R.I. Consumer Alert Looks at Insurance Implications for Home-Sharing Rentals

July 29, 2015

Rhode Island’s Insurance Division is advising consumers to examine insurance implications when using home-sharing rental websites such as Airbnb.

“Technology has changed the way people interact. There are now online solutions available that let people rent a room or their home to a stranger they meet by using an app or a website, called home-sharing solutions. Home-sharing or peer-to-peer rentals (P2P) are sites like Airbnb, Roomorama and HomeAway that connect hosts with guests,” Rhode Island’s Insurance Superintendent Joseph Torti III said in the July 14 consumer alert.

Torti warned, however, that insurance coverage questions arise when an insurer expects a person to be using the home in one way, but later finds out the conditions have changed.

Both guests and hosts could incur costs if things go astray, Torti cautioned. The hosts’ homeowners or renter’s insurance policies are not designed to cover accidents arising from property rental and the hosts’ insurance company may deny coverage for any resulting claims. Further, these types of rentals may fall outside of local zoning or housing laws and regulations, which could result in violating local law or code. Even if the hosts do not violate any law, they might have to hire legal counsel to protect and defend themselves.

Most homeowners policies provide coverage if a home visitor falls and is injured. However, that is likely not the case if a paying guest falls in the host’s home, because coverage may not be intended for commercial use, the consumer alert notes. And without liability insurance protection from the company facilitating the host agreement, the hosts’ homeowners or renter’s insurance policy might leave the hosts with no coverage.

The consumer alert also notes that homeowners policies vary, but usually exclude or provide very limited coverage for homeowners who are running a business in their home.

“Once you begin earning income from renting out your home or a room, you are probably considered a home-based business,” said Torti. “If you lease out a room or your entire home for profit, your insurer could claim you’re essentially running a hotel or bed and breakfast and deny coverage. However, if you seldom rent out your home, your insurer might provide coverage. A renter’s insurance policy is subject to the same limitations as a homeowners insurance policy.”

Torti advised consumers to talk with their insurance agents about their situation and participation in home-sharing rentals to make sure they have insurance protection. “If you only occasionally rent a room or your house, your current homeowners insurer might be willing to provide an endorsement to protect you,” he said.

“However, if you plan to rent your house for a long term or if you plan to frequently rent out a room or the whole house, then purchasing a landlord policy (also known as landlord property insurance or rental coverage for landlords) might be your best option,” Torti said. “A landlord insurance policy will cover your home, structures on the property, property contents that you own (such as appliances and furniture), lost rental income due to building damage, legal fees and liability protection.”

He also said some experts recommend only renting to guests who have homeowners, renter’s or personal liability insurance and are able to show proof they are insured. That way, the host could file a claim under the guest’s policy if the property gets damaged.

Regarding protection for guests, the consumer alert notes that the guest’s homeowners, renter’s or personal liability insurance policy will generally protect the insured even as a guest if the guest happens to cause damage to a host’s property. The alert also says that per Airbnb’s user agreement, the company reserves the right to make a claim under the guest’s homeowners or renter’s policy for any damage or loss the guest causes to an accommodation. Other P2P companies may have similar agreements.

The consume alert also notes that currently, Airbnb provides host protection insurance with coverage up to $1 million if a third-party claims bodily injury or property damage against the host. This liability insurance program by Airbnb is automatically applied to every listing in the U.S. and the coverage is secondary; it only applies after the host’s primary insurance policy either settles or denies a claim.

Laws regarding P2P companies vary from state to state, even city to city so it’s important to speak with someone who is knowledgeable about the relevant location, the consume alert said. “Since home-sharing companies are still a fairly new phenomenon, talk with your agent or insurance provider about your risks as a host to make sure you are properly covered before you list your property for rent,” Torti advised.

Soure: Rhode Island Insurance Division, Department of Business Regulation

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