Share and Share Alike_Risk Allocation in the Sharing Economy (1)

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Share and Share Alike: Risk Allocation in the “Sharing Economy”

Kimberly B. Reevesi

Airbnb is one of the most widely known examples of the “sharing economy” and it provides

a lens with which to view many of the legal issues raised by the sharing model.1 Airbnb and

similar services allow users to share anything from a single room in an owner-occupied home to

an entire farm, condo, or apartment. There are also platforms that allow individuals to share cars,

designer handbags, bikes, tools, or virtually anything else that you can think of.2 Websites like

Rover and DogVacay are a sort of hybrid between the so-called gig economy, where users rent out

services, and the sharing economy where users rent out tangible goods.3 In addition to matching

“hosts” with dog owners to provide boarding, these sites also allows users to find a dog walker,

daycare provide, or house sitter.4

It is no coincidence that the sharing phenomenon emerged in 2008 and 2009, the peak of

the Great Recession.5 Although Airbnb and related services are touted as making use of otherwise

“underutilized” assets, such services are also intended to serve as a means to supplement income

(although there are many critics).6 These services have been hailed as “disrupters” that have

increased competition in the marketplace, driving down prices for consumers.7

i J.D., summa cum laude, Georgia State College of Law, 2013, attorney, Carlock, Copeland & Stair, LLP. 1 Peer-to-Peer Rental: The rise of the sharing economy, Mar. 9, 2013, The Economist,

http://www.economist.com/news/leaders/21573104-internet-everything-hire-rise-sharing-economy 2 See id. 3 Erik Sherman, Uber, TaskRabbit And Sharing Economy Giveth to Workers, But Also Taketh Away, Aug. 4, 2015,

Forbes.com, http://www.forbes.com/sites/eriksherman/2015/08/04/the-sharing-economy-giveth-to-workers-but-boy-

can-it-taketh-away/#7b8c3da92044 4 https://www.rover.com/; https://dogvacay.com/. 5 Peer-to-Peer, supra note1. 6 Sherman, supra note3; see also Adam Chandler, What Should the ‘Sharing Economy’ Really be Called?, May 27,

2016, The Atlantic, http://www.theatlantic.com/business/archive/2016/05/sharing-economy-airbnb-uber-

yada/484505/. 7 Peer-to-Peer, supra note 1.

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As with any radical innovation, regulatory and insurance regimes have had difficulty

reacting and adjusting to these new models. In the traditional hospitality sector, Georgia imposes

special taxes and the Department of Public Health and Safety promulgates regulations to ensure

the public is protected.8 Traditional hotels receive permits to demonstrate compliance with state

regulations.9 Traditional pet trainers and boarding kennels are licensed through the Georgia

Department of Agriculture.10 There are also municipal licenses and building codes, which like the

foregoing state requirements, most peer-to-peer users are unlikely to comply with.11 Moreover,

most traditional hotels or boarding kennels would have some form of commercial liability

insurance, or be self-insured with an excess policy in place, to compensate the public in the case

of injury, property damage, or other loss.12 Part of the underwriting process generally involves

assessing and informing owners of potential risks to decrease the chance that a loss will occur.

The insurance industry has been slow to adapt and most conventional consumer insurance products

do not cover these endeavors.13 Allstate currently appears to be the only major insurance carrier

to offer a product that specifically covers short-term rentals like Airbnb.14

The Georgia House of Representatives assembled a committee to study short-term rentals

in Georgia.15 The committee’s report noted that the short-term rental community “welcomed fair

8 See O.C.G.A. §§ 31-2A-6; 31-28-1, et seq. 9 O.C.G.A. § 31-28-2. 10 See http://www.agr.georgia.gov/kennel.aspx. 11 Savannah law requires short-term rental properties such as Airbnb to obtain a $150 license and to remit a 6% local

hotel/motel tax and a 7% State Sales and Use Tax on a monthly basis. Savannah, Georgia Code of Ordinances, Chap.

11, Short-Term Vacation Rentals, available at http://savannahga.gov/DocumentCenter/View/4303. Part of the

licensing process requires certification of compliance with zoning ordinances as well as a minimum safety guidelines.

