Does My Property Insurance Cover Illegal Short-Term Rentals (Airbnb, Vrbo) in My Building?

Hey everyone, David here

If you're a property manager in New York, New Jersey, Connecticut, or Pennsylvania, you already know how common it is for tenants to secretly rent out units on Airbnb, Vrbo, Booking.com, or other short-term platforms.

And every time this happens, managers ask me the same thing:

“If something goes wrong during an illegal short-term rental, am I still covered?”

Let’s break it down in plain English.

1. Illegal Short-Term Rentals Can Trigger Serious Insurance Problems

If your building is zoned for residential use only, or if your lease prohibits subletting, a tenant who hosts Airbnb guests is technically violating the lease.

Insurance companies consider this a "change in occupancy" — and if they didn’t know about it, they may question coverage after a claim.

This doesn’t mean they’ll deny everything, but it does create risk, especially for big losses.

2. What If an Airbnb Guest Causes Damage?

If a short-term guest:

• Starts a fire

• Damages the interior

• Floods the bathroom

• Breaks building property

Your property insurance typically still responds first — because the building itself must be protected regardless of who caused the damage.

But here’s the twist:
The carrier may try to subrogate against the tenant or even the short-term rental platform, depending on the situation.

If the insurer believes the building was being operated like a hotel, they may raise questions about whether the risk was misrepresented.

3. What About Liability Claims?

If a short-term guest:

• Falls in the hallway

• Injures themselves in the unit

• Claims the building was unsafe

…and files a lawsuit, your General Liability policy usually steps in.

But again — if the tenant was running an unauthorized “hotel business” in your building, the carrier may investigate whether the building was being used outside its insured purpose.

The claim may still be covered, but it can become complicated and slow-moving.

4. Loss of Rents Coverage?

If a fire or water loss caused by an Airbnb guest forces tenants to move out:

• Your Loss of Rents/Business Income coverage should apply

• As long as the loss was from a covered peril

• Even if the cause was a short-term guest

The key is whether the carrier believes you knowingly allowed hotel-type occupancy. If you did not, you're usually in the clear.

5. How to Protect Your Building

To avoid headaches later:

✔ Add an explicit “No Short-Term Rentals” clause in every lease
✔ Require tenants to sign that they understand it
✔ Perform periodic online checks (Airbnb, Vrbo) for your address
✔ Install building access controls (fobs, cameras, visitor logs)
✔ Require tenant renters insurance
✔ Tell your broker if you do allow short-term rentals in certain units

A 10-minute policy review now can save you months of claim disputes later.

Final Thoughts

Unauthorized short-term rentals are becoming one of the biggest blind spots in property management insurance.

You don’t want to find out during a fire or liability lawsuit that your carrier has questions about how the building is being used.

If you’d like us to review your policy and make sure you’re protected, call us at (718) 841-7358 or submit a quote request here:
👉 https://www.thesarricagroup.com/business-quote

What Happens If a Tenant Causes Major Damage to the Building — Am I Covered?

Hey guys, David here. One of the trickiest parts of being a property manager in New York is dealing with tenant damage. Most tenants are great, but every now and then, something goes wrong — a kitchen fire, a burst pipe from negligence, or a flood from someone leaving the tub running. A question I asked my broker early on was: if a tenant causes major damage to the building, am I covered under my property policy?

Here’s what I found out.

In most cases, yes, but it depends on the cause and your policy wording. Standard property insurance covers sudden and accidental damage, no matter who caused it — as long as the damage isn’t excluded and the tenant didn’t do it intentionally. So, if a tenant accidentally starts a fire or leaves a candle burning that causes smoke damage, the policy usually responds to repair the building.

However, things get messy when the damage is due to tenant negligence or long-term issues. For example, if a tenant lets water leak for months, causing rot and mold, that may be excluded as “wear and tear” or “failure to maintain.” Intentional damage (like vandalism by a tenant) can also be excluded, unless you add a vandalism or malicious mischief endorsement.

Another key point — the policy covers the building itself, not the tenant’s personal belongings. Tenants need their own renters insurance for that. But if the damage they cause results in a claim on your policy, you might see a premium increase at renewal.

To reduce the risk, I now make sure every lease requires tenants to carry renters insurance and name the property management company as an additional interest. It’s an easy way to add a layer of protection and prevent finger-pointing when things go wrong.

At the end of the day, most property policies will step in for accidental tenant-caused damage — but it’s always best to double-check your exclusions. And make sure your tenants carry their own coverage too.

If you’d like to review your property policy or add extra protection for tenant-related damage, give us a call at 516-277-0812 or request a quote online: Request a Quote Here.

