The age-old question in insuring rentals and multi-unit housing is, “Who covers what?”

Whether it’s owner-occupied housing or a landlord-tenant relationship, the changing landscape — from higher costs to the rise of short-term rentals — has demanded the market change along with it.

In the Insurance Journal Academy of Insurance course, “Challenges in New and Old Multi-Unit Housing,” Joe Harrington, an independent business researcher and writer specializing in property/casualty coverages and operations, discusses these evolving needs and developments such as HO-14 coverage.

Harrington divides multi-unit housing insurance coverage needs into what he calls “two and a half” arrangements.

• Landlord-Tenant – The property is owned by the landlord and insured as a commercial property. Renters insurance may provide a sublimit for tenant additions and alterations. The landlord’s property is covered under the landlord’s commercial property policy. The tenant’s property is covered under renters insurance.

• Condo Community – Owned collectively by a condo association and insured under an association commercial property policy. Ownership and insurance obligations are subject to master agreements. It can be insured under association or unit-owner policies. The personal property of a condo association within dwelling units is typically covered under condo commercial property policy. The occupant’s personal property is insured under a unit owner’s policy. In owner-occupied units, master agreement provisions will determine who is responsible for various aspects of coverage for structural elements, fixtures, alterations, improvements and appliances.

• Co-op Community – Similar to the condo community, except the co-op typically owns the property and is insured under an association policy. The insurance obligation may fall on unit occupants, at times.

In owner-occupied units, there is an added layer of concern regarding improvements and alterations, Harrington said. “Has the tenant done anything to the physical unit where it acquires a new and more substantial insurable interest?”

For example, a unit owner may install a drywall partition, but the responsibility falls to the owner if it is not a load-bearing wall. “If they are structural in nature, if they actually bear weight and keep the structure standing, they’re more likely to be the responsibility of the association and covered under the association policy,” Harrington said.

Establishing this distinction is critically important when the association is required to insure these permanent fixtures. The association policies will typically provide primary coverage over any building property coverage found in a standard unit owner’s policy, Harrington said.

Rise of Renters Insurance

More people are choosing to rent longer because of rising home costs and because renting offers more flexibility and mobility, Harrington said. And landlords are increasingly requiring tenants to have renters insurance coverage.

“While a landlord may not be entitled to any of that coverage, it will lower the likelihood of a dispute between the landlord and the tenant over any loss of the tenant’s property or any loss to someone else’s property or bodily injury to someone else because of liability,” Harrington said.

In landlord-tenant arrangements, the landlord selects between named and opened perils, and the tenant’s personal property is covered on a named (HO-4) or open (HO-14) perils basis.

For condo and co-op communities, the association selects between named or open perils, and the unit owner’s building and personal property are typically insured on a named perils basis. Unit owners’ policies typically include a sublimit for paying a share of an association’s loss assessment. Some unit owners’ policies provide a sublimit for paying a share of an association’s insurance deductibles.

“This whole HO-14 is about appealing to this new semi-affluent, young cohort that is going to be renting for longer and seeks to utilize and benefit from things like Airbnb,” Harrington said.

HO-4 and HO-14 offer a variety of options to fit landlord and tenant needs.

• Both HO-4 and HO-14 cover tenant liability for damage to the building, subject to the exclusion for property rented and occupied by the insured, with an exception for fire, smoke and explosion. However, HO-4 has a built-in coverage of up to 10% of the personal property limit, and HO-14 makes no mention of this built-in coverage.

• HO-4 covers named perils with an actual cash value settlement for damage to a tenant’s personal property, while HO-14 offers open perils coverage with replacement cost settlement.

• HO-14 offers bed bug remediation coverage as additional insurance up to a built-in limit. HO-4 does not.

• HO-4 excludes coverage for bodily injury and property damage by motor vehicles or watercraft. HO-14 essentially retains that standard but does cover bodily injury and property damage arising from motorized bikes and scooters.

• HO-4 also excludes home sharing liability, but coverage can be added by endorsement. HO-14 includes home sharing liability.

The home sharing liability is a significant distinction, Harrington said.

“HO-14 is the only ISO homeowners form, to my knowledge, where the coverage for home sharing liability is actually built into the policy,” he said. “This is a bit problematic for landlords in that if a landlord wants to prohibit home sharing activities, (they) wouldn’t be in a position to mandate a coverage form that covered home sharing activities.”

Questions about the limits of reasonable restrictions and restraint of property use will likely impact the value of units and the need for coverages regarding home sharing activities, he said. “So, would the HO-14 would be a good form for an insured to buy, at a location where they can’t take advantage of home sharing? However, from the landlord’s perspective, the broader coverage offered elsewhere could be beneficial, especially when discussing liability coverage.”

Unit owners policies typically include a sublimit for paying a share of an association loss assessment. Harrington said this is standard coverage, and it would be hard to imagine a policy not having it.

“Property owners and those responsible for property are looking for ways to cut the cost of coverage, including taking on a bigger deductible,” he said.

“I don’t know, or have any idea how extensively the HO-14 is being used or will be used, but this is some indication of the direction it’s going and landlords have a stake in having their tenants have renters coverage,” Harrington said.

Harrington is a former communications director for the American Association of Insurance Services. He’s been active with the Institute’s CPCU Society and continues to serve on the society’s publications committee.