Symbols can be chosen depending on the policyholder’s needs. The broadest coverage is provided by Symbol 1, “Any Auto.” If a policyholder does not purchase coverage under Symbol 1, “Any Auto,” the remaining eight symbols provide a variety of different coverages for a broad range of circumstances, and the choice of symbols will have a significant impact on the availability of coverage for lessors and lessees or in connection with contracted transportation services. For instance, a commercial lessee that did not purchase coverage under Symbol 8, “Hired Autos,” would generally not have coverage for any “auto” it rented from another person or entity. Likewise, a commercial lessor that did not purchase coverage under Symbols 1–7 would not have coverage for any “auto” it rented to another person or entity.
Thus, because the liability exclusions in a typical commercial automobile policy resemble those in a commercial general liability policy, the threshold and frequently most important question is whether the “auto” involved in an accident or loss is a covered “auto” under one of the symbols. For commercial lessees and those contracting for transportation services, the scope of coverage provided under Symbol 8, “Hired Autos,” and Symbol 9, “Nonowned Autos,” will be determinative of whether those policyholders are entitled to coverage under their own policies. For policyholders on the other side of those contracts, the primary question is whether the correct coverage for owned “autos” was purchased. Further, evaluating coverage from both perspectives raises questions concerning who is an “insured” and other insurance. In addition, even where there is commercial automobile insurance available for a vehicle owner or a lessee, there may still be a personal automobile policy that could provide some coverage. These issues are addressed below.
Symbol 8, “Hired Autos.” A “hired auto” is typically defined as an “auto” “you lease, hire, rent or borrow” or “as a vehicle ‘used under contract in behalf of, or loaned to’ the named insured.” For the purpose of this language, courts generally draw a distinction between “autos” driven or operated by independent contractors to provide transportation services for an insured and “autos” under the direct control of an insured. Thus, this language requires a separate contract transferring the use, control, or possession of an “auto” for a period of time, i.e., a rental or lease contract. However, despite the distinction between rental/lease contracts and an independent contractor’s “auto,” some courts have held that an “auto” can qualify as a hired “auto” where there is evidence demonstrating the named insured’s “exercise of control” over the independent contractor’s “auto,” i.e., “choice of vehicle, where it is to travel, by what routes, and for what purposes.”
For instance, in Southern General Insurance Co., the Georgia Court of Appeals held that an independent contractor’s tractor pulling a named insured’s trailer was not a “hired auto” under the named insured’s policy because there was no lease or “hiring” agreement for the tractor and the named insured had no right to control the tractor. Moreover, the independent contractor’s compensation for his transportation services was separate from the named insured’s compensation related to his business. Similarly, in American Casualty Co. of Reading, Pa., the Fourth Circuit held that an independent contractor’s truck was not a “hired auto” under the named insured’s policy because the truck was not “hired” by the named insured or being used by or on behalf of the named insured at the time of accident. Instead, the truck was being used by an employee of the independent contractor. In both decisions, the courts looked to the nature of the agreement between the independent contractor and the named insured and the manner in which the independent contractor’s automobile conducted the independent contractor’s business to determine that the automobiles were not “hired autos” under the respective policies. In other words, the automobiles were not hired “autos” because there was no transfer of use or possession between the named insured and independent contractor either by express contractual terms or by the manner in which they conducted their relationship.
By contrast, in Luizzi v. Pro Transport, Inc., the court held that a tractor owned by its driver was a “hired auto” under a motor carrier’s commercial automobile policy providing coverage under Symbols 7, 8, and 9. With regard to Symbol 8, the court found that the driver and motor carrier had entered into an exclusive lease agreement for the driver’s tractor and determined that the lease agreement was sufficient, by itself, to establish that the tractor was “lease[d], hire[d], rent[ed] or borrow[ed]” because the lease agreement gave the motor carrier the right to exercise control over the driver’s tractor, even if the motor carrier did not actually exercise that control.
