THINGS TO DO BEFORE LEAVING HOME ON VACATION

Perils and Pitfalls of Insuring Short-Term Vacation Rentals

Between 1995 and 2000, there was a period of extreme growth in the “dot-com” industry. Venture capitalists, speculators, and investors poured millions into new business ventures that were built on ideas and concepts. During that time, the stock market flourished, and so did the secondary housing market. When the market crashed, the housing market crashed along with it. The result was an increase in the need to turn secondary homes into income-generating properties.

Today, about five percent of Americans own second homes. Of those, it is estimated that 60 percent have some sort of rental exposure.

There are numerous pitfalls concerning insurance coverage for these homes. For example:

• Most short-term vacation rentals are insured as secondary or seasonal homes
• Property owners may fail to inform their insurance agents that they are renting their homes
• Insurance agents may fail to tell the insurance company about the rental exposure
• Concealment, misrepresentation, or failure to notify insurer of a change of actual occupancy can result in the denial of a claim, lengthy legal battles, and/or immediate cancellation of coverage and unavailability of replacement insurance

The following types of policies are commonly used for vacation rentals and each have serious gaps in coverage:

• Commercial (Business) Insurance policies: typically only available for multi-family dwellings with five or more units
• Residential Dwelling policies: limited coverage for personal property and usually actual cash value (ACV)
• Homeowners policies: business liability exclusion and limited personal property coverage
• Combination policies: limited personal liability and personal property coverage

 

Insurance Programs Designed for Short-Term Vacation Rentals

The need for specialized insurance for short-term vacation rentals was first recognized with the introduction of AirBnB in 2008. It soon became apparent that there was a serious insurance liability coverage issue, not only for the property owners, but also for AirBnB.

AirBnB now includes primary Personal Liability coverage for the property owner (“host”), as well as first-party coverage for damage to the host’s property. However, this coverage is not a substitute for a homeowners or vacation rental policy and, most importantly, only covers the property owner (“host”) for liability or damages that occur while the home is being occupied by a guest who made their reservation on the AirBnB website.

There are several other specialty insurance programs designed for short-term vacation rentals, and each one is unique. Most online booking companies have also partnered with insurance vendors such as CSA Travel Protection, Rental Guardian, Proper Insurance, INSUREstays, and CBIZ. However, none of these vendors provide comprehensive coverage for the homeowner’s “non-business” related Property or Personal Liability exposures.

 

Coverage Issues

Standard homeowners insurance policies provide minimal coverage for business activities that are conducted in the home. The following scenarios explain what is covered and the coverage gaps.

Primary residence (single-family dwelling) that rents to no more than two roomers (long-term) or boarders (short-term) at a time.

• Difference between “guest” and roomer or boarder is “remuneration”
• Business Liability is not excluded
• Personal Property:
  • HO 3 excludes theft from the part of the residence premises that is rented to others
  • HO 5 covers theft but not breakage unless the damage is caused by theft or attempted theft

Seasonal or secondary residence occasionally rented to others

• Theft of personal property from that part of the residence rented to others is excluded (HO 3)
• If a paying person has access to the entire residence, theft of any property on the residence premises is excluded
• HO 5 covers theft, but not breakage

Business liability is excluded, except when the residence is:

• Rented on an “occasional” basis (the term “occasional” is not defined)
• Used as a single-family residence and has no more than two roomers or boarders

Other structure at the primary residence, such as a cottage, is rented to others (short or long-term)

• For HO 3 and HO 5, coverage for structures rented to others is excluded
• ISO solution is to add HO 04 40 STRUCTURES RENTED TO OTHERS endorsement, which removes both the property and business liability exclusion
• Coverage for the furnishings in that structure (landlord’s furnishings) is limited to $2,500 and theft is excluded

Condominium is rented to others (short or long-term)

• Property and Liability coverage for condo rented to others is excluded
• Property of roomers or boarders is excluded
• Theft of insured’s property while condo is rented to others is excluded
• There is no coverage for “landlord’s furnishings” like in HO 3 and HO 5
• ISO solution is to add HO 17 33 UNIT-OWNERS RENTED TO OTHERS endorsement
  • Restores property coverage (still excludes theft of certain classes of property)
  • Removes business liability exclusion

 

Property Limitations Found in Standard ISO Homeowners Policies that Affect Short-Term Rentals

• Theft of personal property from that part of a “residence premises” rented by an “insured to someone other than another “insured” is excluded in HO 3, but not HO 5
• Landlord’s furnishings such as appliances, carpeting and household furnishings are limited to $2,500 and are covered for named perils only on both HO 3 and HO 5
• Most, if not all, homeowners policies and rental endorsements EXCLUDE theft of jewelry, watches, furs, fine art, antiques, collectibles, porcelain, etc. while the premises are rented to others

 

Personal Injury Exclusions Found in Standard ISO Homeowners Policies that Affect Short-Term Rentals

The ISO Personal Injury Endorsement (HO 04 82 10 00) excludes “injury” arising out of or in connection with a business conducted from the insured location. However, the exclusion does not apply to the rental of an insured location.

