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Airbnb exposes households to insurance risks


Airbnb describes itself as the spare room revolution. The Silicon Valley start-up effectively turns vacant beds into cash. It is an exercise in collaborative consumption, a virtual marketplace that gives home-owners access to the $6 trillion travel industry. Airbnb has quickly become the largest hospitality brand in the world.

The company, although succeeding in monetising people’s extra space, is still under some scrutiny regarding whether home and apartment owners, or even tenants are covered for damage or loss caused by their Airbnb “guests”.

Insurance cover for guests, borders or sub-tenants, especially in a profit making ventures like a regular short term rental accommodation operation, has always been a grey-area. Airbnb is no exception as it blurs the line between the residential and commercial use of property.

The Problem

It is not uncommon for householders who sublet the whole or part of their premises to find that they are not covered for damage caused by their Airbnb guests under their normal household or contents insurance policies. This is because:

  1. Most home insurance policies have exclusion clauses for malicious damage or theft by visitors or guests,
  1. Although there are limited exceptions in some policies, most home or contents insurance policies do not cover owners or renters who regularly sub-let rooms or the entire premises; and
  1. The short term letting of the premises or any part of them could be considered an important fact which should be disclosed to an insurer. A failure to disclose a material fact could be a breach of the insured’s duty of utmost good faith to their insurer which could then give an insurer grounds to deny a claim.
In 2011, Airbnb announced the creation of their ‘Host Guarantee’ to provide a form of “guarantee” for homeowners in the event of vandalism, loss or damage to their property. This came after a number of homeowners were unable to make claims under their insurance policies, for theft, vandalism and damage, prompting Airbnb to take action.

Airbnb’s ‘Host-Protection Guarantee is currently capped at US$1,000,000 (AU$900,000). The guarantee is not described as insurance, but a guarantee which is accessible after a security deposit or existing homeowner’s insurance is exhausted.

The “Guarantee” should not be confused with an insurance policy. Although the language used makes it appear as though it is a financial safety-net, Airbnb enthusiasts should remain wary of the risk of short-term leasing arrangements without appropriate insurance cover for the following reasons:

  1. The Airbnb guarantee requires the host to attempt to resolve the loss or damage with the Responsible Guest before making a claim and it could require a host to make a claim on their existing insurance too
  1. Any amount a host can recover from another insurer or a security deposit will be deducted from the claim
  1. The ‘guarantee’ is only to repair or replace Covered Property, it is not a new for old commitment
  1. The guarantee only covers property damage or loss during the term of the online booking and not for a loss of certain items of property including but not limited to, cash and securities, collectibles, rare artwork, jewellery, pets or personal liability vehicles, watercraft, any damage to any property that is not in, at, or on a Covered Accommodation and real property owned by a party other than you and that you do not control
  1. It is not clear whether the host guarantee extends to damage to common property in an apartment building,
  1. In addition to the other limitations exclusions and conditions in the cover, the ‘Host’ protection only covers damage and destruction and does not require Airbnb to replace “new for old” but rather the obligation of Airbnb is merely to repair or replace a damaged item. Presumably replace could extend to a second hand replacement.
In April 2014, Airbnb changed its terms of service to let its customers know that anyone outside the United States contracting with Airbnb will now deal with a subsidiary in Ireland, rather than the main company in San Francisco.  Not only does that mean Australians are dealing with an Irish Company, the arrangements are to be dealt with under Irish law and the parties agree to submit to the jurisdiction of Irish courts which could further complicate matters.

Airbnb warns hosts to carefully review the definitions of “covered accommodation,” “covered losses,” “covered property” and “excluded property” below so that they can identify and protect property not covered by the Airbnb host guarantee.

My advice is stronger - if you plan on leasing your property or listing it on Airbnb do not rely on the host guarantee. It is not a substitute for insurance cover. Hosts should seek the advice of an experienced insurance broker if they want to ensure that they have appropriate levels of protection.

 

Written by George Newhouse

This is not legal advice. Hosts considering letting their premises should contact an insurance broker or trusted legal advisor about their cover and those with claims should seek expert broker or legal advice.

Written by Shine Lawyers on March 22, 2015. Last modified: September 26, 2018.

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