Thus, the primary question in addressing whether an “auto” is a “hired auto” is the existence of a lease or rental agreement. Where such an agreement exists, such as in the case of a peer-to-peer rental, that “auto” will be a covered “auto” under the lessee’s commercial automobile policy. Such coverage may exist also exist for “autos” operated by a policyholder’s independent contractors. However, to the extent a court is willing to consider the existence of that coverage, the application of Symbol 8, “Hired Autos,” to an independent contractor’s “auto” will likely be a fact-intensive inquiry based on the level of control the policyholder has the right to exert over the independent contractor’s automobile.
If an “auto” is a “hired auto,” the policyholder is an “insured” for that “auto.” However, for “hired autos,” the only other persons or entities that can typically be “insureds” are those using the “auto” with the policyholder’s permission, e.g., the policyholder’s employee or a sub-lessee. Further, for such permissive use, the typical commercial automobile policy specifically removes from coverage “the owner or anyone else from whom [the policyholder] hire[d] or borrow[ed] a covered ‘auto’” unless it “is a ‘trailer’ connected to” an automobile owned by the policyholder. Thus, the owner of a “hired auto” will generally not be an “insured” under the lessee’s commercial automobile policy except in very specific and limited circumstances.
Symbol 9, “Nonowned Autos.” A “nonowned auto” is typically defined as “those ‘autos’ you do not own, lease, hire, rent or borrow that are used in connection with your business.” The primary purpose of Symbol 9 is to provide coverage while a person affiliated with the named insured is operating a privately owned “auto” to conduct work related to the policyholder’s business. Thus, in most circumstances, a contractor’s “auto” is not going to be a “nonowned auto” simply because the contractor was performing transportation services for the insured. As recognized by several courts, holding otherwise could open up a potential Pandora’s box of liability without any logical end. However, as with “hired autos,” not all courts interpret the policy language in this way and can extend coverage based on the insured’s control over the subject “auto.”
For instance, in Nuvell National Auto Finance, LLC v. Monroe Guaranty Insurance Co., the Georgia Court of Appeals held that a tow truck owned by a repossession company and leased to an individual driver was a “nonowned auto” with regard to the commercial automobile liability policy issued to the repossession management company that acted as an intermediary for assigning repossession work. Specifically, the court found that the tow truck was being used “in connection with [the repossession management company’s] business” because the evidence showed that the repossession management company was effectively in the business of repossessing vehicles in that it was the intermediary between the repossession firms and lenders. Similarly, in Luizzi, discussed above, the court also found that the driver’s tractor was a “nonowned auto” under the motor carrier’s policy because the driver was a statutory employee of the motor carrier under the applicable motor carrier regulations and thus was driving the tractor in connection with the motor carrier’s business.
The Nuvell court examined two factors “to determine whether a nonowned auto was used ‘in connection with [an insured’s] business[:]’” (1) “the extent to which the vehicle at issue was used in the course and scope of the insured’s business” and (2) “the extent to which an insured held or exerted a right of control over the vehicle and its driver.” The Nuvell court borrowed the factors from the Eastern District of Tennessee’s decision in CMH Homes, Inc. v. United States Fidelity & Guaranty Co., which in turn distilled the factors from a variety of decisions from several states, none of which found that there was any coverage. Further, CMH Homes identified the following eleven nonexclusive factual inquiries to assist in determining whether the factors apply:
- whether [the insured] dictated from where and to where the loads were being hauled, that is, the right to designate the route to be taken to the ultimate destination;
- whether [the insured] had its own employees drive [the contractor’s] vehicles;
- whether [the insured] paid any rental fee for the vehicles themselves;
- whether [the insured] dictated the particular time table for hauling products or rather [the insured] just required [the contractor] to pick up the loads during business hours;
- whether all of the products hauled belonged to [the insured];
- whether [the insured] required [the contractor] to have its own insurance;
- whether [the contractor] had its own workmen’s compensation insurance;
- whether [the contractor] always used its own trucks and trailers to make the hauls;
- whether [the contractor] paid for all maintenance and repairs for the vehicles, paid its own insurance on vehicles, paid employees, and paid employment taxes;
- whether [the insured] made any employment related deductions from the payments made to [the contractor]; and
- whether [the insured] was the primary source of hauling business for [the contractor] or whether [the contractor] did other hauling business without informing [the insured] or obtaining its consent.