See http://www.savannahga.gov/stvr. Atlanta does not appear to have any similar laws on the books. 12 The only business liability insurance that is mandatory in Georgia, however, is workers’ compensation insurance if

the business has three or more employees, although some licenses may require proof of insurance. See O.C.G.A. § 34-

9-2(a)(2). Auto liability is also mandatory. O.C.G.A. § 40-6-10. 13 Ron Leiber, The Insurance Market Mystifies an Airbnb Host, Dec. 19, 2014, NY Times,

http://www.nytimes.com/2014/12/20/your-money/the-insurance-market-mystifies-an-airbnb-host.html. 14 https://www.allstate.com/home-insurance/host-advantage.aspx. 15 Georgia House of Representatives, House Study Committee on Short-Term Rental Providers, Rep. Terry Rogers,

Chairman, available here:

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and basic regulations including insurance requirements, basic safety requirements . . . and

occupancy limits.”16 Ultimately, however, the committee did not recommend any new legislation.

Instead, it noted that regulation should occur at the local level. The committee did make a series

of recommendations, but these recommendations were primarily concerned with the collection of

tax revenues.17

As the Committee noted, this new peer-to-peer model lacks the traditional safeguards

embedded in the regulatory and insurance schemes.18 Instead, properties and dog sitters are only

vetted through social media and user reviews.19 The growth in the sharing economy suggests that

this system largely works; however, in the event something does go catastrophically wrong, there

may not be insurance in place to cover such a loss.20 The injured consumer may find herself

without any recourse to cover property damage or personal injury. In turn, the Airbnb or

DogVacay host is exposed to personal liability that may far exceed the financial gains from such

services.21

The standard homeowner’s policy provides a broad base of coverage in exchange for a

relatively low premium. A typical policy provides coverage for physical damage to the house, any

connected structures, and for personal property. Such policies also provide coverage for liability

and medical payments. However, in a traditional homeowner’s policy there is no liability coverage

for bodily injury or property damage “[a]rising out of or in connection with a ‘business’ conducted

http://www.house.ga.gov/Documents/CommitteeDocuments/2015/ShortTermRental_FINAL_REPORT.pdf 16 Id. at 3. 17 Id. at 4-5. 18 See id. at 3. 19 See Peer-to-Peer, supra, note1. 20 E.g., Galen Hayes, The Scary Insurance Reality for Airbnb Hosts, Jan. 5, 2016, Property Casualty 360°,

http://www.propertycasualty360.com/2016./01/05/the-scary-insurance-reality-for-airbnb-

hosts?slreturn=1480275175; Leiber, supra note 13. 21 Hayes, supra note 20.

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from ‘an insured location’”.22 “Business” is defined as: “A trade, profession or occupation

engaged in on a full-time, part-time or occasional basis; or Any other activity engaged in for money

or other compensation . . . .”23 This is commonly referred to as the “business pursuit exclusion.”

In the case of DogVacay and Rover, there is Georgia case law that appears to squarely bar coverage

based on the business pursuit exclusion.

In Salmon v. Commercial Union Ins. Co., the insured property-owner received $25 per

month to board a horse in his barn.24 The horse escaped and was killed.25 The horse’s owner sued

the property owner.26 The Georgia Court of Appeals upheld the trial court’s ruling that the

boarding arrangement constituted a rental and was therefore excluded by the business pursuit

exclusions in the subject homeowner’s policy.27

It is less clear how these same exclusions might apply to an Airbnb rental. Notwithstanding

the holding in Salmon, the Georgia Court of Appeals has consistently interpreted the business

pursuit exclusion somewhat narrowly, refusing to apply the exclusion to part-time hobbies that

may have an economic component or to in-home child care businesses where the homeowner

earned only “pin money.”28 As a result, an Airbnb host in Georgia who makes minimal cash

22 The policy language quoted in this paper was taken from my own homeowners’ policy issued by Travelers. It is a

proprietary HO-3 (10-06) form, but the language quoted is representative of other standard HO-3 policies. Travelers

HO-3 (10-06) p. 19 of 25. 23 Travelers HO-3 p. 1 of 25. 24 154 Ga. App. 8 (1980). 25 Id. 26 Id. 27 Id. at 8-9. 28 United Servs. Auto. Ass'n v. Lucas, 200 Ga. App. 383, 385 (1991) (refusing to apply the business exclusion to an

in-home daycare, even though the insured treated the daycare as a business by reporting income to the IRS and taking

business deductions, because the insured only cared for seven children, four of whom were her own grandchildren,

and because the childcare services were offered as “both a favor and a convenience to parents who lived in the

neighborhood”); see also Nationwide Mut. Fire Ins. Co. v. Collins, 136 Ga. App. 671, 674 (1975); S. Guar. Ins. Co.

v. Duncan, 131 Ga. App. 761, 764 (1974) (business pursuit exclusion did not bar coverage for an injured neighbor

during work on the insured’s race car where the insured, who was employed full time as a mechanic, engaged in racing

as a part-time hobby even though there was the potential to earn prize money). The Travelers’ policy quoted herein

provides an exception to the business exclusion for home daycare services provided to relatives or for which no

compensation is received.

