Mind the Gap
New endorsement responds to exposures created by the sharing economy
HomeAway. Airbnb.
Today you’d be hard pressed to find someone who isn’t at least vaguely familiar with one of these services. What they have in common is that they are part of the new sharing economy that appears to be here to stay—at least for the foreseeable future. In addition, they also present a host of unintended insurance gaps for those who offer driving or home rental services.
The new endorsement buttons up the exclusions nicely and doesn’t leave any room for error. However, don’t panic just yet if you have clients who are engaging in home-sharing services!
Previously we examined insurance considerations and gaps in transportation networks; this month we’ll take a look at home sharing and some of the potential insurance pitfalls associated with this activity.
Deidra L. Gunderman, AINS, AIS, API, CIIP, CISR, a personal lines underwriter with Central Mutual Insurance Companies, summarizes the home-sharing issue this way: “Home sharing is not currently contemplated under the homeowners policy. There are gaps in coverage as a result. ISO has filed an amendatory endorsement to the homeowners policy specifically defining home sharing as a ‘business’. Therefore, under the unendorsed homeowners policy, this exposure is excluded.”
Gunderman is referring to the Home-Sharing Host Activities Amendatory Endorsement (HO 06 53 02 17) that is used in conjunction with HO 00 03 policies. Although not all insurers use this endorsement, you can expect most companies to end up using it (or a variation of it) in the very near future.
This endorsement expands on several home-based business issues that were explored in the first Mind the Gap column by:
- Amending the definition of “business” in the homeowners policy
- Clarifying coverage (including Coverage D)
- Amending the Perils Insured Against section
- Amending/clarifying exclusions.
The endorsement also adds several new definitions to the policy:
- Home-sharing host activities. This refers to renting out the residence premises along with any other related property or services made available during the rental period.
- Home-sharing network platform. This is a website, application, or digital network that facilitates the rental of a dwelling for money, a mutual exchange of services, or other compensation.
- Home-sharing occupant. This is a person who has entered into an agreement with the insured to stay at the insured’s home.
Why it matters
As Gunderman notes, any homeowners policy that contains this amendatory endorsement (or a comparable coverage form) will have significant gaps in coverage unless an endorsement is added to the policy.
For example, let’s assume you have a client who decides to rent out their house via a home-sharing service. What happens if there is property damage to the contents of a person who rents the house? What happens if this person vandalizes the house? What happens if a tree falls on the house while it is being rented out, the occupant is injured, and your client ends up losing out on future rentals while the house is under repair?
If the policy is endorsed with HO 06 53, most of these claims would be denied! Let’s explore why.
Using the first example, the personal property of someone who rents the house is specifically excluded under a newly defined exclusion in the HO 06 53. Specifically, the endorsement modifies the exclusion language found in the Property Not Covered section of Coverage C—Personal Property:
We do not cover:
- Property of:
(1) A “home-sharing occupant”;
(2) Any other person occupying the “residence premises” as a result of any “home-sharing host activities”
Moving on, if the “home-sharing occupant” vandalizes the home, a clearly defined exclusion in the HO 06 53, addresses damage in Coverage A:
(4) Vandalism and malicious mischief, and any ensuing loss caused by any intentional and wrongful act committed in the course of the vandalism or malicious mischief, if:
(a) The loss arises out of or results from “home-sharing host activities”
Similarly, vandalism losses under Coverage C also are excluded:
This peril does not include loss caused by vandalism or malicious mischief to property arising out of or resulting from “home-sharing host activities.”
What if a home-sharing occupant is injured because of a tree falling onto the house and future rental income is lost while the house is under repair?
Earlier we mentioned that the HO 06 53 amends the definition of “business” in the homeowners policy. To elaborate, “business” now includes “home-sharing host activities.” Therefore the “business” exclusion for Coverage E (Personal Liability) now excludes coverage for bodily injury or property damage arising out of “home-sharing host activities.”
In addition, the endorsement expressly states that Coverage F (Medical Payments to Others) does not apply to bodily injury to:
A “home-sharing occupant”; or
Any person, other than a “residence employee” of an “insured,” regularly residing on any part of the “insured location.”
Therefore the injured occupant won’t receive any coverage under the policy.
Regarding the house itself, the only “business” or home-sharing exclusions applicable to Coverage A pertain to vandalism and theft, so the damage caused by the tree should be covered.
So far as rental income is concerned, the endorsement inserts a new provision into the Fair Rental Value section of the homeowners policy:
However, we do not cover any fair rental value arising out of or in connection with “home-sharing host activities.”
The new endorsement buttons up the exclusions nicely and doesn’t leave any room for error. However, don’t panic just yet if you have clients who are engaging in home-sharing services!
How to fix the problem
Gunderman advises that clients “should speak with their agent to discuss potential exclusions that may have a buy-back option.” She is referring to the HO 06 63 02 17 endorsement that counters the home-sharing exclusions. It’s critical that you check to see if this endorsement (or a similar form) is being offered because, at present, the insurer can employ a coverage-limiting amendatory endorsement but not offer any kind of coverage carve-back option.
The HO 06 63 endorsement uses the same definitions of “home-sharing host activities” and “home-sharing occupant” and modifies the “business” definition. The endorsement then carves back coverage for losses under Coverages B (Other Structures), C (Personal Property), and D (Loss of Use) arising out of home-sharing activities. The endorsement also carves back the exclusionary language pertaining to Section II (Personal Liability and Medical Payments to Others).
It also clarifies the Landlord’s Furnishings section of the policy by inserting the following paragraph:
This coverage includes, but is not limited to, loss to appliances, carpeting and other household furnishings which results from “home-sharing host activities.”
Keep in mind that the limit for Landlord’s Furnishings is $2,500, so this isn’t the full Coverage A or Coverage C limit.
The HO 06 63 endorsement provides up to $1,000 of coverage (or greater if a higher limit is specified in the declarations) per occurrence for damage to the property of others that is caused by an insured and arises out of “home-sharing host activities.”
The insurance industry is attempting to address the sharing economy as best as it can; as expected, however, it has taken insurers some time to respond to these new exposures. Just as with coverages such as employment practices liability and cyber/privacy liability, it takes a while to examine all of the exposures from which claims can arise and develop appropriate coverage solutions.
Because home sharing is still relatively new, make sure you know which—if any—of your insurance carriers specifically address this exposure and familiarize yourself with any endorsements that limit coverage as well as carve-back coverage.
Be sure to ask your clients and prospects if they are renting their house out as part of a home-sharing service. Many people don’t take into account insurance ramifications when engaging in home-based business activities, so educating your clients on potential coverage gaps (and offering them solutions) can separate you from your competition!
The author
Marc McNulty, CIC, CRM, is vice president of insurance operations at The Uhl Agency in Dayton, Ohio, and has been with the agency for 15 years. He divides his time among sales, marketing, technology and operational duties. Marc also serves as chairman of NetVU’s Young Professionals Chapter. You can reach Marc at marcmcnulty@uhlagency.com.
