Review of the Carriers and Innkeepers Act 1958, May 1998

Chapter 11 – Insurance Cover and Claims

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OVERVIEW

11.1 Insurance cover may protect an innkeeper in respect of his or her exposure under the Act or, if the Act were to be repealed without replacement, in respect of his or her unlimited liability at common law. Whether insurance cover is adequate protection will depend on the availability and cost of insurance for such liability. Submissions to the Committee from hotel owners indicated that one of their greatest fears was that increased liability due to amendment or repeal of the Act would lead to higher insurance premiums.

11.2 A further issue is the role of any insurance cover held by the guest that may cover the loss of or damage to his or her property while staying at a hotel. For instance, the loss or damage may be covered by travel insurance, house and contents insurance, or vehicle insurance. Some hotel owners have argued that the availability of this type of insurance is a further reason for not increasing the liability of innkeepers or, in fact, limiting their liability even further.

11.3 Relevant also is the number of claims currently made by guests against innkeepers and by innkeepers under insurance policies. It may be that the number of claims by both groups is very small and does not greatly impact on an innkeeper’s business. In which case, innkeepers may need no, or no further, protection against liability. Finally, the potential effect of unlimited liability on claims must be considered.

INSURANCE COVER FOR INNKEEPERS

Current position

11.4 The Australian Hotels Association ("AHA") informed the Committee that no hotel in Australia carries insurance cover specifically against loss or damage to guests’ property. This is so irrespective of whether legislation similar to the Victorian Act exists in a particular State or not. Rather, all hotels carry comprehensive public liability insurance, which covers death or injury to guests and loss or damage to guests’ property. The AHA indicated that, in respect of cover for guests’ property, many policies have reasonably high excess provisions of $1,000 and more. Therefore, it was submitted, there is no real cover for guests’ property up to these excess levels. The AHA indicated that a South Australian hotel had reported to the organisation that additional premiums to cover the excess were "astronomical and not to be contemplated".[386]

11.5 However, the AHA also indicated that the cost of public liability insurance seemed to be reasonably consistent throughout the States with a cover of $15 million attracting a premium of some $5,500.[387]

11.6 The President of the Victorian Accommodation Association, Mr Anthony Sheer, told the Committee that, when hoteliers take out insurance, most of the insurance companies "take it as referring to overall risk throughout the whole country". Mr Sheer considered parity between States, in terms of the cap on liability, to be "essential" as the tourism industry should have an international viewpoint. However, he added that he thought there was relative parity between the States at that time.[388]

11.7 It appears that, in those States with legislation limiting innkeepers’ liability, public liability insurance policies normally stipulate that the cover is subject to the limitations stipulated under the Act, and require the insured party to comply with the provisions of the Act. Therefore, if the innkeeper does not display the sign required by the Act, the insurance cover may not apply.[389] However, evidence presented during a review of the NSW legislation indicated that, in relation to insurance cover for hotels, claims for personal injury were seen as a more critical issue than the property loss aspect.[390]

11.8 The Regional Manager of the Victorian Branch of the Insurance Council of Australia, told the Committee that he considered the Act had little relevance as there were so many areas of insurance to cover the situation. He stated:

Cover is available and one wonders why an innkeeper requires protection under the Act.[391]

11.9 The Chief Executive Officer of the AHA, Mr Alan Giles, informed the Committee that most hotels used an insurance broker to buy insurance, and that hotels purchased an insurance package. Currently, insurance to cover loss of a guest’s property was not part of the package for smaller hotels, which gained some comfort from the notice limiting liability.[392]

11.10 The Committee notes that most hoteliers are currently covered by their insurance policies for loss of or damage to guests’ property, with smaller establishments possibly being an exception. The Committee further notes that there appears to be no difference in premiums payable between States that have legislation limiting innkeepers’ liability and those without such legislation.

Likely effect of greater or unlimited liability

11.11 Perhaps the greatest concern voiced by the Victorian hotel industry in respect of the proposed repeal or amendment of the Act, has been the potential effect of increased or unlimited liability on the cost and availability of insurance cover. The submissions and evidence presented to the Committee on this matter varied considerably from suggesting that insurance cover would be available and at a reasonable cost, to declaring that insurance cover would not be available or would be prohibitively expensive.