Thus, the Nuvell factors and the CMH Homes inquiries are tremendously fact specific. It will not be necessary to address these facts and inquiries in all circumstances, as many courts will likely limit application of Symbol 9 to employee automobiles based on the explicit purpose of the symbol. However, in jurisdictions that have not decided the issue or have embraced the broader interpretation of the symbol, it would behoove attorneys to carefully review the facts and circumstances surrounding an accident and “auto” as well as any contracts relating to the work to be performed and the automobiles involved.
As with Symbol 8, “Hired Autos,” if an “auto” is a covered “auto,” the policyholder is an “insured” for that “auto.” However, unlike “hired autos,” no one else can be an insured with regard to a “nonowned auto” under a typical commercial automobile policy’s liability section because coverage is only extended beyond the policyholder for “own[ed], hire[d] or borrow[ed] ‘autos’,” which does not include a “nonowned auto.” Thus, with the exception of the policyholder, no owner, operator, or other person or entity will be an “insured” for a “nonowned auto” under the policyholder’s commercial automobile policy.
“Owned Autos”—The owner’s commercial automobile policy. As discussed above, coverage will be afforded under a vehicle owner’s commercial automobile policy only if an appropriate symbol other than Symbol 8 or 9 is purchased. Thus, assuming the owner makes the appropriate purchase, the owner will have insurance coverage for itself. Further, any lessees or otherwise permissive users of the owner’s “autos” will also be “insureds,” as, under the typical commercial automobile policy, “insureds” includes “[a]nyone else while using with your permission a covered ‘auto’ you own, hire or borrow. . . .” Moreover, because the typical commercial automobile policy does not contain any exclusions for automobiles rented or leased to others by the “insured” (unlike many personal automobile policies), if the “auto” is a covered “auto” under the owner’s commercial automobile policy, both the owner and the user be entitled to coverage under the owner’s commercial automobile policy.
Other insurance. The other insurance condition in a typical commercial automobile policy provides as follows:
5. Other Insurance
a. For any covered “auto” you own, this Coverage Form provides primary insurance. For any covered “auto” you don’t own, the insurance provided by this Coverage Form is excess over any other collectible insurance. However, while a covered “auto” which is a “trailer” is connected to another vehicle, the Liability Coverage this Coverage Form provides for the “trailer” is:
(1) Excess while it is connected to a motor vehicle you do not own.
(2) Primary while it is connected to a covered “auto” you own.
b. For Hired Auto Physical Damage Coverage, any covered “auto” you lease, hire, rent or borrow is deemed to be a covered “auto” you own. However, any “auto” that is leased, hired, rented or borrowed with a driver is not a covered “auto”.
c. Regardless of the provisions of Paragraph a. above, this Coverage Form’s Liability Coverage is primary for any liability assumed under an “insured contract”.
d. When this Coverage Form and any other Coverage Form or policy covers on the same basis, either excess or primary, we will pay only our share. Our share is the proportion that the Limit of Insurance of our Coverage Form bears to the total of the limits of all the Coverage Forms and policies covering on the same basis.
Thus, an owner’s commercial automobile policy will provide primary coverage in most instances and a lessee’s commercial automobile policy will provide excess coverage in most instances. With regard to trailers, the same general rules apply; however, the priority of coverage is based on the “auto” pulling the trailer instead of the trailer itself. Further, for physical damage coverage, the lessee’s policy will be primary for any “hired auto,” as that type of relationship to an “auto” is considered to be the equivalent to ownership for the purposes of physical damage coverage. Finally, to the extent a lease/rental agreement or contract for transportation services qualifies as an “insured contract,” the commercial automobile policy of the party agreeing to assume liability will provide primary coverage.
