Insurance 101: Short Term Rental Exposures

Insurance 101 – Short Term Rental Exposures

Few things can rattle your personal insurance agent or broker quite like gambling with your personal assets by disregarding your individual or family’s liability exposure. An agents focus, is to minimize and eliminate risk. For years we have seen entrepreneurial businesses go from concept to start-up, to global, all through viral marketing and strategic advertising. In the corporate world, if a company's product is popular enough, it risks something called genericization, which is when the public associates the brand name with the generic class of product itself.

So, whether you are planning to AirBNB, HomeAway or look into many of the other regional, national, or international short-term rental (STR) providers -know the risk and exposures on either side of the agreement or contract.

TRENDS

The industry has shown us (pre-2020) that there is a demand for instant gratification, and quick and efficient ‘wins’ when it comes to travel accommodations, planning, and avoiding more mundane and traditional family travel. For example, -owning a lake house which is infrequently used can become an expense and maintenance headache for the owner. As a short-term rental, the owner can generate new streams of income, manage the overall expenses of the property (mortgage, insurance, utilities, taxes), balance the dates available for rental, qualify the offers, and outline requirements. A lake retreat for some, can generate thousands of dollars per week, for time the owners would otherwise be unable to utilize; and for many homeowners, this is worth the risk of having non-owners occupy the home and property for a given period of time, for a fee.

What we are seeing is an explosion in the market for all kinds of things based upon a 'rent by owner' network:  properties, autos, ranches, farms, watercraft, -even your pool and back yard?! This trend of ‘trying out’ assets without the need to purchase them, is not going to slow down.

THE RISKS – FOR OWNERS

Generally speaking, when your property is considered a “vacation rental” -people are going to treat their stay like a vacation, and that needs to be taken into consideration. Nobody is going to take better care of your possessions than you – and with the help of a property management company, the process of listing, showing and inspecting the property can be very helpful in mitigating damages, maintenance issues on the property, and growing exposures like noise complaints, or neighborhood initiatives to curb short term rentals in their neighborhood.

Photo shoots, weddings, special events and pop-up parties are on the rise; this has been shown in the media where an adult stands in to rent a property, and then makes a profit by sub-letting the property to others. This has led to cases involving significant property damage, theft of contents, physical assaults and violence, and significant lawsuits that roll back to the property owner for injuries sustained on the property – as the ‘guests’ were not disclosed on the application or STR agreement. Everyone gets named in the lawsuit.

Tho other aspect of risk is for property owners to not include their insurance company, agent, or broker in outlining this exposure, and/or not being aware that property or liability insurance in some cases will not respond. Some companies offer “coverage” which is not viewed as true, property & casualty insurance or liability coverage – and if you read the fine print, there is a common hold-harmless agreement to consider in the event the homeowner is sued, and is trying to recover losses by the STR company, tenants, guests, etc.

THE RISKS – FOR STR TENANTS

I will be the first to admit it… I really like, and frequent upscale and unique locations on STR rather than settling for a family-friendly resort, hotel, etc. Sometimes it is simply better to find a place that has the amenities of home. The risk that you face as a ‘tenant’ is pretty obvious: you break it, you buy it. Something goes missing, you buy it. Allegations that may or may not be based in fact – can become a problem for the homeowner and/or the tenant.

We have seen cases of vacationers securing properties that were not as advertised, and that were poorly maintained, and dangerous. Some covered media examples include decks collapsing, stairs in disrepair, and other dangerous aspects of the property or grounds.

We have also seen cases where homeowners blame disrepair and prior damages, unfairly, on STR tenants – and in many cases this can be difficult to prove that damages were pre-existing to the property prior to rental. Damage to pool equipment, hot-tubs, golf carts, bikes, watercraft, and other toys approved to be part of the rental experience.

We have also seen cases of security cameras on property that are later cited for invasion of privacy, and non-disclosure in the lease agreement or contract.

BEST PRACTICES ADVICE

1.     If you rent anything to another party for a fee – discuss it with your attorney and insurance advisor, first. 

2.     If you are researching companies to book accommodations, look at the reviews and ask for a copy of the contract to review in more detail.

 3.     Know the location of the property, and check out the neighborhood and surrounding area for aspects less appealing than advertised.

 4.     If you rent out your property/autos/watercraft – know your current policy limitations and elect the right coverage that may be able to accommodate the exposures.

 5.     Evaluate ‘is the risk worth the reward.’

 6.     Look into property management companies that will help with another set of eyes on the property prior, during and after the rental.

Whether you are building or buying a property with the intention of ‘trying out’ the short-term rental experience, it’s crucially important that you speak with your insurance agent about the home and liability policy fine print on business exposures, what activities may exclude coverage, what recommendations a homeowner should take with regard to contracts and tenants, etc. It is also highly recommended to consult with an attorney that specializes in property litigation and estate matters; they can help negotiate the gotchas along with your insurance agent.

-We can help!

Jason M. Pond, CAPI, CPRIA - Personal Risk Advisor | Shareholder

W: 972-715-8703 /  C: 972-342-8645 / jason.pond@swinglecollins.com / www.swinglecollins.com