Airbnb Challenges with HOA and Property Insurance Claims in Minnesota

If you run an Airbnb or use another short-term rental site, it could impact any property insurance claims in Minnesota. Also, depending on the homeowner association (“HOA”) rules and governing documents, you could also be violating rules of the community. It is not unusual for HOA board members to approach Minnesota-based insurance attorneys for help in enforcing or clarifying the community’s stance on Airbnb and other short-term rentals.

While some HOA communities are starting to see the benefits of using sites such as Airbnb because of their screening services, many insurance companies view it as a high risk because of potential property damage. When it comes to property insurance coverage, it is important to look at both landlord insurance as well as extra coverage for people who intend to operate their property more similarly to a hotel.

Consider all the controversy surrounding Airbnb insurance protection in recent years. According to this article by NBC News’s Twin Cities affiliate KARE 11, one Minneapolis Airbnb host rented out her condo through the site, only to find the place trashed by more than sixty people, with damages totaling more than $14,000. While such significant damage is not the norm, it does happen, and it is important for homeowners to protect themselves.

Additionally, the advent of the sharing economy has provided insurance companies with an excuse to deny property insurance claims.  Thus, it is incredibly important for homeowners and communities to consult with an attorney to ensure that your rights are being protected.

Cracking Down on Unlicensed Rentals

Property owners who use short-term rental sites like Airbnb have a lot of complicated legal issues to contend with in Minnesota and across the country. For example, according to recent article by TwinCities.com, the city of St. Paul requires that any homeowner wishing to list their property on a short-term rental site go through the city’s licensing process.  Those who fail to become appropriately licensed risk prosecution for violation of the ordinance.  Consequently, before listing your home on a short-term rental site, make sure to check the local ordinances. Also, read over your HOA rules and regulations, and contact the property manager with any questions.

Understanding Insurance Protection

Airbnb offers “Host Protection Insurance” to those who list their property for rent through their site.  They claim that Host Protection Insurance protects against liability claims up to $1 million that occur in an Airbnb listing or on the property during a stay. However, even Airbnb admits that Host Protection Insurance is not a replacement for homeowners insurance. In fact, many mortgage companies require the rental property owners to carry landlord insurance or face severe consequences, including denials of coverage. Some people also take out a commercial umbrella policy when running an Airbnb.  Umbrella policies provide extra liability insurance, and is designed to protect against major claims and lawsuits.

Sites such as Airbnb also give hosts the chance to collect a security deposit from renters. However, a security deposit is different from insurance. A security deposit covers accidents such as spilled wine, broken décor items, or unreturned keys. Landlord insurance typically protects people from third-party claims of bodily injury and property damage.

Classifying your Rental Correctly

There are two main ways that homeowners run their short-term rental.  Some claim their home as rental or investment property, while others operate more similarly to a hotel service. Historically, insurance companies viewed vacation homes as riskier than primary homes. Thus, while many HOA boards are loosening up restrictions that say home owners are not allowed to rent out their home for periods of less than a year, insurance companies may have other concerns.

According to a piece by SharingMyHome.com, Airbnb and similar sites have created a new category in the hospitality industry. When the industry was first starting out, most hosts used the site to rent out rooms in their homes for a short period.  However, more recently, homeowners use the site as a way to find screened renters.

These changes have compelled some insurance companies to write new policy language that make it easier for them to deny claims. One way they do that is to claim that the host is running a hotel business.  Homeowners who wish to avoid having their short-term rental classified as a business should avoid providing hotel-like services such as a concierge, cooking or restaurants, turndown service, or laundry. Also, consult with a tax preparer about how to handle your short-term rental property to ensure that it’s treated the way you expect it to be.

Getting the Help You Need

Smith Jadin Johnson is a Minnesota-based insurance and construction litigation firm.  We specialize in representing policyholders in insurance claim disputes, community association law, construction law, and construction defect litigation. For more information about help with protecting your rights as policyholders, and for help with denied property insurance claims in Minnesota, please contact us.