Personal automobile policies—Gone but not forgotten? As noted above, many, but not all, personal automobile policies do not provide liability coverage while an insured vehicle is being rented or leased to another person or entity. Generally, this limitation on coverage can take the form of either an exclusion—e.g., coverage is barred while an insured vehicle is being rented or leased to another person or entity—or a limitation on the definition of “insured” such that peer-to-peer rental lessees are not insureds even if they have express permission to drive the insured vehicle. The later approach should be viewed as the stronger approach because, if the lessee is never an “insured,” the policy’s insuring agreement could never apply to a liability claim involving the lessee as a driver. This approach may also give the insurer a better chance of successfully arguing that it has no duty to defend. In some states, the application of automobile liability exclusions can be limited to the state minimum limits of coverage, e.g., $25,000 per person/$50,000 per accident, if there is no other insurance coverage available to compensate an innocent accident victim. However, because the rental services surveyed above all provide liability coverage, it will usually not be necessary to determine whether this “public policy exception” to automobile liability exclusions applies.
Further, while the owner’s personal automobile policy may not provide coverage where there is a peer-to-peer rental, the lessee’s personal automobile policy will generally apply to a rented vehicle the lessee operates. Nonetheless, despite state laws requiring the purchase of personal automobile insurance, one should never assume the purchase of such insurance and should, instead, confirm the existence and application of that coverage, which may provide an additional source of indemnity coverage if an accident is sufficiently severe.
In addition, most personal automobile polices provide some form of uninsured motorist coverage, which can provide first-party coverage to insured accident victims if the liability insurance is either unavailable or insufficient. The uninsured motorist coverage provided by many personal automobile policies is broader than the liability coverage provided when a leased or rented vehicle is involved. For instance, some of the personal automobile policies that exclude liability coverage while an insured vehicle is rented or leased to others do not include a similar exclusion for uninsured motorist coverage. Thus, if a lessee or occupant of a peer-to-peer rented vehicle is an accident victim, one should evaluate whether any uninsured motorist coverage purchased by the lessee, occupant, or vehicle owner applies and take appropriate steps under the applicable law to notify those insurers of the accident and include them in any legal proceedings that may result. This analysis is particularly important in the peer-to-peer rental context because the insurance purchased by some peer-to-peer rental services does not provide uninsured motorist coverage or provides only the state minimum limits of coverage.
Accordingly, while a vehicle owner’s personal automobile policy is unlikely to provide liability coverage except perhaps in very limited and fact-specific circumstances, a lessee’s personal automobile policy may be a valuable source of coverage for the lessee. Further, unlike liability coverage, personal automobile policies may be a lessee’s best chance for obtaining uninsured motorist coverage. Therefore, while the personal automobile policy’s importance may be limited with peer-to-peer rentals, it should not be forgotten.
Homes as Hotels—the Risks and Coverages Afforded to the Homeowners, Hosting Companies, and Customers
Perhaps one of the biggest developments in the sharing economy has been the sharing of private individuals’ homes with strangers, for profit. As this type of personal, real property, typically covered by homeowners’ insurance, moves into the public space, it creates new risks and exposures for all involved by the blurring of lines between private and public accommodations. While some of these exposures and corresponding coverage issues are similar to those experienced by the sharing of private automobiles or use of private automobiles for business purposes, there are additional risks to be considered for the hosting property owners (the homeowners), as well as the companies enabling this sharing (the hosting companies) and the consumers “renting” or otherwise using the properties (the customers). Although homeowners’ insurance may respond to certain issues as they arise, there may be gaps in coverage created for the hosting homeowner and, with that, more exposure for the hosting homeowner, as well as the hosting company and customers. Fortunately, the market is recognizing these new risks, and homeowners’ insurance can be supplemented or the risks can be covered entirely by other types of insurance (typically associated with businesses). Below we broadly identify the benefits, types of risks and exposures each group faces, and possible insurance coverages available to respond to these new(ish) risks and exposures.
