Obama Inauguration May Raise Insurance, Legal Issues for Enterprising Homeowners

By | December 2, 2008

The days leading up to the inauguration of Barack Obama could be an economic windfall for residential property owners in and around D.C.

Washington Post staff writer David Nakamura reports that droves of people are looking for temporary housing as they make plans to witness presidential history next January and nearly as many home and condominium owners are making space in their homes for these travelers – at a price.

Profit and the motivation to earn a profit is the American way, but what insurance and legal issues does this temporary housing boom create for the property owner? Turns out, not much in regards to insurance coverage; however the legal liability issue is a bit stickier.

Homeowners’ policy forms specifically exclude coverage for loss resulting from the theft of personal property located in areas of the residence rented to others. Owners who rent the entire residence will have no insurance protection for loss caused by theft;’ those who rent out a room or a section of a house (i.e. the basement) will lose coverage for theft of property in that area only.

But what about the ‘Landlord’s Furnishings’ additional coverage– doesn’t that extend $2,500 for loss caused by theft? Yes it does, but only if the area is usually (customarily, in the normal course of ownership, etc.) held for rental; one-time or “special occasion” rentals do not qualify for this extension of coverage.

Other than the theft exclusion, there is no real insurance coverage issue. The real exposure for the homeowner is one of legal liability.

Property owners owe a specific duty of care to every person who enters their property; the level of care is based on the classification of the individual on the property (see “Duties Owed to Visitors“). These short-term, contractual relationships transform these individuals into “invitees.” Invitees are owed the greatest duty of care.

To match the duty of care owed to an invitee (and have a defense against legal liability), the property owner is charged with: 1) thoroughly inspecting the property to discover all hazards; 2) correcting or minimizing all known and discovered hazards; and 3) warning the invitee of dangers, those that may be considered obvious and those that are not obvious or even hidden (don’t turn on that light, it will shock you).

Closing the theft exclusion gap can be accomplished with Insurance Services Office’s (ISO’s) HO 05 41 – Extended Theft Coverage for Residence Premises Rented to Others; satisfying the duty of care owed to the “invitee” requires personal effort and potentially some personal expense.

Topics Property Homeowners New Markets

About Christopher J. Boggs

Chris Boggs, CPCU, ARM, ALCM, LPCS, AAI, APA, CWCA, CRIS, AINS, is a veteran insurance educator. He is Executive Director, Big I Virtual University of the Independent Insurance Agents and Brokers of America. He can be reached at chris.boggs@iiaba.net. More from Christopher J. Boggs

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