While many insurers offer a homeowners rental endorsement, some have specifically restricted Personal Injury to the premises shown in the declaration. This is a problem if the insured also uses the covered location as their primary residence because it restricts personal injury, which is otherwise not location specific.

 

Conclusion

Many carriers now offer specific homeowners rental endorsements that address each of the coverage issues above. These complement the standard coverages and can provide a policy that protects the client’s personal and short-term rental insurance needs in one comprehensive policy.

Contact us for all your Insurance needs! (321)725-1620 

Bob Lancaster Insurance

                                                     Serving Florida since 1964

Don’t Fiddle on Your Roof When it Comes to Repairs

Roof repair is part of routine home maintenance, but you don’t have to wish you were a rich man to make improvements that could extend the life of your roof. And the timing couldn’t be better – now that we’ve escaped the ever-present dew and rain of Florida’s summer season, the weather is ideal to upgrade your roof. The materials are cooler to handle while still being warm enough to seal correctly – helping avoid trapped moisture that can lead to blistering and other problems. Beyond keeping you safe in the event of a storm, a roof that’s retrofitted to meet hurricane standards can help pay for itself in the way of wind mitigation credits and discounts from your homeowners insurance company.

 

Here are areas to consider when making your roof hurricane and mitigation inspection ready:

Roof Covering

 

Your roof covering can be the deciding factor as to whether your house qualifies for wind mitigation discounts. If you plan to recover your roof, slate, tile and asphalt shingles are the most common materials used in Florida however, metal panels and wood shingles and shakes are also options for your consideration. Consult with a roofer to determine which material is best for your home.

Tip: To protect roof coverings from both wind and hail damage, look for roof coverings that are both wind and impact rated.

Secondary Water Resistance (SWR)

This coating seals to the roof deck and protects the building if the roof covering fails during intense winds and keeps rain from leaking into the house. SWR provides a layer of waterproofing by sealing the seams in the roof deck. 

Tip: Some insurance companies will consider a concrete roof deck a secondary barrier but most only apply the credit for self-adhering modified bitumen (peel and stick roofing), so check with your carrier.

Roof-to-Wall Connection 

Your roof is connected to the walls of your home, which are secured to the strongest anchor on your property – your home’s foundation. The roof-to-wall connection (also known as continuous load path) keeps the roof on your home by transferring uplift loads on the roof into the supporting walls. The weaker the connection, the higher probability the roof will be pulled off during high winds.

Tip: The four most common connection types (listed from strongest to weakest) are double wraps, single wraps, clips, and toe nails.

Roof Deck Attachment

Poorly attached roof decking is the leading cause of home damage from hurricanes. The roof deck holds the whole house together, providing structural integrity. Most roofs in Florida consist of shingles nailed to plywood sheets. If the plywood sheets are not securely nailed to your roof trusses, additional nails, and/or longer nails, along with a foam adhesive should be added to ensure the plywood is not blown off in a hurricane.

 

Tip: In order to qualify for mitigation credits, roof decking/sheathing must consist of 1/2" (min) plywood or OSB that is fastened to the trusses/rafters with 8d (min) nails having nail spacing not exceeding 12" on the field trusses/rafters and 6" on the seam trusses/rafters.

 

Roof Shape

Most homes in Florida feature flat, hip, or gable shaped roofs. Compared to other types of roofs, hip roofs generally perform better in extreme winds because they have fewer sharp corners and their construction makes them inherently more structurally stable.  Hip roofs are sloped downward on all sides like a pyramid and offer the greatest insurance discounts.

Tip: Steeply pitched roofs (roofs angled to the horizontal at 30 degrees or more) usually perform better in hurricanes than flat roofs because uplift on the windward roof slopes is either reduced or eliminated.

Gable End Bracing

Gable end walls, if not properly braced and anchored, can take a tremendous beating during a hurricane. When the connection between your home’s wall framing and roof framing at the gable ends is weak, the gable end walls can get sucked out by the wind, exposing your home to rain and damaging your insulation, drywall and contents.

 

Tip: Any gable end that is more than 48 inches should be braced to the 2001 Florida Building Code standard to qualify for an insurance discount.

 

Roof failures account for the largest amount of loss during a hurricane. Now’s the time to raise your roof (strength) in preparation for the next storm and make improvements that could reduce your insurance premiums.  Do you have any helpful hints to share about roof upgrades?

 

                                            Contact us for all your Insurance needs! (321)725-1620 

                                                               Bob Lancaster Insurance

                                              Serving Florida since 1964