Last month, the Ontario Chamber of Commerce released a report calling for innovative thinking to handle gaps in insurance coverage, regulation, and tax compliance for those participating in the sharing economy.
Unlike car sharing, renting out your home to short-term vacationers doesn’t put the public at risk. So while car insurance is mandatory in Ontario, only lease or mortgage agreements mandate homeowner and tenant insurance. It’s the homeowners, vacationers, and immediate neighbours who bear the risks of home sharing as there’s no coverage through standard personal home insurance. But people are arguably participating in these arrangements without knowing the risks.
The Airbnb web site makes home sharing sound appealing but it handles the insurance issues in a vague manner. “Check and confirm with your insurance provider that rental activity is covered before listing your space,” it advises. In reality, in case of an accident or damage, no homeowner insurer will respond to the claim nor will it cover defence costs.
If there’s damage to a neighbouring property, homeowners may face a lawsuit and have to defend themselves at their own expense. If a renter suffers an injury while on the premises, the person may sue you for damages. Insurance Business magazine is now urging brokers to specifically ask homeowners on renewal if they have a listing on Airbnb or a similar web site or are otherwise taking paying guests. Having a student rent a room is a commercial activity as well. An insurer would charge a higher premium to offset the increased risk. Once a broker asks these questions, the insurer must rewrite the policy to take the risk into account. Those who answer dishonestly run the risk of losing their coverage.
The issue for Airbnb hosts is that once they pay higher insurance premiums reflecting their activity, the unpredictable income from renting their home may not offset the added expense. But at least they’re aware and have protection.
Airbnb does offer a host guarantee compensating users in case of damage caused by renters, but there’s no liability coverage. As of January 2015, Airbnb now offers a commercial general liability policy covering hosts for liability and damages, but it’s only available in the United States. The web site deals at length with compliance with local bylaws, zoning, and codes without mention of insurance issues unless the reader navigates through layers of drop-down menus.
In contrast to Airbnb is the web site of a short-term rental competitor, HomeAway. Under the security tab is a statement in bold type: “A homeowner’s policy does not cover business activities.” It goes on to state that “regular homeowners insurance specifically excludes business activities” and explains the difference between personal and commercial liability coverage. The web site is highly informative for potential hosts and guests with respect to insurance issues. One Canadian insurer is now offering a unique homeowners policy to those using matching services such as Airbnb and HomeAway and other companies are likely to follow suit.
Given the potential issues, Airbnb may want to take a page from HomeAway’s book and be more up front with users about the insurance implications of using its service.
Chella Turnbull, a lawyer practising personal injury litigation at Zuber & Co. LLP, is available at 416-646-3129 or firstname.lastname@example.org. Her new online column on lawtimesnews.com focuses on a range of issues in insurance law.