Summary: While ride sharing and car sharing have gotten lots of media attention, home sharing is another sharing system. People rent rooms or homes for short periods of time or exchange their homes for someone else′s for a given time. Similar to ride and car sharing, there are issues in both, from the individual homeowners policy to the regulations that are followed by bed and breakfasts and inns and hotels but are not being applied to the home sharing companies. There are other home sharing arrangements as well where homes are truly shared in exchange for services or fees.
Topics Covered:
Introduction
Over the past few years sharing economies have become quite popular. Uber and Lyft are the forerunners in ride sharing, RelayRides is the forerunner in car sharing, followed by Turo, and others seem to appear daily. (Note: ISO has devised a new auto policy in which liability coverage is limited for permissive drivers.) Airbnb is a major home sharing provider, followed by Vrbo (vacation rental by owner) HomeExchange is an exchange provider where the homeowners swap houses for a given timeframe, which could be a plus for persons on a sabbatical. Flipkey is similar, advertising that it helps travelers find lodgings, and while many locations may be run by property managers, individuals can also provide lodgings for Flipkey users.
Similar to ride and car sharing, airbnb, HomeExchange, Vrbo, and Flipkey provide a platform for potential hosts and guests to connect to share or trade living space. Evolve exists primarily as a platform for locating rentals; the site notes it works with other sites such as airbnb. A host may provide an entire house or just a room and may stay on premises or may be traveling himself. All payments are made through the hosting platform, and hosts are to provide some basic identification before listing a home. HomeExchange and Flipkey do not even verify information posted by its members. Flipkey clearly states that they do not assume any responsibility for the confirmation of each user′s purported identity. However, there are no background checks of hosts or guests, so users are taking somewhat of a risk. On the other hand, Airbnb requires background checks and a photo ID for booking arrangements.
Airbnb hosts agree to provide a clean area and some amenities; there are no requirements, just recommendations from airbnb. Hosts list the available space and interested renters make a connection and a reservation. This is very similar to a bed and breakfast, and many B&B owners are raising flags since airbnb providers are not adhering to regulations that B&B providers are required to adhere to. There are zoning regulations and taxes that airbnb hosts are avoiding. Insurance issues also arise.
And then there is the new kid on the block, Swimply, which is a site that allows homeowners with swimming pools to rent out the pools for a period of time. Tennis and pickleball courts are now included. The fact that the site posts "suggestions" such as "put the home's address in a prominent place in case 911 must be called" gives a hint as to the possible danger inherent in this scheme. The Swimply website now states that two million for general liability and $10,000 for property damage claims is available.
Homeowners Coverage
The ISO 2011 standard homeowners policy provides coverage for property of guests while the property is in any residence occupied by an insured or property of others while the property is on the part of the residence premises occupied by the insured. However property of roomers, boarders, and other tenants, unless related to an insured, is not covered. Therefore there is no coverage for property of guests in this form. Similarly, furnishings of the insured including appliances and carpeting that are in apartments regularly rented or held for rental are covered up to $2,500. Covered causes of loss are the named perils listed in coverage C, excluding theft.
However, the ISO 03 22 forms have taken home-sharing into account; adding definitions, exclusions, and new endorsements to provide broadened home-sharing coverage. (As of this article's revision, AAIS still offers the 2008 homeowners forms. For a discussion of these and the 2011 ISO forms, see the 5th edition Homeowners Coverage Guide.)
But as noted, the 03 22 ISO forms have taken the home-sharing market into account. Looking at the HO 00 03 (Special Form), we see in the Definitions that "business" means "home-sharing host activities" as well as past definitions such as "a trade" or "leasing of mineral rights".
For example, the policy states that other structures "rented or held for rental to any person not a tenant of the dwelling" are not covered, unless "used solely as a private garage". Endorsement HO 06 63 09 22, however, states that the insurer will not cover " other structures rented or held for rental to any person other than a: (1) "Home-sharing occupant…." and "other structures from which any "'business' is conducted, except structures used primarily for 'home-sharing host activities". And, under Coverage C 4. Property Not Covered, Paragraph g. Property in a space while rented or primarily held for rental to a "home sharing occupant" is replaced so that property in an apartment regularly rented or held for rental is not covered except as provided in the additional coverage for landlord's furnishings. The elimination of coverage for "property used primarily for 'home-sharing host activities'" is deleted completely.