11.12 In New South Wales, a discussion paper issued in relation to a review of that State’s Innkeepers Act 1968 stated, in a list of problems identified with the Act, that the unlimited liability provisions in respect of property deposited for safekeeping meant that New South Wales innkeepers could not purchase insurance cover to cover the full extent of their liability under the law.[393] However, the same Report goes on to state that:

Insurance cover is available for hotels and motels to cover their liability for guests[sic] property under the Act. Standard public liability policies include cover for personal injury and loss or damage to property.[394]

11.13 By contrast, during a review of the relevant Act in the Australian Capital Territory, industry sources indicated that they had no difficulty in securing appropriate insurance against loss caused by personal or property claims.[395] Consequently, the research paper made a preliminary recommendation that liability should be unlimited where it was possible for a hotel keeper to obtain insurance on a reasonable basis, and that liability should be limited where it was not possible to insure against the risk.[396]

11.14 The AHA submitted that, if the Act were repealed, this would be an uninsurable situation, or the cost of the premium would be so prohibitive as to be against the interests of both hoteliers and guests.[397] Mr Giles gave evidence before the Committee that the repeal of the Act could have a greater impact on small hotels that did not have security equivalent to, say, five star hotels:

Perhaps some larger five-star hotels that have adequate protection, security and modern, up-to-date locking systems may be able to purchase insurance cover at a reasonable rate. The difficulty is when you go down the scale a bit and you have country hotels and smaller hotels that offer accommodation which just do not have that sort of in-built protection. That precludes them from getting insurance at minimum premiums.[398]

11.15 The President of the AHA, Ms Margaret Kearney, told the Committee that it would be very difficult, if not impossible to insure against the loss of cash. However, in relation to property other than cash, there was "a possibility of insurance". Ms Kearney added that the cost of insurance was an "extreme cost" on a business, and that Mr Gromotka (see below) had received advice from his insurers that it would substantially increase his premiums. The flow on effect of increased insurance premiums, she warned, would be to make the Victorian hotel industry less competitive as the cost would be passed on to the consumer.[399]

11.16 The General Manager of the Melbourne Hilton Hotel, Mr Peter Gromotka, elaborated on the insurance issue:

… we checked with our insurance company which had great concerns. It did not spell out a figure on how much money it would cost or what the premium would be, but it raised concerns when I indicated there was a possibility of us not having any minimum liability as part of the Innkeepers Act and that we would dismantle any notification signage. Our insurance company was greatly concerned that if that were to happen, it could increase customer claims.[400]

11.17 According to the Victorian Employers’ Chamber of Commerce and Industry ("VECCI"), the insurance a hotelier purchased was predicated on the basis that there was a cap on liability. If the Act were repealed and there was no longer a cap on liability, VECCI considered, this could result in insurance premiums rising. VECCI submitted:

… advice from insurers also indicates that the cost of insurance cover, specifically over guest property could be extremely high if limits on hotel keeper liability were repealed, and may, in many cases, be uninsurable. We pointed out in our verbal submission that such premiums would add a substantial cost to investment in Victoria's hotel industry.[401]

11.18 The RACV considered that, if the statutory limit of liability of innkeepers were removed, the "prudent innkeeper" would take an additional policy of insurance to cover additional risks. The RACV predicted that this would lead to an outcry from the hospitality industry relating to the increase of overheads but, by contrast, indicated that any increase in insurance premiums would probably be "quite small".[402]

11.20 The Manager of the Victorian Branch of the Insurance Council of Australia, Mr Anthony Mackintosh, initially told the Committee that he did not think that, if the Act were repealed, there would be an explosion of claims and a dramatic increase in insurance premiums for innkeepers as claimed by hotel owners:

I could not be absolutely certain, but it would be hard to see that. People lock their motel and hotel rooms. I do not think they rely on the fact that the innkeeper has a liability. Most people that travel like that have insurance under these contracts, or if they are from overseas they have travel insurance or something.[403]

11.21 However, following later consultations with members of the insurance industry, Mr Mackintosh indicated that reliance on the limitation of liability was quite common, especially when responding to recovery claims being made by insurance companies enforcing their subrogation rights under domestic contracts issued to claimants:

Repealing of the Act would have an effect. It would transfer some of the losses from [an insurance] company’s domestic portfolios [ie from personal and home insurance policies] to the liability portfolio of the hotel or motel’s insurer. Unfortunately there are no figures available to give an indication of the extent of this transfer.[404]