Short-term housing rentals. Short-term housing rentals are nothing new. Often these types of arrangements are seasonal, vacation rentals located in places where they can serve as an alternative to traditional hotels, inns, or bed-and-breakfast and similar accommodations. The rented space typically is a stand-alone building (e.g., a guest house or cottage) or a unit for the customer’s use entirely (e.g., an apartment or condominium). Typically in these arrangements, the property would require a minimum of two to three nights, or a longer period, so that the guest could use the full space and the owner could control turnover.
Now, however, the type as well as the quantity of accommodation options available through hosting companies has increased dramatically. While the standard arrangements for a full home rental is still available (for instance, through hosting companies like Vrbo), other hosting companies provide less traditional options. For example, on Airbnb, a customer can also book more intriguing (and smaller) spaces—anything from a themed guest room, to a cave in Provence to a treehouse to an underwater research ship. In addition, many of the hosting company sites have removed or reduced the minimum stay requirements. Indeed, lengthier stays are no longer the norm. Instead, a customer can book accommodations for as little as one night—greatly increasing the market for travelers or those looking to vary their accommodations. And, of course, all the booking arrangements can be made at any time of day or night through convenient websites and phone apps.
Although short-term rentals of real property are done through a number of different platforms and companies, they are often lumped together as “Airbnbs,” one of the more widely known companies in this space. This is not surprising, with Airbnb listing more than 5 million properties worldwide. But the short-term rental space has no shortage of competitor companies using similar platforms or business arrangements to meet the growing demand for these short-term arrangements. And, in fact, Airbnb was not the first in this space. Airbnb was founded in 2008, originally as Air Bed and Breakfast, as a home rental platform. However, one of its main competitors, Vrbo (Vacation Rental by Owner), was founded more than a decade earlier, in 1995, joining the HomeAway network in 2006. There are several other companies that offer similar arrangements and connections: Homestay, FlipKey (through TripAdvisor), TurnKey, Wimdu, Couchsurfing, Craigslist, and more. Common among these companies is the creation of an “online marketplace” through which customers can search for and compare properties by location, availability, accommodation details, and, perhaps most importantly, price. Likewise, those looking to generate additional income by letting a room or the entire house can do so through these sites.
Benefits to hosts, hosting companies, and guests. Benefits to hosts. Home sharing has grown in popularity, in large part, because of the immediate benefits to the homeowner hosts. Hosts are able to easily generate a return on unused space and advertise in cheaper and more effective methods The hosting companies’ sites do the heavy lifting of advertising the property and connecting the host with customers. For those with traditional properties (e.g., full home rentals), these hosting company platforms provide an easier, more efficient way to advertise than previously available. For others, though, the hosting companies allow hosts to generate income on their property in a way they never had before. Although there are fees and costs to consider (service fees, cleaning fees, and minor repairs), the income generated from the property typically outweighs these costs.
Also, unlike in a traditional landlord-tenant situation or hotel-guest dynamic, the hosts are able to see reviews or scores associated with the customers. And in several hosting companies, the host has an opportunity to first speak with or message the potential customer before the booking is finalized. While these “previews” are helpful for warding off problems, they also introduce a new element of risk and exposure for allegations to be made against the homeowner—whether for discrimination or failure to warn the customer of potential issues with the property.
Benefits to hosting companies. The hosting company model works by charging a fee to hosts advertising and posting on the site, charging for advertising, or charging a percentage fee when a host receives the reservation (or a combination of these). Fees also may be passed along to the customer who makes the initial reservation.
The hosting companies typically do not own the properties that are identified and advertised on the websites. This, of course, has multiple benefits for the hosting company. As a preliminary matter, the hosting companies are not responsible for the significant investment and maintenance of the properties, including the annual property taxes associated with owning the properties. It also enables the hosting company to offer a diverse portfolio of properties and locations with little initial investment. Airbnb’s model is lucrative as well. It charges a 3 percent fee when a host receives the reservation.