An interesting addition under Coverage D–Loss of Use is that lost rental value is covered provided a covered loss makes the part of the residence premises used for "home-sharing host activities" not fit to live in, or the insured or other person cancels the contract because there is National Weather Service issued hurricane watch or warning for any part of the state in which the residence premises is located, or where the person entering into the contract resides. (Other limitations apply; please consult the endorsement.)
Liability is always a concern. Medical payments coverage is available to those on the insured location with the permission of the insured or off the insured location if the injury arises out of a condition of the insured location or ways immediately joining it, caused by activities of the insured or residence employees in the course of their duties. Airbnb recommends that hosts clearly specify whether or not the guest may bring other visitors onto the premises. This becomes important if the insured specified that no other parties were to be allowed and the guest invited someone who was injured while on premises. In that situation there would be no coverage.
Under the 2011 forms, coverage does not apply to a business of the insured. The policy defines "business" as a trade, profession, or occupation engaged in on a full-time, part-time, or occasional basis and for which the insured receives more than $2,000 in total compensation for the twelve months preceding the beginning of the policy period. If the insured has received more than $2,000 in a year by hosting visitors, then that is a business. However, an exception exists for the occasional rental or holding for rental of an insured location if the property is used only as a residence. This created an issue since the homeowners policy is not designed to provide coverage for a B&B, but the exception leaves the policy open for coverage even if the insured is regularly renting out his home as a vacation spot.
However, under the 2022 forms, it is clear that there is no liability or medical payments coverage arising out of or in connection with a "business" (which, remember, is defined as "home-sharing host activities" with no dollar limitation imposed). And, although there are exceptions to the exclusion, home-sharing is not one of them. By attaching a broadened home-sharing host activities endorsement to the policy, coverage for both liability and medical payments is provided. The endorsement states that exclusion E.2 does not apply to "home-sharing host activities", and the policy's exclusion G.4, which eliminates coverage for any home-sharing occupant is amended to state that there is no coverage for any person "other than a 'residence employee' of an 'insured' regularly residing on any part of the 'insured location'".
Commercial Insurance
Coverage for this type of risk is even more complicated when you look at commercial policies. While coverage may be provided by using ISO's Hotels, Motels, and Inns coverage, it equally may not be provided. The form, MS HM 01 07 13, combines elements of the commercial property and commercial general liability programs along with a supplement schedule and endorsement. Eligibility requirements include smaller establishments such as motor lodges with or without pools or beaches; however, apartment hotels and boarding or rooming houses are not eligible. An "apartment hotel" is defined by Merriam-Webster's Online as a hotel containing apartments as well as accommodations for transients. A boarding house is a house where people pay to live and have daily meals, and a rooming house is a house where rooms with furniture are rented to people to live in. While these definitions imply a sense of permanence or a long-term stay, it is not specifically stated. Therefore, it is confusing as to whether or not coverage would actually apply.
Motels are eligible under a businessowners policy; however, seasonal use, where the property is closed for more than thirty days, is not eligible. Unless the host was constantly renting his property, this would not apply to those who share their homes. Also ineligible are one- or two-family dwellings unless it is a garden apartment where multiple units are grouped within a single area and under common ownership, management, and control. Again, unless the insured is renting a property solely as an apartment for others and not residing there himself, there would be no coverage.
Under the commercial package policy there is a modification for motels, hotels, motor inns and lodges, and similar risks whose business is principally the providing of lodging accommodations for transients. Again, for an occasional vacation rental or trade, this does not seem to quite fit even though the owner may be required by state regulations to obtain permits, pay fees, and adhere to other requirements the same as commercial properties.
