Room and Home Sharing - Are You in Business?
Airbnb is one of the more visible leaders of the sharing economy. When it passed 10 million bookings globally in 2012, it had already established a trend and way of life for many homeowners and travelers. If you have space to rent, you can sign up with a company like Airbnb and start generating income.
The business model has given people many wonderful vacations and rewarded property owners. But in some cases something will go wrong - a guest slipping on the floor or assaulted on the premises. Insurers have seen such claims on properties in general, so there is no reason to think that the subset of homes that are rented to short-term visitors will be free of them. Rather, there is good reason to think injuries will happen more often. Visitors, furthermore, are less familiar with the structure and the neighborhood and therefore more vulnerable.
When that injury does occur, will there be insurance available for the property owner? Airbnb may step in with limited contents protection, at least that is how we read its website information, but not for any injury to the guest or another party.
That leaves the injured with turning to a Homeowner and Personal Umbrella policy and leads to the big question: Is the insured property owner covered when a claim arises from the rental of the income-generating property? The answer probably lies in the Business Exclusion. The exclusion denies coverage for injury or damage in connection with a "business" engaged in by the insured or conducted from the premises. As described in a recent article, when an activity resembles more of a business than hobby, the insured needs a more business-like endorsement to accommodate the additional exposure.
In considering whether the Business Exclusion applies to a home sharing scenario, we have two questions:
1. Is it a "Business"? Current ISO Homeowner and Personal Umbrella policies define "business" as a "trade, profession or occupation engaged in on a full-time, part-time or occasional basis." Most courts look to whether the activity is continuous and has a profit motive when deciding whether it meets the "business" test. In a handful of states, however, the courts have equated business with it being the insured's primary occupation, which would not be likely in many home sharing scenarios.
The definition can also be met under a monetary test. An activity can still be a "business" if "engaged in for money or other compensation," and that compensation exceeds $2,000 in one (preceding) year. If the insured meets either test, it's a business. If not, the exclusion does not apply and you need go no further.
2. Is the Rental "Occasional"? Even if the practice is a business, the exclusion does not apply to residential rentals done on an "occasional basis." There is no definition of "occasional" so the answer will depend on the facts and how those facts are viewed. Is the intermittent rental to travelers done on an "occasional" basis? Does that answer change if the rentals are long in duration or regular in schedule? If the rental activity is occasional, then we don't have to address the "business" definition. The exclusion does not apply.
The words may vary in the courts, but the essence of the home sharing coverage question appears to be one of length, frequency and regularity. A few weeks a year might not be frequent or regular, but a court could find that a year's worth of weekend rentals is more than occasional. As with many insurance coverage questions, the facts will vary and even identical scenarios can generate different answers. In most decisions, the judges leaned toward finding "occasional" rentals when vacation properties were involved or where the insured lived there more than half the time. There is no bright line where home sharing crosses over from occasional to a business, but insurers should anticipate that the bar will be high.
Insurers will no doubt face some questions like these, hopefully before a claim arises. If the issue comes up in the application process, that's a great opportunity to learn more about the insured's plans and deliver the appropriate coverage. Is the insurer, agent or insured asking about home sharing? Insurance for rental properties is not new; vacation homes are common to all carriers. What is new is how often home sharing may take place without any discussion of insurance availability or adequacy, and that makes us wonder if anyone is at home.