Because the hosting companies do not own the properties on their sites, they also are able to protect themselves from direct liability for any injury or loss that may occur at the property, with the property owner serving as the “front line” of liability. Moreover, those who use the site to advertise the properties are not the employees of the hosting company. Thus, any actions they may take when interacting with customers through the service, at the property, or after, are not necessarily attributable to the hosting company. Indeed, many of the hosting companies specify detailed terms and conditions that attempt to further limit their liability from both the host and the customer.
Benefits to the customers. The system works well for customers as well. They have the opportunity to choose from a wide variety of homes that may offer more space than would be available at their preferred price point if limited to traditional hotels (for instance, if a guest was looking for a full kitchen or free parking). Alternatively, the shared space or home may offer a unique experience or be in locations that typically would not have access to commercial visitors (i.e., a residential neighborhood). In addition, as with the hosts, the customers have the opportunity to read and leave reviews about spaces and hosts.
Risks and exposures for hosts, hosting company, and guests. While there are clear benefits to the additional income generated through home and space sharing, there are also clear risks and exposures. Below is a list of major, potentially insurable risks that a host or hosting company (or both) may encounter through the peer-to-peer sharing of a space. The list is not intended to be exhaustive. For instance, the list does not address tax exposure, failure to comply with homeowner association, municipal, or zoning ordinances or laws, or criminal issues that may arise for both.
Risks and potential coverage for hosts (and hosting companies). Although there is risk for all involved (i.e., the hosting company, host, and customer), the host has the greatest exposure. The host has all the responsibilities to the guest that the host would have as a traditional homeowner (e.g., not to be negligent, a duty to warn, a duty to undertake reasonable inspections); however, often unbeknownst to the host, the host also must comply with local, state, and federal laws as a business owner, a landlord, and a hotel or innkeeper as well. These obligations create a number of risks for the host who is now considered a business owner, landlord, or innkeeper or a combination of these. While the host is on the “front line” of liability, it is not uncommon for customers or others to seek remedies from both the host and hosting company simultaneously when an issue arises. This often creates a tension between the host and the hosting company. Below we review risks and potential coverage for the hosts, recognizing that hosting companies may face similar allegations (regardless of the merit of those allegations).
Bodily Injury and Property Damage and Potential Coverage
When it comes to property damage, hosts often are concerned about the risk to their own property from guests or guests of the guests. There is always the risk of some damage, whether caused intentionally or not, by guests unfamiliar with the space in the ordinary course of occupying it. Although not common, incidents of damage from unruly parties do happen, and some incidents have been reported with as much as $70,000 in damage. Likewise, hosts may be concerned about theft by the customers or the guests of the customers.
Hosts also are concerned about protecting their guests from bodily injury or damage to the guests’ property. Although obligations vary from state to state, a homeowner has a general duty to have a safe home when guests (or the public) are invited on to the property. Hosting companies advise hosts of this risk and give advice about how to ensure a safe, well-kept space and any potential risks are clearly identified.
Similarly, hosts need to consider the risks posed to other third parties, including guests of the customers invited on the property, neighbors, or others who may be affected by the increased traffic of strangers at the accommodation. While hosts may try to limit this risk by creating “house rules,” controlling others’ conduct, particularly when the host is not present, means that not all risks can be fully mitigated. Likewise, hosting companies have started to crack down on “party houses” and “open invite” events to properties. Indeed, it is this risk that has received some of the most negative publicity, with certain tragic events leading to deaths and other types of bodily injury.
Historically, the insurance market has covered homeowners for this type of first-party loss or third-party liability. Homeowners could protect themselves through a homeowner’s policy and umbrella liability. Over time, the market also developed coverages for owners who rent their homes to tenants in a traditional long-term landlord-tenant relationship or as a vacation rental property. The insurance market also responded to the needs of tenants by creating “renter’s insurance” to protect the tenant’s personal property.