11.22 However, Mr Mackintosh stated that he was "not aware of any variation at all" in the rates for insurance cover in Victoria under the Act, as compared to Queensland where there was unlimited liability.[405] In fact, he informed the Committee, the differences in rates of insurance between States reflected factors such as the occurrence of natural disasters.[406]

11.23 The Committee understands the concerns of hotel owners in relation to the impact on insurance premiums of amendment or repeal of the Act. However, the Committee considers that the submissions and evidence indicate that insurance cover is available to cover loss of or damage to guests’ property, except possibly in the case of cash. The Committee was not presented with any evidence of the impact of unlimited liability on insurance premiums, in terms of dollar amounts. Further, the evidence suggests that there is in fact no difference in insurance premiums between those States with legislation limiting innkeepers’ liability, and those States without such legislation. The Committee notes also that all States with relevant legislation except Victoria impose unlimited liability on innkeepers for property deposited for safekeeping. While the New South Wales review of the Innkeepers Act 1968 suggested at one stage that insurance cover could not be obtained for this unlimited liability, it later contradicted itself on this point. The review of the Australian Capital Territory legislation suggested that insurance cover was available.

Insurance cover relevant to guests

11.24 A guest may have insurance cover that would apply where his or her goods are damaged or lost when staying at a hotel. A traveller may have taken out one or more of the following types of insurance: travel insurance; vehicle insurance; or insurance in respect of house contents.

11.25 A review of the NSW Act resulted in a discussion paper, which identified the following issue:

The Act excludes motor vehicles and contents from the liability of innkeepers on the basis that it is common for owners of motor vehicles to insure their vehicles against loss. It could be argued that the availability of travel insurance for personal property is justification for limiting the absolute liability of innkeepers for goods received or offered for safekeeping.[407]

11.26 VECCI noted that many items lost by guests in hotels would be covered by personal insurance, and considered it appropriate that the loss be borne by that insurance policy.[408]

11.27 As indicated above, Mr Mackintosh told the Committee that the Act seemed to have little relevance because there were so many areas of insurance that covered the situation.[409] He advised that under the Insurance Contracts Act 1984(Cwlth) policies of insurance coverage are prescribed and include cover for goods temporarily removed from the owners place of residence.[410] However, Mr Mackintosh admitted that was a great deal of under-insurance and non-insurance by people in respect of cover for house contents.[411]

11.28 It might be expected that a traveller from another country visiting Australia would have travel insurance. Mr Mackintosh confirmed that travel insurance would cover the loss of or damage to a guest’s property in a hotel.[412] However, the NRMA in New South Wales believed that few domestic travellers take out travel insurance. This view was supported by counter staff at the NSW Travel Bureau, who indicated that domestic travellers rarely purchase travel insurance for travel in New South Wales.[413] Mr Nigel Roberts, Manager of the Sheraton Towers Southgate, stated that, while guests might have some form of insurance, in his experience, individual travel insurance was the last resort of a guest who instead often relied on his or her personal insurance.[414]

11.29 The Committee recognises the force in the policy based argument identified by the NSW review. However, the Committee considers it likely that the rate of insurance cover for cars is much higher than the rate of insurance cover for house contents or personal insurance. Further, as a matter of fairness, it seems more reasonable for an innkeeper to be strictly liable for property brought into the hotel, than for a vehicle which may be left on the street, or in a distant carpark. The Committee also recognises that there is a strong tradition of an innkeeper being strictly liable for loss of or damage of a guest’s property even where not in safekeeping. In addition, the Committee acknowledges that even the hotel industry appears to accept that a measure of care in this regard is desirable.

CLAIMS

Claims by guests against innkeepers

11.30 A review of the NSW Act was unable to establish a clear need for making changes to the legislation on the basis of the theft problem in the industry alone. The available evidence indicated that, in New South Wales in the preceding few years, burglary and theft from hotels averaged around 1,200 cases at a total value of around $1.1 million per year. These figures related to all incidents reported, not just guests’ property. It is likely that a considerable number of these cases related to the theft of hotel property, such as televisions from guest rooms. These figures indicated a New South Wales average of less than one burglary or break and enter per hotel or motel, per year (reported to the police).[415]

