If you’re a host in Chicago, read on to learn about the regulations affecting local short-term rentals. The City requires hosts like yourself to secure a business license for your short-term rental and undergo property inspections as deemed necessary by the City Building Commissioner. In addition, hosts must maintain fire, hazard, and liability insurance with a minimum of $1,000,000 in commercial general liability.
Each licensee engaged in the business of vacation rental shall have a duty to obtain: (i) homeowner’s fire, hazard and liability insurance; and (ii) commercial general liability insurance, with limits of not less than $1,000,000 per occurrence, combined single limit, for bodily injury, personal injury and property damage arising in any way from the issuance of the license or activities conducted pursuant to the license.
Each policy of insurance shall: name the City of Chicago as an additional insured on a primary, noncontributory basis for any liability arising directly or indirectly from the issuance of the license.
With regulations cropping up across all 50 states, short-term rental hosts are faced with the challenge of complying with their City or County in order to continue running their business. We aim to shed light on these requirements for hosts from an insurance perspective.
Clear regulations are key for a successful short-term rental business
When it comes to short-term rental regulations, things are often unclear. City requirements can vary state-to-state or city-to-city. From an insurance perspective, there are three main concerns with most insurance requirements.
Type of “liability insurance”
Here we can use Chicago’s insurance requirement as an example. There are three types of liability coverage one can purchase for a short-term rental: personal liability, premise liability, and commercial general liability. Chicago requires hosts to secure commercial general liability. Why is that? It’s because short-term rentals are a business and require business insurance to protect them.
Commercial general liability is the only appropriate liability coverage for short-term rental properties. This type of liability is found in business insurance policies and protects the insured against claims of bodily injury or property damage they could be found legally liable. It’s the most comprehensive liability insurance one can purchase.
“Proof” of insurance
Here is an area where definitions are vital. In many insurance requirements, the “proof” of insurance isn’t defined. In the insurance industry, all carriers use a standardized form called a “certificate of insurance” or COI to show proof of insurance to various interested parties, including banks and mortgage lenders, etc.
Without this specialized form, the City will be hard-pressed to obtain and organize the “proofs” provided by hosts. An email stating they have insurance is not enough; requiring a COI provides clarity for all parties.
“Additional Insured” requirement
Again with Chicago’s insurance requirement, hosts must list the City as additional insured on their short-term rental insurance policy. This is common in the insurance world. It’s through this addition that the interested entity is afforded liability coverage. Without this “additional insured” requirement for coverage, it’s unlikely the City has any protection in the event a plaintiff names them as a defendant in relation to bodily injury or property arising out of short-term rentals in the City.
Chicago’s requirement not only protects the City, but it also ensures the hosts have the correct and best insurance for their short-term rental business. Other hospitality entities including bed and breakfasts and hotels carry commercial general liability – short-term rental properties should be no different.