Terrorism Insurance Causing Friction For Hotels, Lenders

LOS ANGELES— A conflict is brewing in the nations hotel industry over terrorism insurance, with lenders suggesting the threat of technical default for hotels refusing to buy policies, reported Reuters. Lenders with hundreds of millions of dollars in outstanding loans are growing increasingly skittish over some properties that lack such insurance, said Nancy Evans, who leads the hotel lending practice at Wells Fargo & Co. Terrorism insurance policy prices have soared since the Sept. 11 attacks against the United States. A spokesman for a major resort operator with billions of dollars in property assets said the companys insurer specified that damage payments from any terrorism-related incident would be capped at a combined $500 million. Before 9/11, acts of terrorism were included in most general liability policies for real estate, experts said. However, insurers have since begun excluding such coverage from their general liability policies. In particular, Evans said, lenders are concerned about urban hotels that are either architectural landmarks or play host to high-profile people, such as movie stars and heads of state. Examples of such properties include the Waldorf=Astoria and The Plaza in New York, or the Century Plaza in Los Angeles. The issue is gaining attention now because hotels must renew their policies each year, with most insurers refusing to include acts of terrorism in new policies, to the discomfort of lenders. “Most lenders with loans on high-profile assets are saying to be satisfactory, you need to have terrorism insurance,” Evans said, adding that hotels lacking such insurance could technically be declared in default of their loan agreements. In one such case, casino mogul Steve Wynns newest Las Vegas resort, the $1.65 billion Le Reve, was having difficulty securing financing due to concerns over terrorism insurance, according to a published report. FelCor Lodging Trust, one of the nations biggest hotel owners with a portfolio of about 180 properties, is facing similar issues with its lenders, said CEO Tom Corcoran. To address the issue, the hotel industry wants the federal government to get involved as a financial backup for insurers that might face catastrophic claims in the event of a terrorist attack, Corcoran added. President Bush has endorsed legislation passed by the House of Representatives along those lines and is now urging the U.S. Senate to take action on the measure. SOURCE: Reuters