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renting out a room on an occasional basis and is otherwise employed, may have an argument that

the business pursuit exclusion does not bar coverage.

There are also exceptions to the business pursuit exclusion within which an Airbnb host

may fit. For example, many standard policies provide an exception for the business use of the

residence as an “occasional” rental: “This exclusion does not apply to: a. The rental or holding out

for rental of an “insured location”; On an occasional basis if used only as a residence.”29 (It did

not appear that the policy in Salmon had the exception for occasional rentals and the horse had

apparently been boarded there for some months, in any case.30) The business exclusion also does

not apply to activities “for which no ‘insured’ receives more than $2,000 in total compensation for

the consecutive twelve months before an ‘occurrence.’” According to one study, Airbnb hosts in

New York City earned an average of $5,474 from June of 2015 through June of 2016.31 New York

is reportedly one of the most lucrative markets for Airbnb.32 Therefore, it is possible that a host

in Georgia may not meet the $2,000 threshold (query, though, why anyone would bother for less

than $2,000 per year).

As for the exception for the “occasional” rental, that raises the issue of what legally

constitutes an “occasional” rental. The Georgia Court of Appeals recently examined the term, but

in a different context.33 The case involved the rental of lake property that the owner was intending

to sell.34 The homeowner sought insurance coverage following a personal injury suit by the tenant

29 Travelers HO-3 p. 19 of 25. 30 Salmon, 154 Ga. at 8. 31 Madeline Farber, Here’s How Much New York City Airbnb Hosts Earn in a Year, Jul. 8, 2016, Fortune,

http://fortune.com/2016/07/08/how-much-money-airbnb-hosts-make-new-york-city/. 32 Katie Benner, Airbnb Sues Over New Law Regulating New York Rentals, Oct. 21.2016, NY Times,

http://www.nytimes.com/2016/10/22/technology/new-york-passes-law-airbnb.html. Interestingly, this is the case

despite that the fact that short-term rentals are largely illegal in New York. See id. 33 State Farm Fire & Cas. Co. v. Moss, 338 Ga. App. 684, 684 (2016). 34 Id.

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alleging she was injured by a hazardous condition on the property.35

The court looked at other jurisdictions and noted that “[o]ccasional rentals are episodic and

temporary, not systematic and continuous.”36 Such rentals are “typically short term” and for “a

special purpose (e.g., a vacation rental).”37 The court found it “most significant” that the insured

homeowner had no intention to return to the property and use it as a second home.38 Thus, the

case provides little guidance as to how the court would apply this provision to a home-sharing

service such as Airbnb. Arguably, under that definition, an Airbnb rental could be “occasional”

provided such rentals were not “systematic and continuous”, and provided the homeowner

continued to occupy the residence or planned to return to the residence. It is also reasonable to

interpret an “occasional” rental as renting out one’s home for an annual event, such as The Masters

Golf Tournament, but not as an on-going listing on Airbnb’s website.39

If an Airbnb guest filed suit for property damage that occurred during her stay, most

homeowner’s policies exclude coverage for “[p]roperty of roomers, boarders and other tenants,

except property of roomers and boarders related to an ‘insured.’”40 The standard homeowner’s

policy also limits the amount of coverage for the insured’s personal property that is used primarily

for business purposes. Thus, there likewise may not be coverage should the Airbnb guest destroy

the host’s property.41

35 Id. 36 Id. at 686 (collecting cases). 37 Id. 38 Id. at 687. 39 See, Peer-to-Peer Home Rental: The Sharing Economy and Homeowner’s Insurance, Insurance Information

Institute, http://www.iii.org/article/peer-peer-home-rental. 40 Travelers HO-3 (10-06) p. 4 of 25. 41 Hayes, supra note 20.

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These issues are not merely hypothetical. In one widely-publicized story, a man was killed

while staying at an Airbnb location in Texas.42 He was using a rope swing at the property when

the tree to which the swing was attached collapsed and fell on him, causing severe head injuries

that ended most of his brain activity and ultimately caused his death.43 The decedent’s son, Zak

Stone, wrote poignantly about his father’s death and other safety concerns raised by Airbnb for the

online magazine Matter.44 In Mr. Stone’s case, the Airbnb host had an insurance policy that

specifically covered commercial activities.45 In another reported case, Airbnb initially refused to

pay for the hospital stay of a guest who was attacked by the host’s dog.46 Still another Airbnb host

returned to find that she had been robbed and her apartment vandalized.47 The Airbnb “guest” also

stole her identity.48 Airbnb’s CEO, Brian Chesky, was reportedly assisting the woman

