While Airbnb is in its relative infancy, there's been no lack of discussion within the multifamily housing industry regarding its potential implications. Whether owners support or oppose the Airbnb.com concept, they should nevertheless consider the potential for increased liability exposure, and future insurance-related issues, arising from the self-proclaimed “community marketplace” where users can “monetize their extra space and showcase it to an audience of millions.”
Despite the fact that typical apartment leases don’t allow sublets without an owner’s approval, it’s clear that if a tenant regularly uses Airbnb to “host” others, the tenant is profiting from the repeated short-term rental (essentially) of the owner’s property. Some would liken this form of exchange to a hotel booking.
Increased Potential Liability
No matter how it’s characterized, the existence of Airbnb puts multifamily owners in the difficult situation of having to determine whether tenants who use the site are acting as hosts, and whether the owners should pursue their rights under the terms of the lease against an otherwise-good tenant. Add the potential for increased legal liability, among other considerations, and the need for an elevated Airbnb discussion within the multifamily industry becomes critical.
It’s not hard to imagine the increased exposure to potential liability claims for multifamily owners whose tenants are using Airbnb: Listing an apartment unit on the site can result in increased traffic in the building—including the use of pools, fitness rooms, and other common areas by people the owner hasn’t vetted through the normal leasing process.
If someone books a tenant’s unit through Airbnb and subsequently claims an injury during their stay, it would be naive for a multifamily owner to think the person would limit their recourse to the tenant or Airbnb. Rather, the claimant would see the owner as just another pocket—a potentially deep pocket.
Accidents happen, as they say, and claimants (and their lawyers) will look to maximize a monetary recovery by seeking damages against multiple defendants, under multiple theories of liability. If a multifamily owner is sued in such an instance, the only likely protection is the owner’s own liability insurance policy; neither the tenant nor Airbnb is likely to afford the owner adequate protection.
Even to the extent a tenant is carrying the liability insurance required by an owner under the lease, it’s likely such insurance will contain exclusions pertaining to business pursuits, or sublets, which insurers would argue bar coverage for liability arising out of the tenant’s for-profit use of the unit. Airbnb’s own website warns hosts to have adequate coverage under their own insurance policies. In any event, the amount of such insurance (such as $100,000) would likely be insufficient to cover a claim for significant bodily injury, and the owner might lack any direct coverage or rights as an additional insured party under the tenant’s insurance.
Airbnb does offer its hosts a $1 million “host guarantee” for property damage (which the company expressly states is not insurance). Such guarantees do not, however, provide liability protection or appear to extend to non-host, multifamily owners.
Owners faced with a liability claim arising out of a tenant’s use of Airbnb will have to look to their own liability insurance for protection—and satisfy whatever deductible or retention amount is required under the policy. There could also be an impact on future insurance premiums. These claims should nevertheless be covered, subject to the particular terms and conditions of the policy.
But owners beware: At some point in the future, the insurance industry could look to exclude coverage for liability related to hosting, or insurers could raise premiums because of a perceived increase in exposure to multifamily owners because of the popularity of Airbnb and similar sites. All it will take is one significant Airbnb-related personal injury claim or series of claims.
If multifamily owners wish to work with Airbnb or other hosting sites regarding the use of their buildings, insurance must be a large part of the discussion. One solution might be for Airbnb to provide an expanded host guarantee, one that includes liability protection and affords protection for multifamily owners. Yet another solution could be that Airbnb procures actual insurance that gives multifamily owners direct liability coverage and rights as additional insureds.
For now, multifamily owners should pay particular attention to any exclusion contained in their current liability policies, or added to new policies, that expressly addresses sublets or that’s broad enough to deny an Airbnb-related liability claim.
The insurance procurement and renewal process should also be handled carefully, especially to the extent insurers have questions about sublets, or even tenants’ use of Airbnb and similar sites. Misrepresentations in the procurement and renewal process can lead to a denial of coverage for an otherwise-covered claim and the potential rescission of a policy.
In the end, all multifamily owners, whether choosing to work with Airbnb and other hosting sites or not, should ensure that their liability policies cover this new potential exposure, now and in the future.