Hotel Franchises Face Rising Bed Bugs Claims

One factor that has been limiting damages is the relatively low danger from bed bug bites; according to the EPA, bed bugs do not carry diseases and few people have severe allergic reactions. But the bites do cause great discomfort, and a sleeping person can get scores of bites in an evening because the bugs inject an anesthetic and anticoagulant so that the victim does not feel the bite when it occurs. “Bed bugs cause a variety of negative physical health, mental health, and economic consequences,” said Perciasepe.

Benjamin West Janke, attorney with Baker Donelson Bearman Caldwell & Berkowitz, PC (New Orleans), has found that, to date, damage awards against hotel operators typically have been for compensatory damages only and have been $5,000 or less. “But with the issue becoming sensationalized in news stories, a plaintiff could possibly claim emotional distress and receive more in damages than is warranted solely for physical harm,” he said.

Even small, nuisance claims can add up if multiple incidents occur at the same hotel. Also, Hardigree pointed out, insurers are tightening their rules on paying for claims by excluding claims for vermin, or giving hotel operators the choice of buying expensive riders to retain that coverage. Sometimes, hotel operators can buy riders for loss of business if they have had to close rooms or lost bookings due to bed bugs.

One lawsuit several years ago illustrated circumstances under which punitive damage awards might be awarded far in excess of compensatory damages. In Mathias v. Accor Econ. Lodging, 347 F.3d 672 (7th Cir. Ill. 2003), a trial court found compensatory damages of $5,000, but assessed punitive damages of $372,000 against the hotel operator because it knew about the problem and chose not to undertake an inexpensive solution, said Janke. The ruling was affirmed by Judge Richard Posner in the U.S. Court of Appeals for the Seventh Circuit.

In Accor, a room had been found infested with bed bugs and closed to usage, with the classification of “Do not rent until treated.” However, it was rented to two guests without being treated. Also, the hotel operator chose to spray only the room in which bed bugs were found, rather than to spray the entire property, even though the cost would have been only $500.

“The defendant argued that at worst it was guilty of simple negligence, and thus plaintiffs were not entitled to any award of punitive damages,” said Mitch Miller, principal, Miller Law Group, P.C. (Palo Alto, CA). “It also complained that the award was excessive. The court disagreed, stating 'the evidence of gross negligence, indeed of recklessness in the strong sense of an unjustifiable failure to avoid a known risk, ' was amply shown.'”

“In Accor, the court found that the defendant refused to address the problem,” added Janke. “It was intended to be a wake-up call to the hotel operator. And remember that Accor did not involve mental anguish claims, and there's nothing to say that a court won't allow that down the line. No hotel or franchise wants to face that.”

(For summaries of two other significant bed bugs decisions, see “Significant Bed Bugs Litigation.”)

Scale of Problem and Development of Treatments

No organization tracks the number of bed bug infestations reported annually, but survey data from the National Pest Management Association (“NPMA”) provide some sense of the growth of the problem. In 2009, bed bug treatment in the United States generated about $258 million in revenue, up from $98 million in 2006, according to NPMA.

In a 2010 NPMA survey, more than 95% of pest control professionals reported that they provided bed bug treatments in the last year, as compared to fewer than 25% in 2000. “Also, though this is anecdotal, the respondents said that while they might have been doing one or two treatments a year in the past, they are doing one or two a month, a week, or even per day now,” said NPMA spokesperson Missy Henriksen.

In the survey, 76% of NPMA survey respondents described bed bugs as the hardest pests to treat. “They hide, they are nocturnal, and they can lay dormant for a year,” said Henriksen.

Making matters more complicated, the pest control industry and the EPA do not have a consensus on how to treat for bed bugs. The EPA has noted that chemicals-based approaches have backfired to some degree, as bed bugs are developing resistance to some pesticides, and some chemicals that might kill bed bugs potentially pose health risks when used in indoor applications. In June 2010, the EPA denied a request for waiver from the state of Ohio to allow for the “spot use” of the pesticide Propoxur in cracks and crevices of buildings, calling it “toxic for children.”

