THOMSON REUTERS
Westlaw Today
Enter to open, tab to navigate, enter to select
There goes the neighborhood: What's covered when renting on Airbnb and VRBO?
2024 PRINDBRF 0210
• Practitioner Insights Commentaries
• April 19, 2024
(April 19, 2024) - Erin Mindoro Ezra, Jamie L. Rice and Madeline E. Ong of Berger Kahn discuss insurance coverage considerations when homeowners arrange short-term rentals of their property.
The short-term rental market, driven by companies like Airbnb and VRBO, skyrocketed in popularity seemingly overnight, taking over neighborhoods all over the world, one house at a time. The idea of letting strangers stay in your home — a concept once reserved for movies like "The Holiday" — has now become just a common part of vacation planning.
By taking a few photos and filling out a couple of online questionaries, Airbnb and VRBO allow people to list their home as a short-term rental. And for renters, reserving a four-person bedroom with a pool and fully-equipped kitchen is as easy as booking a basic hotel room. Because all that is required is a property and access to the website, Airbnb and VRBO have emerged as a popular "side hustle" for property owners seeking to generate supplemental income.
The rapid expansion of the industry has left regulators at the state, county, city, and local levels grappling to establish fitting regulations to address the influx of short-term visitors within their communities. Insurance companies have also had to deal with the possibility of homeowners renting their residences on the side to try and earn a little extra cash.
But short-term renters could create long-term headaches for homeowners. Notably, one emerging question is what coverage do homeowners have if a guest is injured on the property and files a lawsuit against them?
Imagine Bob Smith has a second home in a remote and scenic location that he and his wife used to frequent. Now that they are in their 60s, they don't want to drive the full day it takes to use the home, so they decide to rent the property on Airbnb. They make a few thousand dollars renting it out, but then they are served with a lawsuit by their first renter, Mike Jones.
Mike claims that when he stayed at their house, he slipped and fell on the house's allegedly defective stairs and now he has a serious brain injury.
Bob never bothered to update his insurance, so he still has his original personal homeowners policy on his second home. Does Bob have coverage for the lawsuit?
The first place Bob might look is his homeowners insurance. Generally, personal homeowners policies exclude damages and injuries arising out of the insured's "business" or "business pursuits." For example, if someone conducts a personal training business in their garage for profit, and someone is injured during a session, the homeowners policy would not likely cover the homeowner's liability for the injury.
Business exclusions can be applied expansively. For example, in 1986, in Fire Ins. Exch. v. Jiminez, the California Appellate Court noted that a business pursuit exclusion in the liability insurance context will apply based on the "motivation for the pursuit[,] ... the presence of the profit motive carries considerable weight, and that the business engaged in need not be the sole occupation."
Similarly, in Smith v. State Farm Fire & Cas. Co., the Minnesota Court of Appeals in 2003 held that a business pursuits exclusion applied where the insured's barn — rented out to a local marina each winter — collapsed. The insured submitted a claim to their insurance company for the loss, arguing that because renting the barn was not their primary occupation, the business exclusion did not apply.
The Court disagreed, noting that "Smith was renting the barn for business purposes and that coverage for damage to the barn was precluded under the policy's business exclusion."
Some homeowners policies may even have explicit rental exclusions that exclude coverage for short or long-term rentals of an entire property. The California Appellate court in the 2019 case, Terrell v. State Farm General Ins. Co., considered a homeowners policy that had an exclusion for "bodily injury or property damage arising out of business pursuits of any insured or the rental or holding for rental of any part of any premises by any insured."
Fortunately, homeowners are not limited to their personal policies if they need coverage. Short-term renters like Bob can also look to Airbnb and VRBO to provide insurance and financial protection to specifically cover liabilities and damages arising from the rental of their property.
According to their website, Airbnb provides up to $3 million in damage coverage, and $1 million in liability coverage (https://bit.ly/4b0vfD7). VRBO's website states that there is $1 million in general liability coverage (https://bit.ly/4cVwYv3). Both Airbnb and VRBO advertise that their coverage comes at no extra cost to the host.
Interesting issues can arise when a homeowner has two insurance policies in play. Some who frequently rent their home on Airbnb may have a landlord policy that covers rentals.
Changing up the prior example, perhaps Bob realized before he listed his property on Airbnb that he wanted to switch from a homeowners to a landlord policy. If the landlord policy covers rentals, can Bob also get coverage under Airbnb's policy?
Like most legal questions, it depends on the facts of each claim. Coverage depends on the language of each policy and how each state's courts interpret those provisions. Coverage may overlap, particularly if there is no business or rental exclusion in the host's policy.
For example, one Massachusetts court analyzed coverage for a short-term VRBO rental and found that under the specific language of the policies, both VRBO and the homeowners' insurers were co-primary insurers.
In 2021 in Generali-U.S. Branch v. Commerce Ins. Co., a Federal District Court in Massachusetts considered a situation where a homeowner rented their home on VRBO to someone who slipped and fell at the residence resulting in a traumatic brain injury. The homeowner had a Commerce policy. They were also covered under a policy Generali had issued to VRBO.
Commerce contended that the Generali policy should be the primary policy providing the homeowner with a defense, and Commerce would be the excess policy to provide coverage only after Generali policy's coverage is exhausted. However, both policies said that their policy was excess over other valid insurance except insurance "written specifically as excess over the limits of this policy." The Court held these two policies' other insurance clauses cancelled each other out, so they were primary co-insurers, both responsible to cover the singular injury.
As in any developing market, there is a lot of legal uncertainty for homeowners who use VRBO and Airbnb.
For those who rent their property on Airbnb and VRBO, the important thing to keep in mind is that extra coverage beyond the Airbnb or VRBO policy will likely hinge on what kind of policy the homeowner has. Homeowners should keep in mind that Airbnb and VRBO may also provide coverage to those who rent their properties on their websites.
Always refer to the homeowners policy, the short-term rental company's policy, and state and local rules when considering how renting on a short-term rental website could affect available coverage.
Erin Mindoro Ezra is a regular contributing columnist on insurance coverage for Reuters Legal News and Westlaw Today.
Erin Mindoro Ezra manages Berger Kahn's South Orange County office in Lake Forest, Calif., focusing on insurance coverage and labor and employment. She represents and advises clients in insurance coverage matters, particularly liability insurance, and counsels clients in connection with wage-and-hour disputes, investigations, discrimination, retaliation, and other employment matters. She can be reached at [email protected]. Jamie L. Rice is a senior associate with the firm's South Orange County office, focusing on insurance coverage, examinations under oath, and labor and employment. She defends employers against discrimination, wrongful termination, and wage-and-hour allegations and advises and represents insurance companies in connection with coverage disputes under personal and commercial policies. She can be reached at [email protected]. Madeline E. Ong is an associate with the firm's South Orange County office, primarily focusing on insurance coverage and labor and employment. She counsels clients regarding insurance obligations under personal and commercial lines and represents employers in employment litigation matters, including discrimination, retaliation, wage-and-hour disputes, and other employment matters. She can be reached at [email protected].
)
Erin Mindoro Ezra)
Jamie L. Rice)
Madeline E. Ong| End of Document | © 2024 Thomson Reuters. No claim to original U.S. Government Works. |