News & Events

You may have heard that San Diego’s City Council recently voted to establish new regulations regarding short-term rentals. I wanted to take this opportunity to explain these regulations and how they may impact your ability to rent your San Diego properties on platforms like AirBNB, VRBO, etc. 

Originally, Mayor Faulconer had proposed that the new regulations not be effective until January 1, 2020. Ultimately, the City Council decided to move that date up. Unless the rules are overturned or rendered unenforceable, the rules will be effective on July 1, 2019. 

These regulations create a restrictive license-based system. Now, on top of the requirements that were already in place, you will be required to obtain a Short-Term Residential Occupancy License for each whole home rental. Unfortunately, the licenses will be restricted to a property owner’s primary residence. The regulations do allow for one additional license for a dwelling unit on the same parcel as the owner’s primary residence. 

These new rules apply to all short-term or transient occupancies of a whole home. According to San Diego Municipal Code, transient occupancy includes any rental period of less than one month. Rental units that are rented for terms longer than one month will not be impacted by these regulations. Also, you will still be able to rent a room in your primary residence without a license as long as you remain in the home during the rental period. 

You may have also heard that certain areas, such as Pacific Beach or other coastal neighborhoods would be exempted from these regulations. While exemptions were proposed by Mayor Faulconer, the final regulations removed all exceptions. These regulations are set to apply to all short-term rentals in San Diego. 

There is some hope for owners of properties in the downtown and coastal areas. In order for these regulations to apply to these properties, they must be approved by the California Coastal Commission (“CCC”). Traditionally, the CCC has favored vacation rentals as affordable alternatives to hotels in coastal communities. Therefore, the regulations may not be enforceable in these areas.

Not surprisingly, Airbnb and HomeAway have launched a referendum effort to overturn the regulations. These petitions ask the City Council to overturn the regulations or put the matter before the voters. It is too early to determine if the petitions will garner support.

If you have questions or would like to discuss options regarding your existing short-term rentals, please give us a call at (619) 696-0520.

YES, ACCORDING TO THE CALIFORNIA SUPREME COURT

An employer was entitled to insurance coverage under its comprehensive general liability (“CGL”) policy for claims of negligent hiring, retention, or supervision of an employee even when the employee allegedly acted intentionally, according to a recent case decided by the California Supreme Court.

In the recent case of Liberty Surplus Ins. Corp. v. Ledesma & Meyer Construction Co., Inc., Ledesma & Meyer Construction (“L&M”) and its principals contracted with a school district to manage a construction project. L&M hired an assistant superintendent named Darold Hecht and assigned him to the project. Years later, a student sued Hecht and L&M in California state court alleging that Hecht intentionally sexually abused her and that L&M was negligent in hiring, retaining, and supervising Hecht.

L&M tendered its defense to its insurers, Liberty Surplus Insurance Corp. and Liberty Insurance Underwriters, Inc. (collectively “Liberty”), who defended under a reservation of rights. Thereafter, Liberty sued L&M in federal court claiming it did not have to defend or indemnify L&M. The federal court agreed holding that the student’s injuries were not covered under Liberty’s policies.

L&M appealed to the Ninth Circuit Court of Appeals which asked the California Supreme Court whether the student’s complaint alleged an “occurrence” under Liberty’s insurance policies so that Liberty would have to defend L&M.

The California Supreme Court found the complaint alleged an “occurrence” because, under California law, an occurrence included “an accident,” and the student’s injuries could he considered “accidental,” even though the student said that employee acted intentionally.

Although Hecht’s sexual misconduct was a “willful act,” and not covered by any of the Liberty policies, the court held that Hecht’s intentional acts did not preclude potential coverage for L&M especially since L&M argued, in its defense, that “Hecht’s acts were neither intended nor expected.”

Key Take Aways

First, get your CGL, surplus, excess, or umbrella policies, read them, and understand them. If you can’t get them, won’t read them, or don’t understand them, then retain knowledgeable counsel who will get them, analyze them, and advise you on your rights and remedies.

Second, if there is a potential for coverage under your CGL or any other insurance policy for a claim, tender early and often to each carrier who may provide coverage. If you don’t tender, you will never have coverage. But, if you do tender, there is always the possibility of coverage, even if a carrier reserves its rights to deny coverage later.

Third, work with your insurance broker, risk manager, or attorney to get the broadest coverage possible under all your policies.

Fourth, get a creative lawyer. The court found Liberty had to defend L&M, likely saving it tens of thousands of dollars in legal fees, in substantial part, through the unique and persuasive arguments of L&M’s attorneys.

Also, remember that the result in each case is dependent on its unique facts so the information in this post may not precisely apply to your situation.