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Vol. 6, Iss. 3
March 22, 2017

Court Addresses Coverage For An Airbnb Claim

There has been a lot of talk about coverage issues that may arise concerning the so-called sharing economy. And unlike some emerging issues, where coverage lawyers get in a tizzy discussing things are unlikely to actually materialize into more than a negligible number of claims, coverage for the sharing economy is a source of legitimate discussion. Think Uber. A lot of bad things can happen riding in a car, not to mention a stranger’s. There’s Uber’s coverage. The driver’s. The passenger’s. It can get messy.

The number of coverage decisions, addressing the sharing economy, have been minimal. One came along last month in Carroll v. American Empire Surplus Lines Insurance Company, No. 16-2589 (E.D. La. Feb. 10, 2017). Unfortunately it involved a procedural issue and not coverage per se. But the procedural issue may itself be a coverage issue – just one that is unique to the sharing economy.

Carroll is a brief but complex case. Bear with me. There are a lot of parties that need to be kept straight.

Justin Carroll and his wife Keren Rosenblum (the “Carroll Plaintiffs”) rented an apartment in New Orleans from Mark Hamilton and Lynn Schwarzhoff through the website Airbnb. The stairs to the apartment collapsed as the Carroll Plaintiffs were using them, causing them to fall approximately 10 feet. Andrew Collard was also injured in the same incident. American Empire was the general liability insurer of Schwarzhoff and Hamilton.

The Carroll Plaintiffs filed suit for damages, as well as, in a separate (now consolidated) action, did Andrew Collard. All plaintiffs named as defendants Hamilton, Schwarzhoff and their general liability insurer, American Empire. [It’s Louisiana – a direct action state.] The Carroll Plaintiffs also included Airbnb and its insurer, United Specialty, as defendants.

Then, “Schwarzhoff, Hamilton, and their insurer American Empire have filed a third party complaint against United Specialty and Airbnb. They allege that Airbnb agreed to provide ‘primary, non-contributory insurance coverage for accidents that occur at an insured location.’ They aver that this coverage was underwritten by United Specialty. Accordingly, they allege that United owes them defense and indemnity for this suit as covered ‘hosts’ under this policy. In the alternative, if such coverage is not provided, they bring a claim against Airbnb for breach of contract or negligence as a result of its failure to provide insurance coverage.”

Here’s where it gets tricky.

Airbnb sought “to compel arbitration of the claims asserted by Schwarzhoff, Hamilton, and American Empire in the Third-Party Complaint. Airbnb alleges that Schwarzhoff, in creating an account on Airbnb’s website, agreed to its Terms of Service. These terms include an arbitration provision.” Even though Hamilton and American Empire were not parties to an arbitration agreement, they did not oppose the Motion. So the third-party claim by the hosts and their insurer, against Airbnb, for breach of contract or negligence as a result of its failure to provide insurance coverage, is in arbitration.

And still more tricky: “United Specialty argues that if the third party claims asserted against Airbnb are sent to arbitration, the third-party claims against it should likewise be sent to arbitration. United Specialty cannot, however, point to any arbitration agreement between it and the Third-Party Plaintiffs. Indeed, the Third-Party Plaintiffs’ claims against United Specialty are based on the fact that ‘hosts’ are named insureds in its policy. Third-Party Plaintiffs allege that they are therefore owed coverage, defense, and indemnity relative to the claims asserted against them by Plaintiffs. Importantly, this liability is not premised on any liability of Airbnb, but rather the Third-Party Plaintiffs' alleged status as insureds under United Specialty's policy.” Arbitration was denied.

So, to sum it up, the hosts and their liability insurer now have claims, in Louisiana Federal Court, seeking a defense from Airbnb’s insurer -- on a primary and contributory basis. However, if that’s not provided, the hosts and their liability insurer have claims against Airbnb, in arbitration, for breach of contract or negligence as a result of its failure to provide insurance coverage.

The case is a little complex because of the various parties. But it demonstrates a couple of issues that can arise in a sharing economy claim – disputes between the hosts’ own policy and the policy issued to the organization that facilitated the sharing arrangement and the impact of an arbitration clause (not surprising) in the agreement between such organization and its host-member.

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