An insured with an ISO HO3 Special Form—HO 00 03 04 91—rented an Airbnb on a recent vacation and damaged the wood floors in the bathroom. 

Our carrier is stating that all coverage is excluded since they were renting the property. The liability section of the policy does exclude property damage arising out of renting a location, except for an insured location. I also see another section in the liability portion that excludes coverage for anything other than fire, smoke or explosion. 

I then referenced that there should be coverage under Section II – Additional Coverages, 3. Damage to Property of Others with a limit of $500. They also denied that coverage would apply. I had called another company and spoke with their managing adjuster who said they would have paid this claim. 

Q: Is the carrier right in saying all coverage is excluded? 

Response 1: Under liability insurance contracts there is always an exclusion that eliminates damage to any property in the insured's care, custody and control. The Coverage E exclusion that the insurer is referencing is:

c. "Property damage" to property rented to, occupied or used by or in the care of an "insured." This exclusion does not apply to "property damage" caused by fire, smoke or explosion.

Since the damage to the bathroom was not caused by a fire, smoke or explosion loss arising out of the insured's negligence, the insurer is correct—Section II does not respond.

You are correct that Section II includes the Additional Coverage provision which includes 3. Damage to Property to Others:

We will pay, at replacement cost, up to $500 per "occurrence" for "property damage" to property of others caused by an "insured." 

The only reference to renting in that section is there is no coverage for property owned by or rented to an insured's tenant. 

Response 2: Note that the $500 limit you mention applies to personal property, which a floor is not. The adjustor of the insuring carrier is correct.

Response 3: The adjuster needs to learn how to read a policy. Liability coverage follows the insured everywhere, worldwide. This includes hotel rooms, Airbnb or anywhere else. Here is the definition of an “insured location" from this policy:

 4. "Insured location" means:

 a. The "residence premises;"

 b. The part of other premises, other structures and grounds used by you as a residence; and

 (1) Which is shown in the Declarations; or

 (2) Which is acquired by you during the policy period for your use as a residence;

 c. Any premises used by you in connection with a premises described in 4a. and 4b. above;

 d. Any part of a premises:

 (1) Not owned by an "insured;" and

(2) Where an "insured" is temporarily residing;

So, the Airbnb home is an “insured location."

I assume the exclusion they are referring to is this one:

c. Arising out of the rental or holding for rental of any part of any premises by an “insured." This exclusion does not apply to the rental or holding for rental of an “insured location:"

  (1) On an occasional basis if used only as a residence;

You are absolutely correct—this is an insured loss. 

Response 4: The HO3 form excludes damage to property rented by the insured other than fire, smoke explosion. Limited coverage is added back under Additional Coverages in Damage to Property of Others.

Did the adjuster send a letter explaining why the Additional Coverages provision does not apply? That is a requirement when a claim is denied. I'm going to assume that you don't have anything in writing yet. They can't just say it isn't covered; they have to provide a reason. That's an unfair claim settlement practice in most states. If the adjuster won't give that, then go up the ladder to the claims manager.

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