Best practices developed by NPMA and others are guiding lodging operators. NPMA's latest best practices manual was released in January 2011 with input from a variety of industry stakeholders, as well as government and academia, said Henriksen. It can be found at www.pestworld.org.

NPMA also is working with government officials on several regulatory matters that could have an impact on the problem. It is seeking to increase research funding for bed bug control. It has asked the EPA to standardize the approval process for new products for bed bug treatment and to consider product waivers, such as Propoxur.

Also, to reduce the confusion faced by individuals and businesses beset with bed bugs, NPMA has asked the Federal Trade Commission to vigorously enforce advertising claims about bed bug treatment products and services. “Whenever you see a business with this type of growth rate, people will enter it and make wild claims,” said Henriksen. “We don't want individuals or businesses to be cheated.”

Finding effective treatments is definitely a priority for the lodging industry, said Hardigree. “This has the potential to be the snake oil pitch of the 21st century,” she said. “I work with a number of entomologists, and they say the data are not there to back many of the treatment claims. There's nothing that you can legally spray that will fix the problem, and hotel operators don't know what to do.”

A proactive approach to searching for bed bugs, followed by a multi-tiered approach to removing them, is best, she said. Hardigree said that some hotel operators offer bonuses to house-cleaners who find bed bugs, or they conduct all-property checks every few weeks.

Franchisors' and Franchisees' Responses

Given the widespread nature of the problem and the potential claims, franchises are moving quickly to implement solutions. And having a well-designed plan for stopping infestations when they are found will help a hotel operator make its case in court.

But the very nature of the franchise relationship adds a layer of complexity that is absent for other businesses, such as apartment buildings. “Not only are lodging franchises struggling to formulate a solution, but it is made more complex because of the issue of control,” Janke said. “The franchise needs to consider how much should be handled at the franchisor level, and how much responsibility should be delegated to the franchisee.”

Typically, hotel franchises leave franchisees responsible for pest control. The franchisor sets standards that the franchisee must meet, and it reserves the right to inspect, monitor, or evaluate the franchisees' compliance with such standards. “In the franchise context, this approach manifests in operations manual language that alerts the franchisee to this responsibility,” Janke said. “More specific language runs the risk of crossing the threshold into 'control' that will offer claimants the chance to take the franchisor, as well as the operator-franchisee, to trial.”

The ease with which bed bugs can be transferred from one place to another and create infestations has created some surprising situations, according to Hardigree. For example, her hotel clients are seeing a rise in workers' compensation claims by cleaning and maintenance staff that they were infested while on the job. Those bugs then infest workers' homes, causing them additional discomfort and expense.

Conversely, some hotel operators are finding that their workers are unintentionally bringing bugs from their infested homes. Hardigree said that some hotels have responded by providing interest-free loans for staff to get their homes decontaminated. “For people living paycheck to paycheck, there's no money for an exterminator, and they don't want to admit it to their employer,” said Hardigree.

Even training of front-desk staff can be affected by bed bugs. When Hardigree arrives at a hotel, she asks if the hotel has had any complaints by guests about bed bugs. “I don't do this because I expect them to be honest, but I do it to change the damages I can seek,” she said. “If they lie to me, that's fraud.”

Kevin Adler is associate editor of this newsletter.

When health and environmental experts convened in Washington, DC, on Feb. 1-2 for the Second National Bed Bug Summit, the message was clear that bed bugs are an increasing health menace. “In recent years, public health agencies across the country have been overwhelmed by complaints about bed bugs,” said Bob Perciasepe, deputy administrator, U.S. Environmental Protection Agency (“EPA”), at the start of the summit.