11.31 A similar review in the Australian Capital Territory was informed by the hotel industry that there had been no recent difficulty with liability issues and that, where there is loss of or damage to a guest’s property, this was usually picked up by the innkeeper in the interests of good customer relations and paid in full without regard to the statutory limitation of liability.[416]

11.32 The AHA acknowledged that, while there was a continuing number of small claims in Victoria, there was no evidence of major or large scale claims. The AHA submitted that the low incidence of claims was due to the existence of the legislation, and particularly the prescribed notices, which created a discipline in guests to accept responsibility for safeguarding their property.[417]

11.33 VECCI indicated that it was the experience of many innkeepers that guests who claimed to have lost property in a hotel room later found that the item was lost elsewhere or simply misplaced. VECCI considered that the current Act was a "workable compromise" between the rights of the parties. Further, as claims were made on a random basis, the Act enabled innkeepers to make some practical judgments about their level of exposure for loss for any given period.[418]

11.34 The President of the Victorian Accommodation Association and owner of several accommodation establishments, Mr Anthony Sheer, told the Committee that no claims had been made against him as an "innkeeper" during the last 12 months.

11.35 In practice, Mr Gromotka stated, if any claims were made against the hotel, attempts were made to settle them amicably and there had never been a problem in his experience. However, he pointed out, theft or loss of items was not such a big issue in five star hotels which had various forms of security and protection.[419] This practice of settling claims amicably was confirmed in a 1988 article on hotel theft published by the Australian Consumers Association in its "Choice" magazine. An AHA spokesman was quoted as saying that he had never heard of a dispute regarding a hotelkeeper’s liability for theft of a guest’s goods. The spokesman further stated that most hotel owners would refund the full value of stolen goods in the interest of good customer relations and to protect their reputations.[420]

11.36 Mr Gromotka stated that he did not believe there was any difference in practice or payout between a Hilton Hotel in Queensland, where there is no legislation limiting an innkeeper’s liability, and a Hilton Hotel in Victoria.[421] Mr Roberts concurred, saying that there was no difference in practice or payout between a Sheraton Hotel in Victoria and a Sheraton Hotel in Queensland.[422]

11.37 The evidence presented to the Committee suggests that the incidence of claims is not high. As was submitted by the AHA, the low incidence of claims may be due to the existence of the Fourth Schedule notice which encourages people to be responsible for their property. However, the Committee considers that the low incidence may equally be explained on the ground that the majority of guests are responsible people who take care of their belongings irrespective of the presence of statutory notices in hotel rooms.

Claims by innkeepers under insurance policies

11.38 In NSW, an insurance firm specialising in providing insurance cover to hotels advised that there had been no claims made in the preceding 12 month period by hotels on their insurance cover. GIO further indicated that claims in respect of personal injury were of greater concern to innkeepers and their insurance companies than claims for property loss or damage.[423]

11.39 The Committee notes the very limited evidence presented to it in relation to this type of claim, and is unable to draw any conclusions on this point.

Likely effect of unlimited liability on claims

11.40 Innkeepers expressed concern that the removal of caps on liability would see an explosion of fraudulent and mistaken claims by guests against innkeepers.

11.41 The AHA submitted that the introduction of unlimited liability could result in unreasonable claims being made against hotels.[424]

11.42 Mr Gromotka told the Committee that the Hilton Hotel’s insurance provider was greatly concerned that the repeal of the Act would lead to a sudden increase in customer claims and also false claims.[425] The industry was also concerned about increased litigation. Mr Gromotka thought that the number of cases would "blow out".

11.43 The Committee notes the concerns of hotel owners that the introduction of greater or unlimited liability may lead to more claims being made by guests. In this Report, the Committee recommends that liability be increased in respect of goods not placed in safe custody, and be unlimited in respect of goods in safekeeping. The Committee considers that there will be no explosion of false or mistaken claims in respect of property in safekeeping as a guest cannot claim falsely or mistakenly that an item has been stolen when it is in the possession of the innkeeper. The issue, then, is what impact increased liability will have on the incidence of claims for property not in safekeeping. The Committee believes it must assume that the vast majority of guests are responsible and honest people, who will not make unnecessary or false claims. The Committee notes that those guests wishing to defraud innkeepers may currently claim up to $100 in any event. Given that there will continue to be a reasonable limit on liability, the Committee considers that increasing the liability threshold is unlikely to result in an explosion of claims, genuine or false.

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