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Posts from February 2013.

Our Portland, Oregon partner, Joy Ellis, updates us on what's "bugging" the hospitality industry.  Thank you Joy.

It’s no secret that bed bugs are a stubborn and growing problem for the hospitality industry.  All it takes to jeopardize a hotel’s reputation is one TripAdvisor or Yelp review that mentions bed bugs.  And with travel on the rise, these unwanted hitchhikers keep showing up everywhere.    

Every year, Orkin (a national pest control services company) comes out with a list of the top 50 bed bug cities based on its pest control treatments.  Last year, Portland, Oregon, made the list at #49 and Seattle moved up to #13 from its previous #27 listing (Chicago was #1).  Orkin noted a 33% increase nationwide in their bed bug business from 2011 to 2012, and a previous 33% increase from 2010 to 2011.  Oregon appears to be no exception to this growth trend; Steve Keifer of the Oregon Health Authority told The Oregonian that bed bugs are much more prevalent in Oregon than they were just a few years ago.     

In an effort to help contain the issue in more ways than one, the Oregon House of Representatives passed a bill on February 13, 2013, that would provide a new level of anonymity to Oregon businesses and homeowners who are battling bed bugs.  House Bill 2131 allows pest control companies to report bedbug contamination to county health departments without exposing their findings to state public records laws.  Given the stigma associated with bed bugs, reports of bed bug contamination are underreported.  Pest control operators are not required to report bed bug infestations.  If the information was released to the public, it could jeopardize the operator’s business with clients – especially clients in the lodging industry.  The measure is intended to encourage businesses to voluntarily disclose data that could help the county health departments to develop a response to the bed bug infestation.  The bill, which now goes to the Senate, has backing from pest control managers, Multnomah County (part of the Portland metropolitan area), and the lodging industry.

If you have any questions about this topic, please contact Joy or me.

Harold McCombs, Leader of Garvey Schubert Barer's Washington D.C.-based Telecommunications Practice Group, brings us the FCC's latest announcement regarding Wi-Fi technology.  Thank you Harold.

The Federal Communications Commission announced on February 20, 2013, that it intends to propose new rules to govern the next generation of Wi-Fi technology.  This is an important development for convention centers, large hotel/conference facilities, airports and any other facility that struggles with Wi-Fi congestion because of the insatiable appetite of high-volume wireless users.  The FCC’s proposal will include making spectrum available in the 5 GHz band for ultra-high-speed, high-capacity Wi-Fi known as “Gigabit Wi-Fi”. 

This is a priority item for the FCC Chairman, with action expected within the year.  In addition, equipment incorporating this new technology will soon be available in the marketplace, even though the new Wi-Fi technical standard has not yet been finalized.  Accordingly, it is not too early to start considering upgrading your Wi-Fi systems. 

Stay tuned for more updates as the FCC moves forward with its rulemaking.

If you have any questions, please contact Harold or me anytime.

The success of our hospitality practice through the years has relied on the skills and experience of a number of industry consultants and advisors.  John Hutson of the Seattle office of Navigant Consulting is one of those advisors.  John is an Associate Director in Navigant's Dispute, Investigation & Economics practice.  John has a deep specialization in the hospitality industry and regularly speaks on hospitality damage valuation issues across the country.  In light of John's upcoming business interruption presentation at the Hospitality Law Conference, we asked John to provide an update on damage valuation in the industry.  In his post, John discusses how insurance companies are attempting to redefine and reinterpret “suspension of operations” for hospitality firms.  Thank you John for your many contributions.

Notwithstanding my 18 years of experience in valuing commercial economic damages, every once in a while I get caught off guard.  The insurance companies will craft a new argument, to deny the recovery of damages and to see if the argument can get some traction either in the settlement process or in the courts.  The court's decision in H&H Hospitality LLC v. Discovery Specialty Ins. Co., 2011 U.S. Dist. LEXIS 146055 (S.D. Texas Dec. 20, 2011), demonstrates the application of one of these new arguments. 

In my practice, I’ve always quantified damages assuming that a complete cessation of operations, a slowdown in operations, or a directly related decrease in revenue should be quantified and considered when valuing business interruption damages. The policy terms related to “suspension of operations” were never a focus of mine during my valuation and, perhaps more importantly, never a focus of the adjuster during the adjustment and settlement of the claim.

Apparently, insurers are attempting to redefine, or in their opinion clarify, “suspension of operations”.  Now, some carriers are arguing that “suspension of operations” means a complete and total cessation of all operations. For example, under the proposed new interpretation of “suspension of operations,” if a hotel has any rooms open, any bars open, any restaurants open, and they earn even $1 from any ongoing operations, its operations are not considered “suspended” under the policy. Accordingly, no business interruption damages are owed during the period of suppressed, or reduced, operations. 

Unfortunately, some judges agree with the insurance companies on this issue, as evidenced in the above-referenced ruling.  The judge noted that other insurance policies provided coverage for the “necessary interruption of business, whether total or partial."  The conclusion was that if a policy allowed for “partial interruption” then slowdowns could be considered, but if a policy simply allows payment for “suspension” that it must be a complete and total cessation of all operations.

The above interpretation by the insurance company, which was upheld by the court, is contrary to the interpretation I have seen throughout my entire career.  I suggest that all hospitality firms review their policies, with their insurance brokers and attorneys, to ensure they are covered for “partial interruption” rather than “suspension” in the event of a disaster.

If you would like more information about this topic, please feel free to contact me.

In response to multiple client questions received over the past few months, Nancy Cooper, member of our Labor and Employment Group and Hospitality, Travel and Tourism practice team, discusses the issues surrounding the Affordable Care Act (ACA) and their impact on employers.  We look forward to several more posts from Nancy on the ACA in the months ahead.

Many companies have heard all the chatter about the changes to the healthcare system under the Affordable Care Act, but really haven’t had the time to figure out what the changes mean to them as an employer.  After all, something entitled the “Affordable Care Act” should really just focus on dealing with the out of control costs of medicine and healthcare, right?  Oh, if only it were that simple. 

One of the biggest issues in healthcare is simply that many people can’t afford the cost of insurance.  Additionally, a number of employers do not provide insurance benefits as a part of employment.  The ACA attempts to address this problem.  Of course, this is not the only issue addressed under the ACA, but for employers, it is one of the major concerns. 

The ACA obligations on employers are implemented in stages.  The first obligation is already in effect.  This requires employers who provide “applicable employer sponsored coverage” to report the aggregate cost of the employer sponsored coverage on an employee’s Form W-2 for the 2012 year.  This means the Form W-2 that is issued in January for the prior year, should reflect the cost of coverage under any group health plan made available to the employee by the employer, and which cost is excludable from the employee’s gross income, or would be excludable if it were employer provided coverage.  The reportable premium is not impacted by whether the employer or employee bears the cost of the premium.  There is a special rule for self-insured plans.  If you have a self-insured plan, you should seek guidance on the proper calculations of the applicable premiums.  If an employer is required to file fewer than 250 Form W-2s, then they are not subject to this reporting requirement.  More information on this requirement can be found in IRS Notice 2012-9.  (Specifically, starting on page 6.)

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Greg Duff, Editor
Greg Duff founded and chairs GSB’s national Hospitality, Travel & Tourism group. His practice largely focuses on operations-oriented matters faced by hospitality industry members, including sales and marketing, distribution and e-commerce, procurement and technology. Greg also serves as counsel and legal advisor to many of the hospitality industry’s associations and trade groups, including AH&LA, HFTP and HSMAI.

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