But given the coverages provided by ISO's home-sharing host activities coverage endorsements, it would seem that their usage would lessen the need for commercial coverage for this type of risk. Having said this it would be wise to check that local regulations do not mandate the use of commercial forms. For example, commonly a bed and breakfast offers just that–accommodation and breakfast and possibly other meals as well. Serving food presents a risk not typically found in a vacation rental.
Insurance From Providers
Airbnb Aircover
Airbnb provides what it calls a host guarantee (Aircover for Hosts): if the host follows all terms and conditions as specified, the host then becomes eligible for compensation for covered losses as defined. Before collecting, the host must work with the responsible guest in order to resolve the situation. If the situation is not resolved within seven days, then the host may file with airbnb. Filing must be within fourteen days of the guest′s checkout or before the next guest checks in, whichever is earlier. Airbnb recommends filing a police report, and one is required for any payment request that exceeds $300 and if the loss is due to violation of a law, theft, or criminal.activity. Photos of the damage being claimed and receipts or other documentation to prove the fair market value or the cost of the items are also required. A signed and sworn proof of loss is required within sixty days after the date of the loss. The host may collect only what has not already been covered by the guest, insurance, a security deposit, or another party. "Covered losses" are defined as physical damage caused by a guest or invitee while staying at the host′s listed accommodation other than what is excluded (such as currency). This does not replace the host's insurance, and losses caused by storms, fires, and other common causes are not covered unless caused directly by a guest. If a guest sets fire to the living room carpet, that is covered. If the living room carpet is burned in a fire that was caused by lightning, there is no coverage. Covered property is limited, and fine arts, currency, money, bullion, animals, land, weapons, vehicles, and watercraft are excluded, unless the vehicle or watercraft is a covered accommodation. Excessive use of utilities such as gas, electric, or water by the guest, are also excluded, as are losses caused by mold, fungus, spores, or mildew regardless of cause. Coverage is for $3 million. (Previously coverage was for $1 million but this amount has been increased.)
Booking income loss is covered, which is the loss of income from the booked portion of an accommodation while a host is recovering from a covered loss.
Airbnb announced that, beginning January 15, 2015, they would provide up to $1 million in liability for hosts providing accommodations for travelers, called Host Protection Insurance. The policy is secondary over the host′s primary policy but does provide coverage if there is no coverage under the host's primary policy. There is a maximum limit of $2 million per location. If travelers are injured on the property during their stay, coverage applies for hosts, homeowners associations, and in some instances, landlords. Intentional acts caused by the host are excluded, as are nonphysical injuries such as slander or emotional distress.
Likewise, injuries from mold, bed bugs, drywall, and other such habitat issues are excluded as well. Conditions are similar to the conditions that appear on the standard homeowners form: mitigation of losses, showing damaged property to airbnb representatives, and allowing inspections.
HomeExchange
HomeExchange works as a club and charges an annual $220 membership fee. In the past, HomeExchange provided no insurance whatsoever. Now, however, the company provides coverage for property damage up to $2 million, which includes theft protection. The company also requires a $2,500 security deposit from a guest, and verifies identities of its members and certifies each home on site. No mention is made of liability coverage.
Flipkey
Flipkey provides travelers with some damage insurance that can be purchased separately, and it may be built into the cost of the rental. Called the payment protection policy, it provides coverage for the guest , and is minimal coverage. The traveler is the insured and coverage is very basic. Wear and tear, intentional acts, inclement weather or natural disaster, damage in violation of the lease agreement, loss, theft or damage caused by someone other than the insured, and loss to the insured's (traveler's) property are excluded. The coverage amount is the lower of the amount paid or $10,000 maximum.
Flipkey also provides a Peace of Mind policy that provides $10,000 of coverage, provided the payment is sent to the supplier via Flipkey Payments. The renter cannot recover funds from the supplier, bank, or credit card issuer; and the claim must be submitted via email within 14 days of the check-in date of the rental with all documentation. This does not give a traveler much time to try to recoup funds and make a claim. Coverage is only for lost funds, inaccessible or misrepresented listing, or a deposit dispute.