These types of loss and damages, however, may not be covered by a standard homeowner’s policy when incurred in a home-sharing arrangement. That is because many homeowners’ policies contain exclusions for coverage for “business” damages. The use of home-sharing sites and renting rooms out, even only a few times, may be considered a business activity for insurance purposes. Thus, unwitting hosts may find themselves with gaps in coverage if they are relying on their homeowners’ policy to cover these risks.
Hosts can protect themselves in a few ways:
First, hosts (and hosting companies) can limit their exposure by ensuring they are educated on what the host’s obligations are to the public. This includes being aware of local, state, and federal obligations. Hosts can also mitigate their risk in commonsense ways like providing a clean, safe space for all guests, including access to fire extinguishers and working smoke and carbon monoxide detectors, clearly marked and accessible exits, working locks, and other types of safety and security measures in the home. Hosts should also make sure that customers are clearly warned of any issues in the area or in the home.
Second, hosts should still look to their homeowner’s insurance for primary coverage, if possible. Some homeowners’ policies will still provide coverage for damages caused in a rental situation. However, if there is an exclusion for “business pursuits” or “business” activities, the host should contact the insurance company about adding an endorsement providing coverage for home-sharing or property rentals. Of course, homeowners should expect at least some small premium increase to accompany this type of expansion of coverage. Notably, though, homeowners should not automatically assume that they are not covered for any and all claims simply because they also rent the property from time to time through the hosting companies. In at least one instance, an insurance company denied coverage for claims unrelated to the rental activity under a homeowner’s policy.
In addition, some insurance companies are willing to offer a separate policy or rental policy for properties. Because the market is still evolving in response to the increased demand for home and space sharing, the options available from homeowners’ insurers continues to increase.
Third, hosts should look to the hosting companies for protection. Some hosting companies offer “guarantees” or protection for certain types of damage or loss caused by customers, although it is not technically insurance. For instance, HomeAway offers $1,000,000 in liability coverage. Airbnb similarly offers an “Airbnb Host Guarantee” of $1,000,000 for damages to the host’s property caused by the guests. Notably, though, this coverage is not exhaustive and Airbnb notes that the guarantee will not “cover cash and securities, collectibles, rare artwork, jewelry, pets or personal liability.”
Certain hosting companies also offer formal insurance to the hosts. Airbnb offers the Airbnb Host Protection Insurance Program, which provides $1,000,000 per occurrence in the event of a third-party claim of bodily injury or property damage and acts as primary coverage. Airbnb gives examples of situations its program “should cover”:
- A guest breaks their wrist after slipping on the rug and brings a claim for the injury against the host.
- A guest is working out on the treadmill in the gym of the apartment building. The treadmill breaks and the guest is injured when they fall off. They bring a claim for the injury against the host and the landlord.
- A guest accidentally drops their suitcase on a third party’s foot in the building lobby. The third party brings a claim for the injury against the host and the landlord of the host’s building.
Likewise, Airbnb notes that its insurance will not cover “intentional acts where liability is not the result of an accident, accusations of slander or defamation of character, property issues (ex. Mold, bed bugs, asbestos, pollution), [or] auto accidents.” While not handled or underwritten by an actual insurance agency, this may provide peace of mind (and protection) to some hosts.
Other hosting companies partner with insurance companies. Onefinestay, for example, offers policies underwritten by a syndicate of Lloyd’s of London. Other companies, like Slice, Proper Insurance, Allstate HostAdvantage, and Progressive Homeshare, sell policies and endorsements specifically tailored to short-term rentals like Airbnb or other companies in the home-sharing space. Depending on the terms of the coverage, a host can purchase additional coverage for liability, theft, vandalism, and damage to guests’ property.
Fourth, hosts should consider purchasing traditional business insurance policies. These policies may cover other types of allegations (described below) that hosts may face when making their property available to the public. Hosting companies, of course, already rely on these policies to address these types.
