TECH TALK Homeowners Coverage and Renting Rooms... Or the House Itself... Social Media Strikes Again Irene Morrill, CPCU, CIC, ARM, CRM, CRIS, LIA, CPIW Vice President of Technical Affairs One agent just asked We have been asked by a number of clients who are participating with the airbnb program if their homeowners policy provides coverage. Does the ISO homeowners policy provide coverage if you rent your primary residence out on a temporary basis; and, if so, how many days per year is allowable? If it does, where can we find the specific language. Another agent asked Question for you, do you know anything about the sites where you can rent out a room, your home etc sites like airbnb? It is similar to the Uber process. You have a room... you advertise it on airbnb... and people book your room for their vacations, etc. I know recently there has been an exclusion added to the auto policy excluding coverage for when people rent themselves and their vehicles out like a taxi, but I wasn t sure if the insurance companies had plans to do something similar on the home side. So your insureds ARE on the Internet finding all sorts of ways to save and make money. AIRbnb and Other Ways Your Insured Can MAKE Money by Renting All or Parts of their Home... First a little about Airbnb. This is a format merely to hook up people who want to rent out a portion or all of their property to those who want to rent it. The guest looks for a cheap vacation and the host looks for a little extra money. If your insureds put their home online with Airbnb they do NOT provide liability or first party property coverage to your client. Host Guarantee coverage $1,000,000... It states it is NOT insurance (kind of like what auto rental companies provide ). It does NOT provide personal liability coverage unlike UBER advertises for those involved in their personal taxi service arrangement. If the renter does damage to the rented premises, Airbnb suggests that host and guest try to iron out the problem first. Airbnb suggests that the host buy his/her own insurance. Will the homeowner s HO coverage respond to damage to rented premises or liability incidents arising out of renting situations? Well, what s the standard answer? It depends. Massachusetts Association of Insurance Agents 91 Cedar Street - Milford, MA 01757 TECH Hotline 800.870.7091 * 800.972.9312 * 508.634.2900 * 508.634.2929 (FAX)
2 Is this a business as defined by the HO policy? I can only talk to ISO policies The ISO HO-91 has a business exclusion of: 2. Business includes trade, profession or occupation. The word includes is the problem gets litigated a lot can be: 1) Continuity 2) Chance for profit A business activity doesn t have to be the family livelihood. How often has the client done the activity, and COULD they have made money. They don t have to necessarily make a profit was there a potential to do so? The HO-2000/HO-2011 has a longer definition 3. Business means: a. A trade, profession or occupation engaged in on a full-time, part-time or occasional basis; or b. Any other activity engaged in for money or other compensation, except the following: (1) One or more activities, not described in (2) through (4) below, for which no insured receives more than $2,000 in total compensation for the 12 months before the beginning of the policy period; Is this an occupation if so, it s a business if performed part-time, full-time or occasional. I think this could fit the issue of occupation. Dictionary.com defines occupation as: 1. a person s usual or principal work or business, especially as a means of earning a living; vocation: Her occupation was dentistry. 2. any activity in which a person is engaged. If not a trade, profession or occupation performed occasionally then in the last 12 months was $2,000 in compensation earned? So is it a business? How will the company find out? Well Airbnb is the Booking Agent and Collects Fees... So, it CAN be determined how often and how much very easily! The terms and conditions of Airbnb state they collect the booking fee. Also, the potential guest guarantees that guest s credit card can be attached for Damage To Accommodations. Airbnb reminds the host that he/she is responsible for taxes city/state/federal. Airbnb also reminds the host to determine whether zoning laws; the building owner if tenant in apartment; or condo association if condo owner allows this rental activity. HO Policy Coverage and Business Activity... Coverage A is not affected to the extent the insured did not lie about what they were doing if asked. There is no business exclusion under Coverage A.