Am I Covered If the Building Fails a City Inspection and I’m Required to Make Upgrades?

Hey guys, David here. If you manage buildings in New York like I do, you already know that city inspections can be brutal. Between Local Law 11, fire safety requirements, and constant DOB updates, there’s always something new that can trigger costly upgrades. One question I asked my broker early on was: if my building fails an inspection and I’m required to make upgrades, does my insurance cover that?

Here’s the short answer — usually not, at least not under a standard property insurance policy.

Property insurance is designed to cover sudden and accidental damage — things like fires, burst pipes, or wind damage. It’s not built to cover maintenance issues or compliance upgrades required by the city. So if your building fails an inspection because of outdated wiring, missing sprinklers, or a noncompliant façade, those repair and upgrade costs are considered part of ownership responsibility, not an insurable loss.

That said, there’s one key type of coverage that can help: Ordinance or Law coverage. This is an endorsement you can add to your property policy that helps pay for certain upgrades or code compliance costs after a covered loss.

Here’s how it works:

• Coverage A pays for the undamaged portion of a building that must be demolished because of local code.

• Coverage B pays for the cost to demolish that part.

• Coverage C pays for the increased cost to rebuild to current code.

So, if a fire damages half your building and the city says you have to bring the entire structure up to the latest code, Ordinance or Law coverage steps in. But — and this is important — it only applies after a covered loss, not because of a failed inspection on its own.

In other words, if the city inspects your property and says you need to replace your old elevator system or upgrade your electrical wiring, that’s on you. But if the building is damaged by fire and new codes require more expensive wiring or sprinklers, Ordinance or Law coverage can save you from a major financial hit.

Managing property in New York means dealing with constant compliance changes. The best move is to review your policy and make sure you have Ordinance or Law coverage — it’s one of those things you don’t think about until you really need it.

If you want to make sure your property policy includes the right coverage for code-related upgrades, give us a call at 516-277-0812 or request a review online: Request a Quote Here.

Do I Need Flood or Windstorm Insurance for Buildings in New York City?

Hey guys, David here. Living and working as a property manager in New York City, I get asked all the time whether it’s worth adding flood or windstorm insurance to a property policy. With hurricanes, nor’easters, and rising flood zones, it’s something I’ve had to look into carefully for the buildings I manage.

Here’s what I’ve learned.

Flood insurance isn’t included in a standard property policy. If water rises from the ground up—whether it’s storm surge, overflowing rivers, or heavy rain causing flooding—it’s not covered unless you buy a separate flood policy. In New York City, FEMA flood maps are a big deal. If your building is in a high-risk flood zone, lenders will usually require flood insurance. Even if you’re in a moderate or low-risk zone, it may still be worth considering. I’ve seen plenty of “low-risk” areas take on water after a big storm.

Windstorm coverage is a little different. Most property policies in NYC already cover wind damage—like if a storm tears off part of the roof or blows out windows. The catch is that some carriers apply a special windstorm or hurricane deductible, which is a percentage of the building’s insured value instead of a flat dollar amount. That can be a big out-of-pocket cost if a major storm hits.

The key is knowing how your policy is written. Some insurers in coastal areas of New York carve out exclusions for hurricanes or require separate windstorm endorsements. If you manage buildings in Brooklyn, Queens, or along the waterfront, it’s especially important to double-check.

At the end of the day, NYC has seen enough storms—Hurricane Sandy being the big reminder—that flood and windstorm coverage isn’t just optional. For many properties, it’s essential. The last thing you want is to manage a building that suffers major storm damage and realize your policy won’t respond.

If you’re not sure whether your property needs flood or windstorm insurance, give us a call at 516-277-0812 or request a review online: Request a Quote Here.

Am I Required to Insure My Buildings for Full Replacement Cost, or Can I Choose Actual Cash Value?

Hey guys, David here. As a property manager in New York, one of the big decisions I face with every policy renewal is whether to insure my buildings for full replacement cost or go with actual cash value (ACV). It’s a question I asked my broker early on: Do I really have to insure for replacement cost, or can I just choose ACV to save money?

Here’s what I found out.

Replacement cost means the policy will pay to repair or rebuild your building with new materials of like kind and quality—without deducting for depreciation. So if your 30-year-old roof gets damaged, you get the cost of a new roof (minus your deductible). This is usually what lenders require if you have a mortgage, because it ensures the building can actually be restored after a loss.

