The City of Denver has recently passed a set of sweeping regulations onto their short-term rental licensing procedure. People that rent their properties from 1-29 days are required to obtain a license from the city. These new regulations make properly insuring your vacation rental more important than ever- get a quote, or call an Account Executive today to learn how to easily insure your Home as an Airbnb, Vrbo, or short term rental. The rules governing the licensing requirements are as follows:
“3.1. A Licensee shall inform his or her Insurance Company that the property covered by the Insurance Company will be used as a Short-Term Rental before any Short-Term Rental Transaction is processed, regardless of whether the Licensee obtains liability insurance for the Short-Term Rental through that Insurance Company. The Licensee shall verify compliance with this notification requirement by executing and submitting a form affidavit provided by the Department during the application process.
3.2. A Licensee shall maintain liability insurance to cover use of the Short-Term Rental in an amount determined appropriate by the Insurance Company insuring such Short-term Rental, but in any case, no amount of less than one million dollars ($1,000,000) in the aggregate. Such coverage shall be maintained in full force and effect for the term of the license. Alternatively, a Licensee may elect to conduct each Short-Term Rental Transaction through a Hosting Platform that provides equal or greater insurance coverage for each Short-Term Rental Use, provided that the Licensee abides by the notification requirements outlined in Rule 1.1 (sic) Notification requirement located in rules 3.1.
3.3. If the property being used as a Short-Term Rental is included in a Homeowners Association, the applicant for a Short-Term Rental license shall inform the Homeowner association that the applicant intends to use the property as a Short-Term Rental prior to obtaining a Short-Term Rental license. The Licensee shall verify compliance with this notification requirement by executing and submitting a form affidavit provided by the Department during the application process.”
A Prevalent Problem
Cities all over the United States have been grappling with how they should manage the burgeoning short-term rental industry, if at all. Historically, Denver has been extremely liberal with their regulations; more or less embracing the practice by its citizens. However, after a series of unfortunate events caused by guests at larger rental properties has caused the city to reevaluate its position on the matter. The above provisions are the latest in their attempt to qualify the people looking to take part in the industry. Many of these regulations are considered standard for communities that have chosen to regulate the market (i.e insurance requirements). Others however could be potentially harmful to the operators of short-term rental properties.
Are You and Your Insurance Company on the Same Page?
One such regulation is the requiring of informing the insurance company of the short-term rental property that the property is indeed being used as a short-term rental. While a case for this requirement could be made, in the long run this hurts Short Term Rental operators. It is no secret that many traditional home insurance carriers do not cover short term rental. Stories exist of people being flat canceled by their property insurance company at the prospect of a property being used for short-term rental. It could be said that this presents a barrier to entry into what was previously was a very open short-term rental market. Potential Hosts should obtain correct insurance (click here to get a quote) before entering the market to avoid possible repercussions from their current insurance company.
Personal VS Commercial Liability, Why Does it Matter?
A second regulation that should be examined is the requirement for liability insurance. In the case of Denver, they are requiring that their short-term rental license holders carry at least $1,000,000 in liability insurance, though it fails to delineate which type of liability should be carried. It should be noted that there is indeed a difference between personal liability and commercial liability insurance. The operation of a short-term rental is generally viewed as a commercial activity, the same as any hotel would be viewed. To this end, commercial liability would be the better liability coverage to maintain should a property be used for short-term rental. Without the procurement of an umbrella liability policy, most personal liability coverage offered by traditional homeowner’s insurance policies rarely exceed $300,000 in coverage. New Denver regulation states: “Alternatively, a Licensee may elect to conduct each Short-Term Rental Transaction through a Hosting Platform that provides equal or greater insurance coverage for each Short-Term Rental Use, provided that the Licensee abides by the notification requirements outlined in Rule 1.1” This is referring to the platform specific coverage that are offered by short-term rental platforms like Airbnb or VRBO (pronounced Ver-bo). To paraphrase, these programs claim to provide each of their hosts with $1,000,000 in liability coverage for the property while the unit is being used for rentals that have been booked through their platform. However, Hosts need to know that these should not be considered as a replacement for a liability policy with a specifically named insured. Without a named insured, there is nothing legally binding the insurance provider to the short-term rental client. In addition, any sort of liability incident that should happen off premises should be assumed that no coverage exists with the platform provided policies. In short, the goal of insuring that neighbors of short-term rental properties is not being met with the stipulations of this rule.
Does your HOA know About Your Short Term Rental?
In reference to the 3rd stipulation put forth for Denver’s short-term rental rules, license holders must inform their homeowners associations of the property’s use as a short-term rental. This regulation could be seen as another potential barrier to entry, though compliance with local ordinances and homeowner’s association rules should be encouraged. HOA’s or property managers can and should be listed as an additional insured on certain short-term rental insurance policies from a liability standpoint.
Good First Steps
Industries in general benefit from well planned regulations that protect the interests of all involved parties. While it is wise of Denver to begin the regulation of their short-term rental market, it is unfair to use mechanisms inherent in the insurance industry as a potential barrier of entry into the short-term rental market. The market stands to benefit both property owners and the local government if it can be regulated properly.