coronavirus may not be as unprecedented as it is billed, at least when it comes to liability and risk insurance.

The U.S. hotel and travel industries are turning to the Terrorism Risk Insurance Act, a measure signed into law in 2002 following the 9/11 terrorist attacks, as a model in crafting pandemic risk insurance for businesses in light of coronavirus.

U.S. Rep. Carolyn Maloney, a New York Democrat, introduced a bill — the Pandemic Risk Insurance Act — this week which would require insurance companies to offer business interruption policies that cover pandemics and guarantee there is enough funding to cover such losses.

The move comes after many hospitality companies threatened lawsuits against their insurance providers over pandemic exclusions from business interruption insurance.

“The PRIA legislation is a critical step in building the policy framework to navigate out of the economic crisis that has resulted from the pandemic and help ensure it never happens again,” said Tori Emerson Barnes, U.S. Travel Association executive vice president for Public Affairs and Policy, in a statement. “9/11 exposed the need for terrorism risk insurance, and since the impact of coronavirus on the travel industry has been nine times that of 9/11, it is very sensible to offer a similar backstop for pandemics.”

Emerson Barnes added: “This measure will go a long way in giving businesses the confidence they need to reopen, which will be vital to a rapid, robust and sustained economic recovery.”

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The fight over uncompensated business interruption claims isn’t just a U.S. issue. British hotels and restaurants in the Hospitality Insurance Action Group earlier this month issued a “call to arms” and threatened lawsuits against insurance companies over rejected business interruption claims.

Maloney’s bill aims to prevent the fight from having to ever resort to a court battle.

Like the 2002 terrorism risk insurance law, the Pandemic Risk Insurance Act calls for the federal government to serve as a “backstop” and stabilize the insurance market with subsidized coverage for policyholders.

While the private insurance market bears most of the risk in the terrorism risk measure, having the federal government standing behind the coverage limits the risk insurance companies bear for individual deductibles and copayments, would make insurers more willing to underwrite terrorism coverage at lower prices.

While pandemics and terrorist threats are unrelated events, their insurance coverage foundations — assuming Maloney’s bill would get passed and become law — would be similar.

“Millions of small businesses, nonprofits, mom-and-pop shops, retailers, and other businesses are being left out in cold and will never be able to financially recover from the coronavirus crisis because their businesses interruption insurance excludes pandemics,” Maloney said in a statement. “We cannot allow this to happen again.”

Too Little, Too Late?

The pandemic insurance bill, if adopted, would certainly help hotel operators in future pandemics, but it wouldn’t necessarily help struggling hoteliers today and provide a retroactive backstop on business interruption insurance. It also may not even help with whatever the next unprecedented event strikes the hotel industry.

“I look at 9/11 and those times in terms of strategy. We’re all now trying to deal with Covid by shutting the barn doors after the animals all got out. It’s very reactive,” DLA Piper partner Jeff Diener said earlier this month in an interview regarding hotel legal strategies and not pandemic insurance specifically. “The next big issue to hit the industry will likely not look like this one.”

Skift spoke with six hospitality attorneys in recent weeks regarding liability lawsuits hoteliers may face due to coronavirus. Many compared coronavirus liability cases with those of legionnaire’s disease, a pneumonia that can be spread by bacteria in water systems. But the illness is easily traced back to a single faulty water system rather than coronavirus, a more contagious disease that can be contracted from a variety of sources.

Lawyers like Diener noted the liability coverage borne from 9/11 could be a model for something similar to stem from coronavirus. But they also said there are clear differences in a terrorist attack and the economic fallout from a pandemic. The business damage from a terrorist attack, while terrible, is also less prolonged than what is happening during coronavirus. The American Hotel & Lodging Association estimates the pandemic will have a negative impact to hotels nine times greater than 9/11.

“If a hotel owner loses his hotel or 2,000 hotels go out of business, PRIA is not going to matter to those folks,” American Hotel & Lodging Association President and CEO Chip Rogers said Thursday during a Skift hotel webinar. “Those employees are going to lose their jobs, so let’s make sure we’re working to help them while simultaneously looking to help in the future.”

Further enhancements to the $2 trillion coronavirus relief act like extending and expanding the Paycheck Protection Program for small businesses is an important step in helping hotel owners struggling now, Rogers added. The organization’s Roadmap to Recovery also calls for legislation to incentivize business travel and even offer temporary travel tax credits. While focused on the present, the AHLA is still supportive of PRIA.

“All these things are happening simultaneously, but we also need to work to prioritize and solve the here and now problems,” Rogers said.