REPORT FROM THE U.S.—In the face of catastrophes and terrorist attacks against United States hotel chains throughout the world, hotel owners and operators can and should take action to mitigate the liability.
There are numerous ways to do so, but two government programs in particular offer resources for the hotel industry: the SAFETY Act and PS Prep.
SAFETY Act
Scenario: A bomb goes off in a hotel outside of the U.S. The property is managed by a U.S. company. Victims claim the hotel’s security system was deficient in preventing the terrorist attack, so they sue for damages.
If the act is deemed an official terrorist attack by the U.S. Department of Homeland Security, hotels that qualify for the SAFETY Act are afforded significant liability protection, according to Stephen Heifetz, a partner with law firm Steptoe & Johnson, during a webinar on hotel insurance and hotel safety issues.
The act protects sellers and users of hotel security “technologies,” or anything designed to reduce vulnerability to or the ability to recover from a terrorist attack. Common examples in hotels are keycards, physical barriers, employee screening and training, video cameras and, above all else, comprehensive security plans that tie all of these efforts together.
Hoteliers must register their “technologies” with the Department of Homeland Security in order to gain liability protection. There are two levels of approval:
1) Designation
This level of approval grants less comprehensive liability protection. Liability is capped at an amount of insurance coverage specified by the Department of Homeland Security. Victims filing claims can only do so in federal court, there are no punitive damages, and plaintiff recovery of damages is reduced by amounts received from collateral sources, such as insurance agencies.
2) Certification
This higher level of approval grants all the same protections presented at the designation level, as well as “government contractor” status, which can be invoked to preclude liability entirely, Heifetz said.
In other words, victims of terrorist attacks cannot hold the hotel liable for the attack because the hotel can claim status as a government contractor, even though its security systems were not installed or maintained by the government. In these instances, the certified hotel “technologies” are placed on an “approved products list,” which adds extra marketing benefits to that particular hotel. (The hotel can boast to meeting planners that its security systems are certified by the Department of Homeland Security.)
Applying for SAFETY Act protection: Hotel owners or operators must successfully explain and argue for the validity of their “technology” during a pre-application meeting with Department of Homeland Security personnel. The department notifies applicants within 30 days as to whether their application is complete. (It often asks for more information.) Once the application officially has been deemed complete, the department replies within 90 days as to their level of approval, if applicable.
Heifetz advised webinar attendees to seek the help of a lawyer to help guide them through the application process. Additional information can be found on the SAFETY Act website.
PS Prep
Scenario: A fire breaks out at a 500-room resort property, resulting in significant loss of life, injury and damage to personal property.
Liability associated with fires and other natural disasters, which are not covered by the terrorism-specific SAFETY Act, can be mitigated by the voluntary Private Sector Preparedness Accreditation and Certification Program, or PS Prep, Heifetz said.
“PS Prep can mitigate risks associated with any catastrophe,” he said.
The program, which is still in its infancy, is designed to encourage all companies to incorporate preparedness measures and planning into company policies and procedures. The incentive is to become formally certified as having met federal preparedness measures, Heifetz said.
PS Prep does not provide as strong of liability protection as does the “government contractor” status afforded under the SAFETY Act, but it still is quite helpful in defending against lawsuits, Heifetz said.
“(A defendant could argue,) ‘You are asserting that we were not sufficiently prepared for X, but in fact we were certified as meeting federal preparedness standards,’” he said.
Certification can also lower insurance premiums, as well as bolster a hotel’s image in the court of public opinion. (A hotel can assure stakeholders that it was prepared and did everything possible to plan for possible disasters.)
Applying for PS Prep protection: Certification is administered through one of three pre-existing preparedness standards:
1) Organizational Resilience (administered by ASIS International)
2) Business Continuity Management (administered by the British Standards Institution)
3) Standard on Disaster / Emergency Management and Business Continuity Programs (administered by the National Fire Protection Association)
If a hotel owner or operator applies and is certified for one of these three standards, they can hire a third-party certifier to have this certification recognized under PS Prep. Again, Heifetz advised webinar attendees to seek the help of a lawyer to help guide them through the application process. More information can be found on FEMA’s website.
Alignment between owners and operators
Hotel owners and operators must be on the same page when it comes to mitigating the risks and liabilities associated with natural disasters and terrorist attacks, said Cecelia Fanelli, partner with Steptoe & Johnson.
“Many management agreements are silent about terrorism insurance,” she said. “There is a patchwork of varying terrorism insurance provisions in hotel operating agreements. And sometimes there are no provisions at all … particularly in the older agreements.”
Owners and operators should insert provisions relating specifically to “technology” designation and certification under the SAFETY Act and PS Prep, Fanelli said. At the very least, they should include generic provisions relating to measures taken to conform with legislative initiatives to reduce terrorism risks.