3 The ACORD HO application (as well as specific carrier applications, I imagine) asks: The MA MPIUA application asks: It is IMPERATIVE that we communicate the full extent of what business means to the client. Depending on the extent of rental activity, the hosting homeowner COULD be considered a business. The following is from the HO-2000/2011 editions but the HO-91 language is similar. Concealment or Fraud We do not provide coverage to an insured who, whether before or after a loss, has: 1. Intentionally concealed or misrepresented any material fact or circumstance; 2. Engaged in fraudulent conduct; or 3. Made false statements; relating to this insurance. Coverage B Other Structures and Business The ISO HO policy all editions exclude business use of Other Structures. The following is the HO-2000 and HO-2011 language which is actually MORE generous than HO-91. 2. We do not cover: a. Land, including land on which the other structures are located; b. Other structures rented or held for rental to any person not a tenant of the dwelling, unless used solely as a private garage; c. Other structures from which any business is conducted; or d. Other structures used to store business property solely owned by an insured or a tenant of the dwelling provided that business property does not include gaseous or liquid fuel, other than fuel in a permanently installed fuel tank of a vehicle or craft parked or stored in the structure. If another structure is converted to living area for rental it is NOT covered. The insured needs to buy back with a HO endorsement HO 04 40 Structures Rented to Others (Residence Premises). Coverage C Personal Property and Business... A few issues crop up under THIS coverage. IF this is considered a business activity, then the maximum amount of contents provided on the premises is $2500 under ALL the ISO HO editions. The following is the HO-2000/2011 language: h. $2,500 on property, on the residence premises, used * * * * * primarily for business purposes.
4 The HO-2000 and HO-2011 language is more forgiving as the exclusion states the restriction applies for items used primarily for business. Is there a separate room or area in the house designated for guest rental? The remainder of the household contents should NOT be restricted by this language. The ISO HO-91 language is stronger: h. $2,500 on property, on the residence premises, used at any time or in any manner for any business purpose. Used at ANY time or ANY manner for a business purpose wow! So, if the paying guest is also allowed throughout the whole house and sits on the family couch to watch TV with the host hmmmmmm What About the Landlord Furnishings Coverage? Used at ANY time or ANY manner for a business purpose wow! So, if the paying guest is also allowed throughout the whole house and sits on the family couch to watch TV with the host hmmmmmm 10. Landlord s Furnishings We will pay up to $2,500 for your appliances, carpeting and other household furnishings in each apartment on the residence premises regularly rented or held for rental to others by an insured, for loss caused by a Peril Insured Against in Coverage C, or other than Theft. The limit is the most we will pay in any one loss regardless of the number of appliances, carpeting or other household furnishings involved in the loss. This coverage does not increase the limit of liability applying to the damaged property. Well this is only going to help in the areas that are designated for rental not the rest of the home. And, I highly doubt you ll get BOTH limits just one. But this landlord s furnishing s additional coverage does NOT apply to Theft even if the HO-5 is sold or open perils endorsement for HO-4 or HO-6. The GOOD news is that there is an endorsement to let you buy MORE coverage for landlord s furnishings through the HO 05 46 Landlord s Furnishings Additional Coverage Endorsement. According to ISO, a maximum amount that can be purchased is $10,000 per apartment. Does the HO Policy Cover the Guest? The guest does NOT qualify as an insured under the Host s HO policy under ANY edition of the ISO HO policies. The following is the HO-2000. The HO-2011 and HO-91 is similar: 5. Insured means: a. You and residents of your household who are: (1) Your relatives; or (2) Other persons under the age of 21 and in the care of any person named above; The guests are NOT resident relatives and even if they are under 21 they are NOT residents of the household and in the care of the insured. I might want to have a certificate of insurance from the guest showing they HAVE liability coverage just in case. Of course, if they are from another country I have NO clue of how THAT works.
Coverage C under the ISO HO policy will NOT provide any contents coverage to these guests if this is considered a business and they are roomers or boarders. 5 The following exclusion applies under Coverage C Personal Property in ALL HO editions: Peril Restriction for Theft of Personal Property... Under named perils, the theft peril excludes: Property of roomers, boarders and other tenants, except property of roomers and boarders related to an insured ; (3) From that part of a residence premises rented by an insured to someone other than another insured ; or So whether this activity is considered a business OR a landlord furnishings issue I wouldn t put anything valuable in the area rented to guests! If they decide to bring it home your homeowner client host will see how well that million dollars of Host Guarantee Protection coverage provided by Airbnb works! What about Injury to Guests or Because of Guests and Your Host HO Client Gets Sued? This to me is the most important issue. The ISO HO-2000 or HO-2011 excludes: 2. Business a. Bodily injury or property damage arising out of or in connection with a business conducted from an insured location or engaged in by an insured, whether or not the business is owned or operated by an insured or employs an insured. The exclusion E.2. applies but is not limited to an act or omission, regardless of its nature or circumstance, involving a service or duty rendered, promised, owed, or implied to be provided because of the nature of the business. b. This Exclusion E.2. does not apply to: (1) The rental or holding for rental of an insured location; (a) On an occasional basis if used only as a residence; (b) In part for use only as a residence, unless a single family unit is intended for use by the occupying family to lodge more than two roomers or boarders; or (c) in part, as an office, school, studio or private garage; and All business is excluded which brings us back to the definition. But the business exclusion does NOT apply to the rental of the residence premises on an occasional basis. The ISO HO-91 language is similar. So, one has to ask the company what IT considers occasional to be. How often will the HO carrier be comfortable with the insured leaving the house and renting it to others? At what point will the client have a problem with the definition of residence premises: 11. Residence premises means: a. The one family dwelling where you reside; b. The two, three or four family dwelling where you reside in at least one of the family units; or c. That part of any other building where you reside; and which is shown as the residence premises in the Declarations. Residence premises also includes other structures and grounds at that location. The above is the HO-2000/2011 language but the HO-91 is similar. If it is NOT a residence premises, then you have NO Coverage A, B, D, E but that was the issue of a different Tech Talk! There is also an exclusion for renting to more than 2 roomers or boarders.