“financially, find[ing] new housing . . . and anything else she can think of to make her life easier.”49

Home-sharing platforms have responded differently to these issues. As of October 2015,

Airbnb provides “Host Guarantee Coverage” in all fifty states.50 The Host Coverage affords up to

$1M in liability coverage. While that sounds generous enough, industry analysts have criticized

the coverage as too restrictive and as imposing too many conditions of coverage.51 The

homeowner must first try resolve the issues with the guest before contacting Airbnb and only

42 Ron Leiber, Death in Airbnb Rental Raises Liability Questions, Nov. 13, 2015, NY Times,

http://www.nytimes.com/2015/11/14/your-money/death-in-airbnb-rental-raises-liability-questions.html; Zak Stone,

Living and Dying on Airbnb, Nov. 8, 2015, Matter, https://medium.com/matter/living-and-dying-on-airbnb-

6bff8d600c04#.40ro51hzi. 43 Leiber; Stone, supra note 42. 44 Leiber; Stone, supra note 42. 45 Stone, supra note 42. 46 Ron Lieber, Questions About Airbnb’s Responsibility After Attack by Dog, Apr. 10, 2015, NY Times,

http://www.nytimes.com/2015/04/11/your-money/questions-about-airbnbs-responsibility-after-vicious-attack-by-

dog.html?_r=1. 47 Hayes, supra note 20; Andrew Dalton, San Francisco Woman’s Apartment Ransacked by Seemingly Cordial AirBnB

Renter, Jul. 28, 2011, sfist, http://sfist.com/2011/07/28/san_francisco_womans_apartment_rans.php 48 Dalton, supra note 47. 49 Id. 50 https://www.airbnb.com/host-protection-insurance. 51 Hayes, supra note 20.

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damage that occurs within the “booking period” is covered; there is no coverage in the event a

guest arrives early or overstays the booking.52 Any damage must be reported within fourteen days

and there are certain exclusions, such as loss of cash or damage to pets.53 Airbnb’s website also

claims that the “Host Protection Insurance program may also cover claims if a guest damages

building property.”54 There is no explanation as to the limits of coverage or what exactly may be

covered. HomeAway, a competitor, has simply urged its users to purchase a commercial general

liability policy.55

Returning to DogVacay and Rover, Georgia law imposes liability on the owner or “keeper”

of a dog for any injuries suffered by third parties. Such claims can be based on Georgia’s dog bite

statute or on a theory of premises liability.56 Unlike some states, however, Georgia requires some

advance notice of a dog’s tendency to bite.57 Therefore, in a scenario where a third party injured

by a Rover or DogVacay boardee pursued a claim against a DogVacay or Rover host, it is probably

unlikely the host would have the requisite advance notice of the dog’s dangerous tendencies. That

does not mean, however, that a Rover or DogVacay host may not find herself saddled with legal

fees that are not covered by her insurance policy under the holding of Salmon, above.

Furthermore, in addition to excluding claims for damage to the personal property of others

(dogs are personal property in Georgia), many policies also exclude claims for animals. As a

result, a DogVacay or Rover host has personal liability exposure should something happen to the

visiting dog or cat. The Georgia Supreme Court recently decreed that “the proper measure of

damages recoverable . . . for the negligent injury and death” of a pet is the “fair market value plus

52 Id.; see also https://www.airbnb.com/users/hpi_program_summary_pdf. 53 See Hayes, supra note 20. 54 https://www.airbnb.com/host-protection-insurance. 55 Leiber, supra note 42. 56 O.C.G.A. §§ 51-2-7; 51-3-1; Swanson v. Tackling, 335 Ga. App. 810, 812 (2016). 57 Swanson, 335 Ga. App. at 812.

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interest and any reasonable medical costs and other expenses [the dog owner] incurred in treating

the animal for its injuries.”58 Anyone who has cared for an ill pet knows that treatment costs can

easily reach into the thousands of dollars.59

In sum, although these “disrupters” provide an alternative revenue stream and affordable

temporary accommodations and pet care options, they also expose users and hosts to a myriad of

dangers that may not be covered by insurance. It is important that guests and pet owners are aware

that any injuries or damage to property may not be covered by insurance. Hosts need to understand

that in the event something goes wrong, they may be on the hook for an amount far in excess of

any earnings generated through the sharing platform.

58 Barking Hound Vill., LLC v. Monyak, 299 Ga. 144, 151 (2016). 59 The medical bills in Barking Hound Vill, were $10,000. Id.

Share and Share Alike_Risk Allocation in the Sharing Economy (1)

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