BILL ANALYSIS                                                                                                                                                                                                    



                                                                    SB 1092


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          SENATE THIRD READING


          SB  
          1092 (Monning)


          As Amended  June 8, 2016


          Majority vote


          SENATE VOTE:  36-0


           ------------------------------------------------------------------ 
          |Committee       |Votes|Ayes                  |Noes                |
          |                |     |                      |                    |
          |                |     |                      |                    |
          |                |     |                      |                    |
          |----------------+-----+----------------------+--------------------|
          |Judiciary       |10-0 |Mark Stone, Wagner,   |                    |
          |                |     |Alejo, Chau, Chiu,    |                    |
          |                |     |Gallagher,            |                    |
          |                |     |                      |                    |
          |                |     |                      |                    |
          |                |     |Cristina Garcia,      |                    |
          |                |     |Holden, Maienschein,  |                    |
          |                |     |Ting                  |                    |
          |                |     |                      |                    |
          |                |     |                      |                    |
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          SUMMARY:  Requires the operator of a hosting platform, as  
          defined, to provide a specified notice recommending that a  
          person check their homeowners' or renters' insurance policies  
          for appropriate coverage before listing their residence for  








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          short-term rental on the platform Web site.  Specifically, this  
          bill:


          1)Requires a hosting platform to provide the following notice to  
            offerors listing a residence for short-term rental on the  
            platform:


               You should review any restrictions on coverage under your  
               homeowners' or renters' insurance policy related to  
               short-term rental activities to ensure that there is  
               appropriate insurance coverage in the event that a person  
               sustains an injury or loss for which you are responsible, a  
               person damages or causes loss to your personal or real  
               property, or a claim or lawsuit is made against you or  
               otherwise arises out of activities related to this hosting  
               platform.


          2)Clarifies the existing notice directed at tenants listing a  
            residence for short-term rental on the platform to include a  
            mobilehome (in addition to a room, home, condominium or  
            apartment) within the meaning of "residence."


          3)Makes other technical changes.


          FISCAL EFFECT:  None.


          COMMENTS:  This bill, sponsored by the Association of California  
          Insurance Companies (ACIC), seeks to require internet hosting  
          platform companies to provide a specified notice recommending  
          individuals to check their homeowners' or renters' insurance  
          policies before listing their properties on the platform to  
          ensure they have insurance coverage for potential loss or  
          damages that may arise out of renting the properties to paying  








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          guests.  The simple premise behind the bill is that users of  
          these hosting platforms should be notified, prior to offering  
          their properties for short-term rental, that their homeowners'  
          or renters' insurance policies may not cover any damages or  
          liability that might unfortunately arise if an accident, injury,  
          or other incident occurs on their property during the rental  
          period.


          Background on short-term rentals of residences through hosting  
          platform companies.  In recent years, there has been an  
          explosion in popularity of Internet-based companies that allow  
          people to list a room or their entire residence for rent on a  
          short-term basis.  These companies, such as AirBnb, VRBO, and  
          Homeaway, have created online marketplaces to allow travelers  
          and tourists to peruse listings for properties in a destination  
          city, and then contact the listing party to make arrangements  
          for short-term rental of the property.  Typically, the companies  
          hosting these online platforms make money through advertising  
          and by charging a fee on each listing (in the case of Airbnb,  
          typically a fee of 9% to 15% of the total amount paid for the  
          rental).  These companies generally make no distinction with  
          respect to who may list a property on the platform, allowing not  
          only property owners, but also tenants, to list properties for  
          short-term rental.  Under Airbnb's terms of service, for  
          example, the "Host" of the property is required to be someone  
          registered with Airbnb who owns or legally controls the  
          residence during the period of the guest's stay.


          Last year the Legislature enacted SB 761 (Hall), Chapter 239,  
          Statutes of 2015, which required internet hosting platform  
          companies to provide a specified notice to renters that they  
          should check their lease to see if listing their residence for  
          rent on the hosting platform is permitted, or instead may even  
          violate the terms of the lease.  According to the author, this  
          bill simply proposes a similar disclosure with respect to  
          insurance coverage when a person is considering listing his or  
          her residence for rental.  The author explains:








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               Unfortunately, many (individuals) are unaware of the  
               insurance ramifications, if damage to property or  
               injury at the property occurs during the rental period.  
                It is important for homeowners and renters who make  
               their properties available through internet hosting  
               platforms to understand their insurance coverage and  
               whether it will protect them.  SB 1092 simply requires  
               these websites to provide a notice to the homeowner or  
               renter to review their insurance coverage before  
               listing their property.


          A precautionary notice is appropriate because damage to  
          residential property during a short-term rental is typically not  
          covered by homeowners' insurance policies.  Proponents of the  
          bill, primarily members of the insurance industry, contend that  
          residential insurance policies often don't cover commercial  
          activities such as short-term rental of a residence through a  
          hosting platform, and thus, as a precaution, individuals seeking  
          to list their residences for rent should be directed to check  
          their insurance policies before doing so, as established by this  
          bill.