Invasions of Privacy
While hosts may want to monitor the use of their property, they must be mindful of the ways in which they do so. Hosts cannot invade their customers’ privacy through unidentified filming or recording. In addition, hosts (and hosting companies) are under an obligation to protect guests’ data. Hosting companies are aware of these risks and often discourage hosts from filming, recording, or otherwise monitoring customers without their consent. Conversely, though, some hosting companies, like Airbnb, now promote different types of devices that monitor noise for parties so that hosts can be aware of damage before it happens. Indeed, “NoiseAware devices have already monitored over 700,000 reservations, according to Airbnb’s website.” The technology still must not be hidden, and the devices should not record any audio and video, but there still could be privacy concerns raised by the use of such devices.
Hosts should not expect coverage for allegations of invasion of privacy under traditional homeowners’ policies. Instead, hosts should consider traditional business policies, and for allegations concerning data privacy management, they may consider endorsements to these policies or a separate cyber policy (or both). Notably, though, as with all such policies, hosts should not expect coverage for judicially established intentionally wrongful conduct (e.g., intending to film guests without their knowledge or permission) or criminal conduct.
Allegations of False Advertising or Misrepresenting a Home
Hosts (and hosting companies) may also face allegations of false advertising or misrepresenting an accommodation. Indeed, over the years, there have been horror stories of homes being advertised that were not actually available (e.g., “bait and switch” schemes). Other customers have reported examples of suspicious, last-minute cancellations where the customer loses the deposit and is left with nowhere to stay. More commonly, customers may allege that the photos or description of the unit did not match what was advertised on the website. Although examples of outright fraud will not be covered by the host, allegations from a dissatisfied customer may be covered under traditional business policies of both the host and the hosting company.
Discrimination Allegations
Finally, hosts (and hosting companies) also need to be aware of federal and state housing and antidiscrimination laws when sharing their properties. Several hosting companies flag the various applicable laws for their hosts to help avoid allegations of discrimination. Although it is less common to find coverage for such allegations in the current sharing economy, hosts should consider general and professional liability policies as the first source of coverage if faced with such claims.
Risks and potential coverage for the hosting companies. The hosting companies, for their part, do their best to limit liability from both hosts and customers, through guidance, training, and support. The hosting companies also aim to limit liability through disclaimers. However, even with these types of disclaimers, hosting companies may still face exposures like those identified above. Likewise, hosting companies could face exposure for gross negligence if they permit a host (or property) with repeated complaints or allegations of misconduct to still use the site. And, of course, the hosting companies may still face all the standard business exposures that any company faces for those unrelated to its day-to-day operations through its site (for instance, director and officer issues, cybersecurity issues, class actions).
Considerations for customers. While most discussions of mitigating risk and liability focus on the host and hosting company, it is worth noting that customers should consider ways to protect themselves when using the sharing economy as well. For instance, customers may still face liability for bodily injury or property damage they or their guests cause at the property or to other third parties while using the property. Here, customers’ homeowners’ insurance or umbrella policies (or both) could potentially offer protection based on the allegations. Likewise, if traveling for business purposes, guests may consider whether they have coverage for any claims against them under their employer’s or business’s policy. And, while the travel insurance market does not always cover short-term home-sharing rentals for cancellations or disruptions caused by issues in the sharing economy, customers should continue to check for this type of coverage, whether offered by the hosting companies or the insurance market generally.
Conclusion
The above discussions highlight the existence of gaps in coverage for liabilities arising in the shared economy. Currently available commercial and individually purchased insurance policies may cover some of these losses some of the time but leave gaps. Undoubtedly, there is a need for new and different products. Such products are likely to become more available as technologies and usage stabilize. Some of these insurance products are likely to be particularly innovative. For example, the availability of temporary “on demand” coverage—in effect for the time of usage—could close some of these gaps. Of course, government insurance regulators need to be participants in new products so that it is clear who is expected to provide coverage—the rider or driver, the rental company, or both. What remains clear is that users of these products should educate themselves on their insurance coverage and responsibilities as they currently stand.
