Hospitality projects are subject to stringent zoning, safety, and environmental regulations, particularly in high-traffic tourist or urban areas. Errors in navigating these regulations—such as misinterpreting zoning codes for resort developments or failing to secure liquor licenses—can lead to project delays, fines, or lawsuits from local authorities or community groups. For example, a developer who overlooks noise ordinance compliance for a luxury hotel could face legal action from nearby residents.
Hospitality developers work with sophisticated investors and brand-conscious hotel operators who demand precise project specifications and timelines. Missteps, like inaccurate cost projections or failure to meet luxury brand standards, can trigger claims from investors alleging misrepresentation or from operators seeking damages for lost revenue. The high-profile nature of hospitality projects amplifies the financial and reputational stakes of these claims.
Hospitality developments often involve large sites or renovations of historic properties, increasing the risk of encountering environmental hazards like contaminated soil or asbestos. These issues can lead to costly cleanups or third-party claims for health or property damage.
Developers often take on roles as property managers or leasing agents, particularly during initial operations or tenant fit-outs for branded hotels. Claims may blur roles—for instance, a developer leasing a hotel space could face a lawsuit for both a design defect (development-related) and a leasing misrepresentation (brokerage-related). A tailored E&O policy ensures seamless coverage across these overlapping responsibilities.
Hospitality projects rely on subcontractors for specialized tasks, such as installing high-end finishes or advanced guest amenities like smart-room systems. Errors by these third parties—such as faulty designs for structural elements or luxury features—can lead to claims against the developer, who oversees the project.
Generic E&O policies for real estate developers, contractors, or agents/brokers are inadequate for hospitality property developers. Contractors’ E&O policies focus on construction errors, excluding professional services like regulatory compliance or operator negotiations. Agents/brokers’ policies cover transactional errors but not project management or environmental liabilities. Standard developers’ E&O policies may lack coverage for hospitality-specific risks, such as guest experience standards or complex design errors, risking coverage denials and costly coverage gaps.
Falcon Risk Services' E&O product for real estate developers is crafted with precision, offering tailored solutions that address the nuances of each individual risk and development type. With coverage for both traditional and emerging risks, it protects developers across their multifaceted roles. By offering this comprehensive product, you can empower your clients with peace of mind and position yourself as their trusted advisor for real estate risk management that encompasses the entire lifecycle of their projects.
Please reach out to a Design & Build team member if you are interested in exploring our various solutions or receiving a quote from us.