          According to a 2014 New York Times article, an informal survey  
          of major insurance companies concluded that most homeowner's and  
          renter's insurance policies do not cover regular commercial  
          activity in the home.  According to Rebecca Hirsch, a  
          representative of the insurer United Services Automobile  
          Association (USAA) quoted in the article, "If you're conducting  
          a business, on a full- or part-time basis, by renting out your  
          home or apartment (or a room in your home or apartment) as a way  
          to earn money, your homeowner's or renter's insurance policy  
          probably would not provide liability coverage."  (A Liability  
          Risk for Airbnb Hosts. (Dec. 5, 2014); New York Times.)  










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          Furthermore, failure to inform one's insurer of commercial  
          activity such as renting out residential property could  
          jeopardize the homeowner's insurance policy going forward.   
          According to Laura Stryoski, a representative of Allstate  
          Insurance quoted in the article, "An insured has the obligation  
          to be forthcoming about all facts relating to his/her insured  
          property.  Not doing so could impact coverage and jeopardize the  
          continuation of insurance." (Id.)


          Uncertainty about what is and is not covered under homeowners'  
          insurance policies is the result, not surprisingly, of the fact  
          that rules and terms of coverage vary from insurer to insurer.   
          According to the same New York Times article, for example,  
          Allstate allows people to rent out their residences for a week  
          or two while still maintaining liability coverage for guests;  
          Chubb Insurance offers liability coverage for guests as long as  
          the host's annual rental income does not exceed $15,000.  (Id.)   
          On the other hand, USAA allows very limited exceptions, only for  
          occasional short-term rentals, and some insurers do not allow  
          liability coverage for guests at all.  


          Recently some hosting platforms, including Airbnb and Homeaway,  
          have started to offer their own liability coverage to persons  
          seeking to list residences for rent.  For example, Airbnb's Host  
          Protection Insurance program, designed to protect hosts against  
          third party claims of bodily injury or property damage,  
          automatically provides up to $1 million in liability coverage to  
          most people listing properties, subject to certain terms.   
          ("Airbnb beefs up liability insurance offering for hosts"  
          (October 22, 2015); available at:   
           www.cnet.com/news/Airbnb-beefs-up-liability-insurance-offering-fo 
          r-hosts  .)  By contrast, to protect hosts against damage to their  
          own possessions or to the residence caused by guests, Airbnb  
          runs a Host Guarantee program which is not insurance coverage,  
          but rather a reimbursement fund from which a host can be  
          compensated for damages caused by the guest-but only for any  
          leftover amount that a host is unable to collect through an  








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          insurance policy, a security deposit, or a direct payment from  
          the guest. (Available at  www.airbnb.com/terms/host_guarantee  .)   
          Some hosting platforms, however, do not provide any liability  
          insurance protections to hosts or homeowners.  VRBO, for  
          example, informs its users that they are solely responsible for  
          obtaining insurance coverage sufficient to protect their  
          properties, and that they have or will obtain the appropriate  
          insurance coverage sufficient to cover the entire duration of  
          any property rental hosted on its platform.  (See  
           https://www.vrbo.com/info/termsandconditions  (as of June 15,  
          2016).)


          Because not all hosting platforms or insurance companies provide  
          liability coverage for damages or losses associated with  
          short-term rentals, in order to alert and protect consumers, it  
          is reasonable and prudent for the hosting platform to provide a  
          short notice simply recommending that individuals check their  
          appropriate insurance policies before they list a residence.


          Affirmative acknowledgement of the notice required by the user  
          of the platform who lists the property.  This bill requires that  
          the notice is provided immediately before the person lists the  
          property on the hosting platform's website and also requires the  
          person to interact with the website to affirmatively acknowledge  
          reading the notice.  Under this bill, this affirmative  
          acknowledgment may be accomplished by the inclusion of a  
          statement in the notice that the person acknowledges reading  
          this notice before proceeding to list the property with the  
          hosting platform.


          Recent amendments clarify that a residence expressly includes  
          mobilehomes as one of the types of residences covered by the  
          notice.  At the request of the Western Manufactured Housing  
          Communities Association (WMA), representing managers and owners  
          of mobilehome parks, the author has recently amended the notice  
          directed to tenants, enacted last year by SB 761, to expressly  








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          reference "mobilehomes" in addition to rooms, homes,  
          condominiums, and apartments.  As a result of this technical  
          amendment, the SB 761 notice now cautions a tenant who is  
          listing a mobilehome for rent to check the lease for  
          restrictions that would limit his or her ability to list the  
          mobile home for rent on the hosting platform.  




          Analysis Prepared by:                                             
          Anthony Lew / JUD. / (916) 319-2334  FN: 0003504