A tale of two New Orleans hotels

If there’s anything to be learned from last year’s hurricanes Katrina, Rita and Wilma, it’s that the value of relationships before, during and after a claim is immeasurable, according to Mel Bangs, director of risk management for Irving, Texas-based Omni Hotels.

Speaking on a panel about the hurricanes’ effects on property and business interruption losses at the Risk and Insurance Management Society 2006 conference in Honolulu, Bangs shared the Omni’s experiences in dealing with last year’s hurricanes, as well as her tips on developing a contingency plan.

According to Bangs, many others “suffered worse claims” than the two Omni hotels in New Orleans, but her company’s experience “touches on what people are dealing with.”

Katrina’s wrath
At the time of the hurricane, the Omni operated two hotels in New Orleans. The Royal Orleans, built in 1964, was in the heart of the historic French Quarter and is considered a historic hotel by the city. “That is an important issue because there are specific historical codes that must be met. The hotel must look exactly the way it looked before the hurricanes down to the lamps and window sills,” which was more expensive to reconstruct, Bangs indicated.

Although the French Quarter was not damaged by the flood, many people used the Royal Orleans hotel as a refuge when they knew the hurricane would hit, but before the flooding began. As the levees around the city began to fail, police evacuated the French Quarter and the hotel guests and staff were forced to abandon the hotel, so “there was no way to secure the hotel,” Bangs said.

The damage at the hotel consisted of some roof damage and wind and rain through the windows. Humidity in the hotel caused additional damage, and some flooding occurred where rain came into the hotel.

The second hotel operated by the Omni, the Royal Crescent, was located in New Orleans’ Central Business District. It was a 15-year-old, compact boutique hotel that housed all the hotel mechanicals on the roof. During the hurricane, one-third of the hotel roof peeled away, so nearly all the hotel’s equipment that was housed there was lost.

Additionally, wind and rain entered the hotel from the roof and windows. Humidity caused additional damage, especially on the top floors. And there was some flooding in the lobby because guests had left some bathtub faucets running; when the water was turned back on, it flooded the lower floors.

Another area of concern was that the hotel had a lease agreement with a local food and beverage company to operate the hotel restaurant. “We had to have the restaurant operating in 90 days or the tenant could walk from the lease,” Bangs said. “If we couldn’t get the hotel back operating quickly, we knew the tenant wouldn’t return.”

Tending to repairs
In preparing a natural disaster contingency plan, people should consider their relationships with other vendors, Bangs advised.

“We did have a contract with a national disaster company prior to the storms — that probably was our savior,” she said. “We also had a partner that brought in generators,” she added, noting that the generators helped to keep air circulating and keep mold from growing too rapidly in the hotels.

Additionally, Bangs recommended risk managers think about what they will do if they do not have access to their property. For example, because New Orleans was under Martial Law after the flooding, the Omni could not get its staff into the hotels to assess and repair the damage.

“We had food, trucks, etc., ready to go in Dallas … but there was limited access to the city. People were only allowed in with police escort,” she said. “We had no generators at the Royal Crescent for 12 days. We had them on standby outside the city, but we couldn’t get in. The humidity in the hotel caused continual damage [during that time].”

Consequently, Bangs recommended risk managers develop a contingency plan that includes alternate capacity and distribution networks.

Once generators were placed at the hotels, the Omni also had to pay attention to the generators’ fuel supply to keep them going. At one point, the National Guard borrowed the hotel’s fuel shipment to assist the city in other areas, Bangs explained. To alleviate fuel shortages, the Omni relied on its relationship with a private vendor that was able to get fuel into the city “sporadically,” she said.

The hotels’ midterm needs were that future guests had reservations but the Omni staff had no way to communicate with them nor did they know what to tell them. Employees were scattered across the country after fleeing the disaster. Repairs needed to begin, but contractors were scarce.

The company set up a hotline at the corporate office and put a bulletin on the website to alert potential guests and employees about the hotel.

Even when Omni employees became available, the hotels had to provide housing because many employees’ homes were destroyed during the disaster, Bangs added.

Assessing the claim
Now, nearly a year after the disasters occurred, Bangs said the total claim amount is “approximately $15 million and growing.” The Royal Orleans is open and operating, although the hotel is short about 50 staff members. “We could take on more guests if we could have associates,” Bangs said. The Rib Room restaurant is open on a limited basis, and repairs are still underway. “We’re looking at when business interruption is over and when are we complete and extended period of indemnity begins,” she noted.

The Royal Crescent, on the other hand, is not open — the hotel is trying to hire staff so that the facility can be opened.

“People are not flocking back to their homes because many have no homes to go back to” in the Central Business District, Bangs explained.

The Omni also lost its restaurant tenant. Repairs are almost complete. The repairs took longer at this hotel because the Omni lost 2.5 complete floors, Bangs said. Mold had built up at this hotel, and when the hotel began removing the mold, it discovered lead paint, which had to be remediated before additional repairs could be made.

The remediation added two to three weeks to the recovery process,Bangs said. “Delays that result from noncovered loss can affect coverage,” she said. “It’s helpful to get these issues on the table [with the insurer] as you go.”

Meanwhile, the hotel chain is trying to rebuild the market in New Orleans. Because of good communication, the Omni’s insurer helped to pay for advertising to attract guests back to the hotel and city. “Our insurer helped us do an extraordinary amount of advertising to help bring people back to New Orleans — we filled up for New Year’s Eve,”Bangs said. “That showed the insurance company that advertising works.”

“In some cases, clients are back, but people aren’t, so the loss being incurred is continuing at a significant rate,”she added. “Some coverages exclude a change of market conditions.”

Claims and a contingency plan
Key to navigating the claims process was “having a relationship” with the insurer, Bangs emphasized. For example, the Omni had an adjustor built into its policy. Immediately after the disaster, the hotel “found out where we were on his list,” which helped get the claim started, she said.

Forensic accountants lined up in advance of the storm also helped the Omni document important details for claims processing. That person made sure the hotel documented items appropriately so that the claim could be processed smoothly, Bangs noted. “Managing the relationships between insurers, adjusters and policyholders helps get the claim started immediately … and keeps the claim moving,” she said.

In addition to the Omni’s experiences in dealing with the hurricanes, RIMS panelists Randy Paar, partner at policyholder law firm Dickestein Shapiro Morin & Oshinsky LLP in New York, and Claudia Wolf, partner in forensic and dispute services at Chicago-based Deloitte Financial Advisory Services, shared the lessons their companies learned while helping others to deal with property and business interruption losses.

Wolf said her firm continues to assist clients affected by Katrina with business interruption claims. She agreed that a contingency plan is essential because it will be too late to form one after a disaster hits. She advised the contingency plan involve everyone who would be involved during a loss so that they are prepared.

According to Paar, many commercial policyholders have not yet received coverage opinions from their insurance companies “because the scope of the damage has been so large and there is division in the insurance industry.” She recommended risk managers evaluate the language in their policies that name perils, denote “all risk,” and define “insurable interest” because the language in the policy determines the amount of coverage a policyholder can recover.

For example, the definitions of flood or windstorm can vary. “What makes a huge difference in how a situation shapes up is the language,”Paar said. “It’s important to parse the language in the policy.”