Vacation Rental Liability: What Every Owner Needs To Know
Short-term renting has taken off as the ultimate side-hustle opportunity – Have a spare room? Become a host and Airbnb it. Have a second home? Short-term rent it while you’re not there. Have enough capital to purchase an investment property? A vacation rental generates more revenue than a long-term rental – and so forth.
It’s also very easy to list your space on booking platforms like Airbnb and Vrbo or connect with a property manager to handle it all. So, you may be thinking, if it’s so easy to make extra income, what’s there to lose?
There’s surprisingly more on the line than one may originally consider. While many people begin short-term renting in addition to their regular day-to-day jobs, it’s foundational that as a vacation rental owner or short-term rental host to understand that short-term renting is a business and should be protected the same way that any business should – with Commercial General Liability insurance.
What is Liability?
We understand that “liability” sounds like insurance jargon and some legal mumbo-jumbo so maybe it would help to grasp the concept of liability if we frame it as “who is negligent” or “who is responsible” if an accident occurs on your property or off your property as a result of your short-term rental business.
The risk exposures you face as a short-term rental business owner can mainly fall in two categories:
- Property damage to your home, condo, townhouse, etc. whether it be a natural cause like hail, wind, fire, etc. or by a guest like an unknown house-party that causes extensive damage.
- Liability is any injury to or damage caused by your guests that you could be held liable for in some way. This includes situations where the guest gets injured, injures someone else, or damages someone else’s property.
While property damage at a short-term rental is common, the cost is miniscule when compared to the liability claims we see. That’s why we suggest you carry Commercial General Liability insurance for your short-term rental business with a minimum of $1 million in coverage and $2 million if you can afford the extra cost in your annual premium.
What is Commercial General Liability?
As we’ve established, short-term renting is a business whether you rent a spare room or your vacation home.
Commercial General Liability insurance protects you from financial loss should you be liable (held responsible) for a variety of claims (accidents or incidents) including bodily injury, property damage, and others that arise from your business operation.
Commercial Liability not only covers the business and the property it is on but also extends beyond the property lines as it recognizes your business operations and rental agreement with your guests. As a short-term rental owner, this is crucial because you are responsible for the actions of your guests and can be held liable for anything they do within the community, and on the flip side, if a member of the community does something to your guest, you can also be liable for that as well.
Proper Insurance’s Unique Commercial General Liability for Short-Term Rentals
The best insurance available to Airbnb hosts and short-term vacation rental owners is a Commercial Homeowners policy like the one offered by Proper Insurance. The unmatched coverage offered by Proper Insurance completely replaces an inadequate Homeowners or Landlord policy with specific coverage in place for the unique risks of a short-term rental business.
Here are some specifics of what’s included Proper’s Commercial General Liability coverage with example scenarios of why we included them in our policy:
Off-Premise Liability
Far too many vacation rental owners carry a dwelling landlord policy, which only offers premise liability, not commercial general liability. Premise liability DOES NOT extend off the property premise, period. Here are some examples of vacation rental liability claims that could happen off your property premise, that could be tied back to your vacation rental business.
- Bicycles
- Small watercraft such as a kayak or canoe
- Docks
- Waterfront properties
- HOA/Condo amenities
- Dog bites
- Assault & Battery
- Mugging
- Sexual molestation
Invasion of Privacy
Invasion of Privacy is included in Personal and Advertising Injury on the Proper policy. This portion of our Commercial General Liability coverage can mainly be summed up as emotional damage to a guest or to a community member (like the neighbor of your property). The top Personal Injury and Advertising claim we see has to do with invasion of privacy at the short-term rental property.
Common scenarios of Airbnb invasion of privacy could include situations like:
- Granting a guest a late check-out time but forgetting to tell your cleaner, who then walks in on the guest inside your home.
- A security camera on your property overlooks an area a guest thought was private (could be inside the home or outside the home, like a hot tub).
- A neighbor claims your Airbnb business is an invasion of their privacy.
Personal Injury and Advertising can also include claims like a neighbor suing the short-term rental owner over noise caused by guests of the short-term rental.
Liquor Liability
Liquor liability is a standard exclusion with most insurance policies. Most vacation rental owners do not furnish liquor, beer, or wine for guests, but it’s not that simple. Guests regularly drink on vacation and often leave behind unconsumed beverages when they check out. During the post-stay inspection, all alcohol must be entirely removed from the rental, otherwise, it’s now been furnished for the next guests. If they consume the alcohol and get injured, they can now claim the short-term rental owner liable.
Animal and Pet Liability
If you allow pets at your short-term rental or not, you have no control over the pets or animals that your guests encounter during their stay at your short-term rental. If a neighbor’s dog bites your guest, a guest’s dog bites your neighbor, or there’s a chance encounter with wildlife, you’re getting mentioned in the lawsuit and will want coverage.
Communicable Disease
If you offer a hot tub at your property, it’s important to have coverage for communicable diseases like hot tub rash, Legionnaires’ Disease, and more.
Assault and Battery with Sexual Molestation
Many insurance policies exclude coverage for assault and battery as well as sexual molestation. Sadly, these things happen at vacation rentals and tourist destination towns, and when they do everyone is getting sued, including the owner of the vacation rental home.
Bed Bug and Flea Liability
Not only are bed bugs a nuisance with regard to property damage and extermination, but they pose a huge liability risk. If a guest were to get bitten by bed bugs at your vacation rental, they could ultimately hold you liable and sue. These claim settlements quickly get into six figures. The problem is many insurance carriers have a total exclusion for “infestation” which bed bugs would fall under.
Don’t Count on a Personal Umbrella Policy
There is a misconception that a $1million personal umbrella will extend over your rental property. This is simply not true for three reasons.
First, your underlying policy limit must be fully exhausted for an umbrella to kick in, and many short-term rental owners simply do not have the correct underlying insurance, so the claim is denied before it ever gets to the umbrella.
The second is that not all umbrellas ‘follow form’. This means that while your base policy may cover an incident like liquor liability for example, if your umbrella does not cover liquor liability as well, it would be no use should a liquor liability claim exceed your base policy limit.
Third, if a claim did exhaust your underlying policy and was a covered risk on the umbrella, all personal umbrellas have a “business activity” exclusion, meaning they will not respond to any claim involving a business. Personal umbrella carriers consider “regularly” short-term renting a property for financial compensation as a business. In other words, your vacation rental property is a business.
Verify Your Insurance Coverage Today
It can be tough to know what your policy covers without going through each possible scenario first-hand but that’s why insurance professionals are here to help.
A good place to start is with your current insurance agent. Send them the listed scenarios above and see what they have to say. If they say you would be covered make sure they’re getting the answer in writing from the underwriter of your policy so you have it in your back pocket if a future claim arises.
If you still have questions or would like to compare your current policy to the custom short-term rental policy offered by Proper Insurance, give us a call at 888-631-6680 to receive a comprehensive coverage comparison, or submit your information to get a quote.