For lodging industry franchises, bed bugs are a business challenge and a potential source of litigation. “No one is keeping an exact count of the number of cases, but claims are definitely on the rise,” said Christian Hardigree, associate professor and chair of the Department of Hotel Management at the William F. Harrah College of Hotel Administration at the University of Nevada, Las Vegas.

Hardigree said that many lawsuits are “nuisance claims” that are settled for small amounts of money. Alleged victims don't have permanent injuries and did not seek medical attention, but the hotel operator does not want the negative publicity of a lawsuit. “The damages aren't great, so many people are making claims on their own without working with an attorney,” she said.

One factor that has been limiting damages is the relatively low danger from bed bug bites; according to the EPA, bed bugs do not carry diseases and few people have severe allergic reactions. But the bites do cause great discomfort, and a sleeping person can get scores of bites in an evening because the bugs inject an anesthetic and anticoagulant so that the victim does not feel the bite when it occurs. “Bed bugs cause a variety of negative physical health, mental health, and economic consequences,” said Perciasepe.

Benjamin West Janke, attorney with Baker Donelson Bearman Caldwell & Berkowitz, PC (New Orleans), has found that, to date, damage awards against hotel operators typically have been for compensatory damages only and have been $5,000 or less. “But with the issue becoming sensationalized in news stories, a plaintiff could possibly claim emotional distress and receive more in damages than is warranted solely for physical harm,” he said.

Even small, nuisance claims can add up if multiple incidents occur at the same hotel. Also, Hardigree pointed out, insurers are tightening their rules on paying for claims by excluding claims for vermin, or giving hotel operators the choice of buying expensive riders to retain that coverage. Sometimes, hotel operators can buy riders for loss of business if they have had to close rooms or lost bookings due to bed bugs.

One lawsuit several years ago illustrated circumstances under which punitive damage awards might be awarded far in excess of compensatory damages. In Mathias v. Accor Econ. Lodging , 347 F.3d 672 (7th Cir. Ill. 2003), a trial court found compensatory damages of $5,000, but assessed punitive damages of $372,000 against the hotel operator because it knew about the problem and chose not to undertake an inexpensive solution, said Janke. The ruling was affirmed by Judge Richard Posner in the U.S. Court of Appeals for the Seventh Circuit.

In Accor, a room had been found infested with bed bugs and closed to usage, with the classification of “Do not rent until treated.” However, it was rented to two guests without being treated. Also, the hotel operator chose to spray only the room in which bed bugs were found, rather than to spray the entire property, even though the cost would have been only $500.

“The defendant argued that at worst it was guilty of simple negligence, and thus plaintiffs were not entitled to any award of punitive damages,” said Mitch Miller, principal, Miller Law Group, P.C. (Palo Alto, CA). “It also complained that the award was excessive. The court disagreed, stating 'the evidence of gross negligence, indeed of recklessness in the strong sense of an unjustifiable failure to avoid a known risk, ' was amply shown.'”

“In Accor, the court found that the defendant refused to address the problem,” added Janke. “It was intended to be a wake-up call to the hotel operator. And remember that Accor did not involve mental anguish claims, and there's nothing to say that a court won't allow that down the line. No hotel or franchise wants to face that.”

(For summaries of two other significant bed bugs decisions, see “Significant Bed Bugs Litigation.”)

Scale of Problem and Development of Treatments

No organization tracks the number of bed bug infestations reported annually, but survey data from the National Pest Management Association (“NPMA”) provide some sense of the growth of the problem. In 2009, bed bug treatment in the United States generated about $258 million in revenue, up from $98 million in 2006, according to NPMA.

In a 2010 NPMA survey, more than 95% of pest control professionals reported that they provided bed bug treatments in the last year, as compared to fewer than 25% in 2000. “Also, though this is anecdotal, the respondents said that while they might have been doing one or two treatments a year in the past, they are doing one or two a month, a week, or even per day now,” said NPMA spokesperson Missy Henriksen.

