To ensure that Bed & Breakfast hosts have the correct insurance in place, it is important you recognise your Bed & Breakfast is a business activity being operated from within your home. The scale of your operation makes no difference - whether you have a small one room B&B or 3, 4 or more rooms, you still need specific insurance cover for the property itself and its contents. The risks covered by the insurance would include, among other things, theft of possessions and damage to your property and contents caused by guests. Your Insurance also needs to cover the liability risks associated with running a B&B including statutory liability and public liability.
Firstly, it is essential that your Insurance Company / Broker is told that your property is being used as a Bed & Breakfast so that they can then tailor a policy to suit your operation. It should be noted on the policy that your property is used as a Bed & Breakfast and any limits noted. Failure to notify your insurer could be taken as non-disclosure and result in a claim being declined. Non-disclosure is by far the major cause of insurance claims being declined. Standard domestic style insurance policies fall short of providing adequate cover because they don’t cover you for commercial aspects of running your Bed & Breakfast business from your home.
Some years back there was an article in the news relating how a couple running a bed and breakfast were facing huge costs in relation to a fire that was caused through their bed and breakfast activities. They were relying on their domestic insurance policies for protection, needless to say they were disappointed to learn that as they were running a business, their domestic insurance covers did not respond.
I have had any number of bed and breakfast owners advising me that their current insurance company has told them they will cover bed and breakfast activities under their house and contents policies. This is totally incorrect. If you read your house or contents policy you will see that business activities are excluded. And remember your bed and breakfast, no matter how small is classed as a business activity.
Another important risk you may or may not be aware of is the Innkeepers Act – As Bed and Breakfast operators you are bound by the Innkeepers Act 1962 as you supply sleeping accommodation…“for any traveller presenting himself who appears able and willing to pay a reasonable sum for the services and facilities provided …”
Under the Act a B&B operator is an “innkeeper”. The Act states: “Subject to the provisions of this Act, every innkeeper shall be liable as an innkeeper for the loss of or damage to property brought to the inn by any guest, whether or not the loss of damage was caused by the default or negligence of another guest or of the innkeeper or his service or agent.”
Without going into the specifics of the Act in this article, it is important for you to know that you need to be insured against all the risk involved so to be compliant your policy needs to cover you under the Innkeepers Act (which you are under Vision’s liability package).
There are a number of different liability policies on the market. The most common are Broadform Liability (more popularly known as Public Liability), Statutory Liability and Employers Liability. The two I will discuss in this article are Broadform Liability and Statutory Liability.
Broadform Liability insurance will protect your business when you’re legally liable for accidental damage or injury. The policy covers the cost of meeting court judgments or out of court settlements, as well as the legal costs of investigating and defending the claim - this also includes where you’re not found liable. The policy will provide protection from the legal liability exposures you may face as a business owner which are often unplanned and crippling to a business as the B&B owners found out with their fire. You can also be held liable for guest’s luggage if it is destroyed or goes missing from your premises. One thing I have realised about insurance is that it is the unexpected things that occur that can trip you up. So any activity you are doing that is in any way connected to you running the B&B can see you held liable for damage to someone else’s property. Whether it is putting out fire ashes from the guest fireplace or from a barbeque for guests, to flooding the next door neighbour if a guest leaves a tap on or a hose running, any number of different things can trip you up.
This insurance is designed to cover you against liability arising from allegations of breach of a statute, (Act of Parliament) including the cost of defending such actions and penalties incurred. First and foremost the policy will NOT cover Health & Safety fines, as it is illegal to do so, however it will pay for defence costs in the event of a prosecution and also any reparation costs that may be awarded against you (these are costs awarded to the insured person by the court). Under the Privacy Act you have responsibility in safeguarding information. Fines under this Act will range from $5,000 to $10,000, more serious cases can range from $10,000 to around $50,000, and the most serious cases will range from $50,000 upwards. You do not have to be liable – the costs of defending a claim made against you can run into the thousands of dollars. This policy covers your for defence costs, and if you are found liable, the fine as well. There are some exclusions, do not expect this policy to cover you for traffic fines, criminal acts, fire arm fines and the like. But it is there to protect you against most other Acts that can have a bearing on your business, such as the sale of alcohol, Resource Management Act, Building Act and Fair Trading Act which are some that come to mind.
A couple of recent claims examples are:
- A local operator had a diesel fuel facility in its yard. The tank was owned by the fuel supplier but the insured was responsible for its upkeep, etc. The yard was broken into at night and amongst other things an unsecured valve on the tank was maliciously turned on and fuel was allowed to run into a bunded area surrounding the tank. Unfortunately the drain hole in the bund had been left open by an employee of the insured after he had cleared rubbish from it the previous day. 18,000 litres of fuel ran into a nearby stream. The insured was convicted and fined just $14,250 plus prosecution costs of $243. The lawyer did particularly well in deflecting a share of the “blame” to the fuel supplier hence the low fine. Defence costs were $60,000.
- Whilst preparing a new property development, old bones were uncovered by a contractor. The contractor continued to work on the site and caused damage to the remains before the Historic Places Trust had an opportunity to assign the site status. The contractor was prosecuted and fined $55,000 under the Historic Places Trust Act for knowingly damaging and destroying a burial area.
Before you change or update your policy I would encourage you to get in touch with the writer (David Rush of Vision Insurance – sponsor of Bed & Breakfast Association NEW ZEALAND). Vision Insurance offers a “tailor made” package addressing all your insurance needs that combines the elements of domestic and commercial into easily understood insurance covers.
With its Bed & Breakfast scheme Vision Insurance offer a liability package that includes automatically, $2,000,000 Broadform Liability and $1,000,000 Statutory Liability cover.
The Vision Insurance package includes your dwelling and other buildings at your situation, contents (both personal and those related to your bed and breakfast activity), business interruption insurance (in the event where damage to your property prevents you taking in guests), motor vehicle insurance (as standard private vehicle insurance excludes use of the vehicle for the carriage of goods or samples in connection with any business activity as well as any fare paying passengers), and a liability package.
Some of the specific benefits to this insurance includes cover for damage caused by your paying guests (both accidental and malicious including theft).
Vision’s liability package includes general liability cover under the Fire Services Act, Innkeepers Act (a statute to protect the property of guests), Rural Fires Act, Privacy Act, Human Rights Act, Health and Safety in Employment Act.
The information provided in this article is intended as an outline only of the types of insurance cover you require and more information can be obtained by contacting us at Vision Insurance and we will talk to you about an affordable package suitable for the needs of your bed and breakfast operation.
David Rush firstname.lastname@example.org
Vision Insurance (S.I.) Limited www.visioninsurance.co.nz Freephone 0508 031 990