29 Mar 2018

Renting your property over the holidays? Insurance loopholes may leave you having to pay for major property damage

Airbnbhorror stories involving wild parties, violent brawls, trashed houses and illegal drug manufacturing have revealed insurance traps that could cost short term rental hosts on various platforms thousands of dollars.

Loopholes in disclosure statements provided by insurance companies – lengthy documents customers often don’t bother to read ­– can leave hosts having to pay for major property damage they believed they had insured against.

A woman who rented her holiday house at Rosebud near Melbourne before Christmas illustrates the danger. Her Airbnb guest turned out to be a wanted offender who trashed her house while using it to manufacture ice.

“Airbnb provided the guest’s driving licence as ID and the website gave him a clear record for other rentals, so I felt safe,” says Jane, who asked that her last name not be published because she fears retaliation.

“After a week’s Airbnb rental, the man’s partner pleaded with me to let them stay on,” she said.

Jane then agreed to rent the property to the man privately, rather than through Airbnb, for another month at a lower rate.

“They stayed on without paying rent and it was a terrible battle to get them out, then when I flew down to inspect the house I was horrified. It was filthy, furniture was damaged, shelves were smashed, the floors were flooded with water, big chunks were gouged out of the walls and red stuff was sprayed on the ceilings.”

“Police told us the couple staying there had restraining orders against each other and that equipment left in the house had been used for making ice. The male guest was on a police ‘most wanted list’ that described him as potentially dangerous.”

Does Airbnb provide insurance?

Airbnb’s automatic $1 million Host Guarantee only provides coverage for losses incurred during the booking period, and covers accidental damage, but not deliberate damage. In fact, the terms and conditions state the “Host Guarantee is not an insurance policy” and Airbnb strongly encourages homeowners to take out insurance for events not covered by the Host Guarantee.

Similarly, the Stayz terms and conditions state the company accepts no liability for damage caused by guests, and owners are required to have home, contents and public liability insurance “as appropriate for their property and their rental business.”

Host Protection Insurance, also automatic for all Airbnb bookings, provides hosts with up to $1 million cover for legal liabilities as a result of injury and property damage to guests during the booking, but there are a number of exclusions including intentional acts such as assault.

Airbnb has 122,500 listings across Australia with 4.8 million users, and a company spokesman describes property damage claims as extremely rare. “You could host a new reservation every single day for over 27 years without expecting to file a significant property damage claim under our host guarantee,” he says.

“While no background check system is infallible, we screen all hosts and guests globally against regulatory, terrorist and sanctions watch lists.”

What insurance is available for short-term rentals?

Jane’s case highlights some of the insurance loopholes of short-term accommodation, especially when renting a property outside of recognised platforms.

She didn’t take out landlord insurance for the private rental, but even that may not have saved her, as most policies have a minimum lease period or are void if a property is used for short-term accommodation.

IAG’s ShareCover is the only policy that covers stays as short as one or two nights. It costs as little as $5 per night and includes coverage for deliberate damage, but hosts might be wise to dig deeper.

ShareCover would have covered Jane’s extra month’s rental for $189.66, but only if she used a recognised platform like Airbnb or Stayz.

However, ShareCover’s 21-page product disclosure statement (PDS) excludes liability for claims arising from, “any trade, business, occupation or employment other than the temporary accommodation”. A ShareCover spokeswoman confirmed the exclusion would also apply to illegal business activities, including ones involving drugs or prostitution.

Another loophole could leave hosts in the lurch if their house is wrecked by wild parties. Several horrifying cases made national headlines over Christmas, including a luxury beach house that was trashed after a party was invaded by up to 70 gatecrashers.

ShareCover’s PDS excludes any rental property event that more than 30 people attend, “regardless of whether those people are invited or not”.

There are other potential traps. Local councils and governments across Australia are scrambling to introduce new regulations, or planning to enforce existing ones, that ban or control short-term rentals in private homes.

ShareCover’s PDS excludes properties that councils or governments don’t allow to be used for residential accommodation, and people who rent, rather than own the property, are not covered unless they have the owner’s written consent. Damage caused by pets is also excluded.

ShareCover spokesman, Mitchell Sweeney, says his company has specifically tailored the insurance to protect short-term rental hosts. “The response has been fantastic,” he says.

The company’s basic cover provides $150,000 for building damage, $10,000 for contents and $10 million liability insurance, with a $300 excess on claims. Customers can increase levels of insurance on a sliding scale.

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