Who’s responsible?

The tragic death of a 4-year-old boy at an Airbnb has exposed an insurance pitfall for those without specialist cover.

While the Airbnb juggernaut seems to show no signs of slowing – in Queensland alone listings have doubled in the past 18 months with 13 per cent of all housing in the state’s key holiday hotspots now short-term rental accommodation, according to a study by the University of Sydney – hosts are risking their financial futures by failing to ensure they have legal liability insurance.

In a heart-breaking accident, a 4-year-old boy was killed at a property being rented out via Airbnb on the Sunshine Coast hinterland in September. The boy had been playing on a homemade timber swing when it toppled down a slope, causing the wooden crossbar to fatally strike him in the head. Another 7-year-old girl sustained a broken arm in the incident.

The tragic death of one child and the injury of another have shone a light on the question of legal liability at Airbnbs. And importantly, highlighted the insurance gap that exists if the property owner (host) does not have specialist short-term landlord cover.

It serves as a timely reminder that ordinary owner-occupier insurance is generally insufficient to cover deaths and injuries if the property is being rented out – whether it is through a standard lease or via a share accommodation platform like Airbnb. Most home and contents (H&C) policies stipulate that there is no legal liability cover if the premises are being used to generate an income or for commercial/business purposes (a ‘business pursuits exclusion’). Renting out the home is classified as a business and, as such, the legal liability portion of the H&C insurance (the bit that offers compensation for death and injury, or loss or damage to someone’s property when they’re staying there) no longer applies as the policyholder is running a business at the home.

Policyholders can contact their H&C insurer to notify them that they intend to use the property for Airbnb to see if the insurer will extend cover but, as most insurers consider this ‘high risk’, there’s a good chance they’ll decline. Those hosts/landlords who think a bit of ‘secret squirrel’ is best when it comes to H&C or even standard landlord cover (for fixed term leases), best think again. It is a requirement under the Insurance Contracts Act 1984 (Cth) that policyholders notify their insurer if there is any change in circumstances, such as a decision to offer their premises for short-term rental. Failure to notify an insurer of a change in living conditions could be considered a breach of the contract and may void the policy.

Relying on Airbnb’s Host Protection Insurance is fraught, as while it offers up to US$1 million in cover “in the event of a third-party claim of bodily injury or property damage” during an Airbnb stay, it excludes – amongst other limitations – claims related to property issues, or damage or injury that aren’t accidental. (FYI: Airbnb actually recommends hosts obtain their own legal liability cover, making Airbnb’s cover ‘secondary’.) This insurance generally only applies when the host or landlord has been at fault or been negligent in the circumstances of the injury.

In this specific case, there would be a need to prove that the owner of the property was aware, or should have been aware, that the swing posed a risk to children who used it – and in light of that knowledge, that they had failed to repair the swing or to maintain it or to remove it. Workplace Health & Safety is investigating. If they find this to be a simple, yet incredibly tragic accident – that no-one was at fault – then there will be no compensation payable.

If, however, it could be proved that the swing was clearly unsafe and the property owner should have been aware it posed a potential risk, but failed to repair or remove it, then the family of the boy and girl could have grounds for a personal claim against the host.

The best way for a host/landlord to protect their legal liability when they rent their property via Airbnb is to have the right landlord insurance. Typical landlord’s insurance will only insure stays longer than 90 days and usually requires copies of residential tenancy agreements, which means it won’t cover short-term stays. Those with standard (fixed-term lease) landlord cover should confirm with their insurer if it is possible to switch to short-term cover if they go down the Airbnb route. Importantly, some landlord insurers that do offer short-term coverage specifically exclude Airbnb, so landlords/agents should check their policy before accepting guests.

As most standard landlord policies do not cover the specific risks associated with short-term leasing, landlords need a specialist short-term policy. RentCoverShortTerm is one landlord policy that does cater to the needs of Airbnb landlords/hosts, including providing up to $20,000,000 ($20M) in legal liability cover.

Of course, hosts/landlords should reduce the risk of being personally responsible for damage to their property or for compensation for an injured guest by making sure they take steps to avoid any potential liability in the first place. A key to this is ensuring the property is safe and well maintained.

But the reality is sometimes things beyond the host/landlord/agent’s control can and do happen – and when they do, it pays to make sure that cover is in place. Having a guest injured or worse on the property is bad enough, finding out that you’re legally liable but not insured could be a financial disaster.

Our advice about insurance is provided for your general information and does not take into account your individual needs.  You should read the Product Disclosure Statement and Policy Wording prior to making a decision, these can be obtained directly from EBM.