6 Be Proactive Talk to Your HO Carriers BEFORE Your Insured Asks the Question. I really would want to ask my insurance carrier their feeling on rental activities of all or part of the house such as Airbnb is. I would like to know what they consider business ; what they consider occasional ; and what they will do with the clause regarding roomers or boarders or the definition of residence premises. Does the insurance company consider Airbnb a form of rooming and boarding house potential? If the company denies the liability claim, that doesn t mean that a court will go along with it; but I personally don t want to sue my company for coverage to apply, do you? That takes time and I am without a lawyer to respond to the claimant in the meantime. Ask your carrier what their appetite is for this activity under the HO policy BEFORE your clients ask about it. Airbnb Terms and Conditions are a Trip I went online and read about it. It seemed like a good idea as far as BEING A GUEST until I read the terms and conditions that were in bold type and capitalized: IF YOU CHOOSE TO USE THE SITE, APPLICATION, SERVICES OR COLLECTIVE CONTENT AND PARTICIPATE IN THE REFERRAL PRO- GRAM, YOU DO SO AT YOUR SOLE RISK. YOU ACKNOWLEDGE AND AGREE THAT AIRBNB DOES NOT HAVE AN OBLIGATION TO CONDUCT BACKGROUND CHECKS ON ANY MEMBER, INCLUDING, BUT NOT LIMITED TO, GUESTS AND HOSTS, BUT MAY CONDUCT SUCH BACKGROUND CHECKS IN ITS SOLE DISCRETION. That did it for me also the taking NO responsibility for me as a guest or host: YOU ACKNOWLEDGE AND AGREE THAT, TO THE MAXIMUM EXTENT PERMITTED BY LAW, THE ENTIRE RISK ARISING OUT OF YOUR ACCESS TO AND USE OF THE SITE, APPLICATION, SERVICES AND COLLECTIVE CONTENT, YOUR LISTING OR BOOKING OF ANY ACCOMMODATIONS VIA THE SITE, APPLICATION AND SERVICES, YOUR PARTICIPATION IN THE REFERRAL PROGRAM, AND ANY CONTACT YOU HAVE WITH OTHER USERS OF AIRBNB WHETHER IN PERSON OR ONLINE REMAINS WITH YOU. NEITHER AIRBNB NOR ANY OTHER PARTY INVOLVED IN CREATING, PRODUCING, OR DELIVERING THE SITE, APPLICATION, SERVICES, COLLECTIVE CONTENT OR THE REFERRAL PROGRAM WILL BE LIABLE FOR ANY INCIDENTAL, SPECIAL, EXEMPLARY OR CONSEQUENTIAL DAMAGES, INCLUDING LOST PROFITS, LOSS OF DATA OR LOSS OF GOODWILL, SERVICE INTERRUPTION, COMPUTER DAMAGE OR SYSTEM FAILURE OR THE COST OF SUBSTITUTE PRODUCTS OR SERVICES, OR FOR ANY DAMAGES FOR PERSONAL OR BODILY INJURY OR EMOTIONAL DISTRESS ARISING OUT OF OR IN CONNECTION WITH THESE TERMS, I guess I ll stay with Expedia.com or the like. Happy Holidays! If I can be of service to you, please call me, Irene Morrill, Vice President of Technical Affairs, at 800.870.7091 or email me at imorrill@massagent.com. This article has been developed expressly for the members of MAIA. Reprint by other than members without the express permission of the author is not permitted.