When things go wrong. How to mitigate liability in the hospitality industry

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Because such companies are traditionally very busy during the December/January holiday period, it's vital that they have proper liability cover in place.

“This includes restaurants, game lodges, hotels, travel agents and tour operators, adventure sports providers and other types of accommodation providers, such as a bed and breakfast or guesthouse,” says Simon Colman, head: commercial solutions at SHA Specialist Underwriters.

Impossible to eliminate all risk

“Businesses in the hospitality industry should also ensure that all safety precautions that can reasonably be expected of the business are taken, not only to protect their customers from injury but to also minimise the possibility of costly litigation following an accident. It is, of course, impossible to eliminate all liability risk.”

He explains that currently, the most comprehensive liability insurance available to the hospitality sector is the “broadform” liability policy.

“This cover varies slightly between different insurers, but the essence of the policy remains the same - to deal with third-party liability claims against the business. The cover would generally extend to pay the defence costs as well as damages awarded by the court when legal action is taken against the business following an incident.”

It is however important to note that liability covers are primarily legal defence policies, and won’t automatically step-in to compensate the third party if an incident occurs, he says. “The third party has to establish negligence on the part of the service provider in order to succeed with their claim. Where the facts are unclear or the nature of the injuries to the third party are not immediately apparent, this process may have to flow through the judicial system before liability is established.”

Extreme activities

“With reference to the shark cage diving video, the customer involved in the incident seems to have sustained no obvious physical injuries. A claim could however possibly have been brought forward for some form of psychological injury, such as post-traumatic stress disorder or emotional trauma. Many liability policies have narrow definitions of ‘injury’ and may not provide cover for this, which is why it is also extremely important for brokers to scrutinise policy wordings for their clients,” he states.

When it comes to tour operators in general, liability insurance can be quite tricky. It is often the case that the tour operator is not directly involved in providing the ancillary adventure services but instead sub-contracts the activities to other service providers. According to Colman, this is where the problem arises.

“It is extremely important that tour operators and travel agents notify their insurers if they offer adventure activities to their clients, either by themselves or through an outsourced provider, as this may have an impact on their insurance premiums and conditions. As mentioned, many underwriters may be unwilling to insure certain activities.”

“Any business owner in the hospitality sector should contact an insurance broker as it is well worth the time to get a professional involved to provide advice and guidance from an insurance perspective. It would also be a good idea to discuss disclaimers and indemnity forms with an attorney to make sure that the maximum protection is in place both from a legal and risk management perspective,” concludes Colman.