Evolve
We include this company although as of this writing it is more of a management platform than a home-sharing business in and of itself. However, it does offer property damage protection up to $5,000, and owner liability up to $1 million. Not covered under property damage are missing, lost, or stolen items, or damage to or by a motor vehicle.
Permits and Taxes
Many jurisdictions have requirements for rental premises, including hotels, inns, B&Bs, and other part-time rental premises; these regulations often vary by city or county and are not just state regulations. Regulations cover items such as length of rental, zoning, fire safety, health standards, taxes, fees, and permits. Homeowner or condominium associations may have regulations against subletting, and neighbors may have concerns. Subsidized housing and rent controlled areas may also have particular rules that apply. Some areas have specific building codes and land requirements, others require licenses for both operating a business and a hotel or similar company, others require rental registrations and lodging house licenses. The requirements are many and varied. Airbnb provides a listing of several area restrictions, but it is up to the host to be sure he abides by all local regulations.
In City of New York, v. Smart Apartments LLC., 959 N.Y.S. 890 (2013), the court ruled that Smart Apartments actions of advertising and providing rentals for less than thirty days violated consumer protection law and was a public nuisance and issued a preliminary injunction enjoining them from operating. The plaintiffs claimed that the actions were illegal, unsafe, a deceptive business practice, a public nuisance, and annoyed the neighbors. The defendants did not deny their actions, claimed that some situations actually were legal and that they were changing their ways, and that they were similar to airbnb, who was not being harassed since the mayor was attached to a company invested in airbnb.
In Hayek v. City of Santa Monica, 2019 Cal Super. (Lexis 10899) the court ruled that home sharing was allowed so long as the host obtained and maintained a business license, operated in compliance with permit conditions, and collected appropriate "transient taxes".
But in Dixon v. the City of Auburn (Sup. Ct. AL 2023) the plaintiff argued that the rental of his basement predated the City's adoption of a short-term rental ordinance. However, his home was in an area designated a Neighborhood Conservation Area, and the ordinance governing that particular area stated that any rental was limited to no more than two unrelated persons (that is, persons unrelated to the host).
A different case raised a huge issue: travelers refusing to leave. A woman rented her condo to someone for a month, and the traveler refused to leave. The owner hired a lawyer and started the eviction process which can take three to six months. According to California law, once a person rents a property for thirty days, they are considered a tenant on a month-to-month lease. Not only that, California requires owners to provide a relocation fee to tenants they wish to evict. Airbnb and other providers state that renters or hosts are responsible for knowing their state's regulations. While the tenant eventually left on his own and airbnb eventually provided assistance and paid for the time the space was rented, the situation highlights what can go wrong.
And, as of this writing, who can forget the airbnb "guest" who, after over 500 days, was finally gotten out of the host's property. Predictably, the host is suing the guest and vice versa.
Flipkey, in its "terms and conditions", refers to a guest's "overstaying without the owner's consent, but simply states that the owner is entitled to make the violator leave, and also will charge two times the average nightly rate for each twenty-four hour period the "guest" remains. Of course, collecting that amount might present problems, but the fact that this is in the "terms and conditions" might serve as a deterrent.
While similar to taxis, limousines, and rental car services, there are many differences that set them apart. The rides and vehicles are provided by any interested person who has passed the company's specifications as to driving history, background, maintenance of the vehicle, and other parameters. And, although many home-sharing sites now appear to be vetting both the hosts and sometimes the guests, still considerable risk is involved. As outlined, insurance issues are some of the largest and most pressing issues. Various court cases are under way, and how those will be settled will be significant.
Christine G. Barlow, CPCU
Christine G. Barlow, CPCU, is Executive Editor of FC&S Expert Coverage Interpretation, a division of National Underwriter Company and ALM. Christine has over thirty years’ experience in the insurance industry, beginning as a claims adjuster then working as an underwriter and underwriting supervisor handling personal lines. Christine regularly presents and moderates webinars on a variety of topics and is an experienced presenter.