Home-Sharing? Don’t Ignore Liability
In the last month or so, I’ve written one column raising questions about how your insurance company might feel about you putting your car up for rent by the hour and another about the fallout for a customer of a company called RelayRides after someone who rented her car died behind the wheel and injured four others in the process.
Both times, I immediately heard from readers worried about the insurance questions involving one of the biggest players in the land of sharing: Airbnb, which allows you to rent out your whole home (or just a room or couch) for however many nights you want.
How, people asked, would their homeowner’s, or renter’s, insurance company react if they told the truth about their rental habit? Would they be covered if a paying guest was injured, or worse?
The answer, as it often is with insurance, is that it depends. But most insurance companies have clauses in their standard policies that make it pretty clear that they can deny a claim related to commercial activity going on in your home.
And who can blame them? They want to know who’s stumbling around half-awake at 2 a.m., and if it’s dozens or hundreds of people each year, they’re probably going to want you to pay more for protection from lawsuits.
That said, it would be a shame to let the insurance industry ruin everything here. After all, this is the perfect economic moment for a service like this to emerge. Young people with student loan debt can make extra money renting out spare bedrooms or couches. Others short on retirement savings can take in guests, too. And travelers get to live like a local for a while and may pay less than they would at a hotel.
So it comes down to this: How much risk are you willing to shoulder of a legal judgment adding to your money woes? And shouldn’t Airbnb and insurance companies be able to sort all this out, given that people have been renting out second homes and taking in roommates for decades?
Let’s address the odds first. In the four years since Airbnb opened for business, it says it has not heard about a single liability claim or judgment over $10,000, or even an attempt at one. In that time, the company says that it has booked over five million nights of lodging.
HomeAway, which has been in business since 2005, is also unaware of any sizable claims or judgments.
Given the number of people using these services, it’s only a matter of time until something terrible happens, as it did relatively quickly in the case of RelayRides. It’s hard to predict, however, how often something awful might occur. Actuarial data, if any exists, probably isn’t on point since it doesn’t involve people renting rooms in their homes each night, which now happens pretty often.
Still, when people are in an unfamiliar place with unfamiliar systems, bad things can happen. Last month, my family and I rented a lovely house through Airbnb with an old-fashioned wall heater in the bathroom, and the thing was white hot. I couldn’t help imagining how horrible it would be if a naked toddler waddled in and leaned against it.
So what would Airbnb do if something like that did happen and somebody filed a lawsuit? In the wake of a particularly horrific incident, where guests ransacked a woman’s home and searched every inch for things to steal or soil, the company has created a limited $50,000 guarantee. If a home is set upon by deliberately reckless guests again, the company said it would cut a check to the host for most stolen or damaged belongings. But Airbnb does not cover accidental damage. Moreover, its guarantee is not an actual insurance policy that compensates people for injuries, though that hasn’t stopped at least one confused publication from referring to it as a “liability policy.” I can only imagine what sort of incorrect assumptions the company’s customers make.
As for a host’s liability, Airbnb is crystal clear on its Web site, albeit in its terms and conditions where many people won’t read it. There, it states that “Airbnb is not responsible for and disclaims any and all liability related to any and all listings and accommodation.”
So there you have it. If someone gets hurt, don’t go crying to Airbnb. To potential hosts, the company offers this advice: “Airbnb recommends that hosts obtain appropriate insurance for their accommodations. Please review any insurance policy that you may have for your accommodation carefully, and in particular please make sure that you are familiar with and understand any exclusions to, and any deductibles that may apply for, such insurance policy, including, but not limited to, whether or not your insurance policy will cover the actions or inactions of guests (and the individuals the guest invites to the accommodation, if applicable) while at your accommodation.”
HomeAway takes a similar approach with its hosts, whom it refers to as advertisers. “HomeAway requires that advertisers know the requirements in their specific location but could not undertake the project to know the specific insurance requirements in every location,” Carl Shepherd, the co-founder, said in an e-mailed statement.
That brings us to your insurance company. If you’re renting an entire house or apartment to a particular tenant for a long period, it can sell you a special policy. A roommate in a place you own is probably fine, though roommates should consider getting their own insurance.
Renting your primary residence out once in a while — say when you’re on vacation or when the Olympics come to town — is probably acceptable to your insurance company, too. Tell your insurance company about it and see if it wants you to pay for any sort of special one-time endorsement.
The gray area is all the in-between situations, when owners rent out their place several times a year or when they rent a room several times a month to people from out of town.
USAA, the fifth largest insurer in the United States according to SNL Financial, takes a pretty hard line on all of this. A homeowner’s policy, it said in a statement, “will not generally provide the protection a homeowner needs when renting part or all of a home,” though there may be some coverage in limited circumstances.
Allstate, the nation’s second largest home insurer, notes that factors affecting its breadth and depth of coverage could include whether you’re home while renting your place, how often you rent it and how many people you’re hosting. State Farm, the country’s largest insurer, said its coverage would depend as well, though a spokesman added that frequent rentals via the Web would “usually” be better covered by a separate “rental dwelling policy.”
Airbnb could make this easier for hosts by selling à la carte insurance to cover what homeowner’s insurance will not. But it doesn’t, even though a company called RiskGone tried to help it develop a proper policy. Airbnb, according to a spokeswoman, has not ruled out an insurance offering entirely, but nothing is imminent.
It makes perfect sense that home rental middlemen would try to dodge the whole insurance discussion.
The last thing any company wants to do when trying to get people to post listings is remind them how much risk they’re taking on.
You, however, should not be dodging it. If you already rent out your place on Airbnb or HomeAway or anyplace else, tell your insurance company how often you’re renting it and how many people are passing through. If your insurer threatens to drop you, tell Airbnb. Perhaps some heat from its community of hosts will persuade the company to sell coverage.
Until then, many hosts will continue to skip over the site’s terms and conditions and never know the risk they’re taking on, and some of those who do read the rules may cross their fingers and hope their insurance company takes pity on them if they’re ever subject to a claim. Or they plan to lie to their insurance company if worse comes to worst and hope that the claims adjuster doesn’t ask injured parties whether they were paying to stay at the home.
Only you can decide what path you want to take. For all the beauty in this brave new world of sharing, it pays to consider the ugliest possible outcome, too.