In the survey, 76% of NPMA survey respondents described bed bugs as the hardest pests to treat. “They hide, they are nocturnal, and they can lay dormant for a year,” said Henriksen.

Making matters more complicated, the pest control industry and the EPA do not have a consensus on how to treat for bed bugs. The EPA has noted that chemicals-based approaches have backfired to some degree, as bed bugs are developing resistance to some pesticides, and some chemicals that might kill bed bugs potentially pose health risks when used in indoor applications. In June 2010, the EPA denied a request for waiver from the state of Ohio to allow for the “spot use” of the pesticide Propoxur in cracks and crevices of buildings, calling it “toxic for children.”

Best practices developed by NPMA and others are guiding lodging operators. NPMA's latest best practices manual was released in January 2011 with input from a variety of industry stakeholders, as well as government and academia, said Henriksen. It can be found at www.pestworld.org.

NPMA also is working with government officials on several regulatory matters that could have an impact on the problem. It is seeking to increase research funding for bed bug control. It has asked the EPA to standardize the approval process for new products for bed bug treatment and to consider product waivers, such as Propoxur.

Also, to reduce the confusion faced by individuals and businesses beset with bed bugs, NPMA has asked the Federal Trade Commission to vigorously enforce advertising claims about bed bug treatment products and services. “Whenever you see a business with this type of growth rate, people will enter it and make wild claims,” said Henriksen. “We don't want individuals or businesses to be cheated.”

Finding effective treatments is definitely a priority for the lodging industry, said Hardigree. “This has the potential to be the snake oil pitch of the 21st century,” she said. “I work with a number of entomologists, and they say the data are not there to back many of the treatment claims. There's nothing that you can legally spray that will fix the problem, and hotel operators don't know what to do.”

A proactive approach to searching for bed bugs, followed by a multi-tiered approach to removing them, is best, she said. Hardigree said that some hotel operators offer bonuses to house-cleaners who find bed bugs, or they conduct all-property checks every few weeks.

Franchisors' and Franchisees' Responses

Given the widespread nature of the problem and the potential claims, franchises are moving quickly to implement solutions. And having a well-designed plan for stopping infestations when they are found will help a hotel operator make its case in court.

But the very nature of the franchise relationship adds a layer of complexity that is absent for other businesses, such as apartment buildings. “Not only are lodging franchises struggling to formulate a solution, but it is made more complex because of the issue of control,” Janke said. “The franchise needs to consider how much should be handled at the franchisor level, and how much responsibility should be delegated to the franchisee.”

Typically, hotel franchises leave franchisees responsible for pest control. The franchisor sets standards that the franchisee must meet, and it reserves the right to inspect, monitor, or evaluate the franchisees' compliance with such standards. “In the franchise context, this approach manifests in operations manual language that alerts the franchisee to this responsibility,” Janke said. “More specific language runs the risk of crossing the threshold into 'control' that will offer claimants the chance to take the franchisor, as well as the operator-franchisee, to trial.”

The ease with which bed bugs can be transferred from one place to another and create infestations has created some surprising situations, according to Hardigree. For example, her hotel clients are seeing a rise in workers' compensation claims by cleaning and maintenance staff that they were infested while on the job. Those bugs then infest workers' homes, causing them additional discomfort and expense.

Conversely, some hotel operators are finding that their workers are unintentionally bringing bugs from their infested homes. Hardigree said that some hotels have responded by providing interest-free loans for staff to get their homes decontaminated. “For people living paycheck to paycheck, there's no money for an exterminator, and they don't want to admit it to their employer,” said Hardigree.

Even training of front-desk staff can be affected by bed bugs. When Hardigree arrives at a hotel, she asks if the hotel has had any complaints by guests about bed bugs. “I don't do this because I expect them to be honest, but I do it to change the damages I can seek,” she said. “If they lie to me, that's fraud.”

Kevin Adler is associate editor of this newsletter.