Actual cash value, on the other hand, pays replacement cost minus depreciation. That same 30-year-old roof? The insurer will factor in its age and condition, and you’ll get far less money to replace it. ACV policies come with lower premiums, but the payout can leave you with a huge gap if something major happens.

Most carriers and banks strongly prefer replacement cost—sometimes they won’t even offer ACV unless it’s for special situations, like very old or vacant buildings. And from a property manager’s perspective, replacement cost just makes more sense. If you’re responsible for tenant safety and building operations, you need the funds to bring the property back to life after a loss.

That said, ACV could be an option for properties you own outright that you’re not as worried about, or for structures that wouldn’t justify a full rebuild. It all depends on your risk tolerance.

For me, I stick with replacement cost on the properties I manage. It costs more upfront, but it gives me peace of mind—and it keeps my tenants and owners happy knowing the building can be fully restored if something goes wrong.

If you’re unsure whether replacement cost or ACV is right for your buildings, give The Sarrica Group a call at 516-277-0812 or request a review online: Request a Quote Here.

How Does Coinsurance Work on a Property Policy, and How Can I Avoid Penalties?

Hey guys, David here. One thing that confused me early on as a property manager in New York was coinsurance. It’s one of those insurance terms you see buried in the policy, but if you don’t fully understand it, you could get hit with a big penalty when filing a claim. So I asked my broker: how does coinsurance work on a property policy, and how can I avoid getting penalized?

Here’s what I learned.

Coinsurance is basically an agreement between you and the insurance company that says you’ll insure your building for at least a certain percentage of its replacement value—usually 80%, 90%, or 100%. If you don’t carry that amount of coverage, the insurance company can reduce your claim payment when a loss happens.

Let me give you an example. Say your building’s replacement cost is $1,000,000, and your policy has an 80% coinsurance clause. That means you need to carry at least $800,000 in coverage. But if you only insured the building for $500,000, you’re underinsured. So if there’s a fire that causes $100,000 in damage, the carrier won’t just hand you $100,000. They’ll apply the coinsurance penalty and pay you less, sometimes a lot less.

The math can be tricky, but the bottom line is simple: if you don’t insure your property to the required percentage, you’re sharing part of the loss out of your own pocket.

So how do you avoid penalties?

• Know your building’s true replacement cost (not market value, but what it would cost to rebuild).

• Review your policy’s coinsurance percentage and make sure your coverage amount lines up.

• Update values regularly. Construction costs in New York go up all the time, and what was enough coverage last year may not be enough today.

• Talk to your broker about an agreed value endorsement, which can sometimes waive the coinsurance requirement if you and the insurer agree on a set property value.

At the end of the day, coinsurance isn’t meant to trick you—it’s just the insurer’s way of making sure buildings are insured properly. But if you don’t keep up with it, the penalty can be a nasty surprise when you need coverage the most.

If you want to make sure your properties are insured correctly and avoid coinsurance penalties, give us a call at 516-277-0812 or request a review online: Request a Quote Here.

Are Water Leaks from Old Plumbing Covered by My Property Insurance?

Hey guys, David here. As a property manager in New York, one of the questions I run into all the time is about plumbing. Most of the buildings I manage are older, which means the pipes aren’t always in the best shape. A common question I ask my insurance broker is:

are water leaks from old plumbing actually covered by my property insurance?

Here’s the deal. Property insurance is designed to protect against sudden and accidental damage. So if a pipe bursts unexpectedly and causes water damage to units, hallways, or common areas, that’s usually covered. The policy pays to repair the water damage to the building, and in many cases, it can also cover the cleanup and restoration.

But there’s a catch. If the leak is caused by wear and tear, corrosion, or poor maintenance, most carriers won’t cover it. Insurance companies expect property managers and owners to keep the plumbing in good working order. So, if a pipe has been slowly leaking for months and nobody fixed it, the cost of repairing that pipe and the damage it caused is likely excluded.

That’s why regular maintenance and inspections are so important. I’ve learned that documenting plumbing repairs and upgrades not only helps prevent claims but also makes it easier to prove that I took reasonable steps to maintain the property if a claim does come up.

Another thing to think about is water backup coverage. Standard property insurance usually doesn’t cover water that backs up from drains or sewers, but you can add that as an endorsement. Living in New York, where basements and lower levels are prone to backup, that extra coverage can be a lifesaver.

At the end of the day, property insurance is there to cover sudden surprises—not gradual problems. If you manage or own a building, it’s smart to talk to your broker about how your specific policy handles plumbing-related losses.

If you want to review your property coverage or get a quote, give The Sarrica Group a call at 516-277-0812 or fill out our quick form online: Request a Quote Here.