Municipalities may now require cottagers to have liability insurance for uses off their property

A growing number of cottage owners and cottage associations are being asked by local municipalities to take out liability insurance to cover a range of activities and uses, from short-term rentals to the use of unassumed roads or other easements to access a lakefront property.

Terry Rees, the executive director of the Federation of Ontario Cottage Associations, points out that, in some cases, these requirements have arisen because municipalities (such as the Township of Tiny and the Township of Muskoka Lakes) have begun to license activities, such as short-term rentals, and have added liability insurance as a condition to ensure they are indemnified in the event of lawsuits. “Everyone’s got sensitivity around liability,” he says.

Broker Ross Fraser, of Cade Associates in Toronto, says that municipalities have adopted a very wide range of rules and bylaws, as well as enforcement practices. He says he heard from one client that the municipality wanted liability insurance on the use of a shared road as a condition of securing a building permit.

In a case in eastern Ontario, Rees says, the owners of homes built in a private subdivision that were accessible by a shared road were told they had to take out liability insurance for the use of that right-of-way, which connected to a municipal road. The wrinkle, he adds, “is that the type of coverage the municipality is seeking is not available.”

But Fred Morison, the president and owner of Morison Insurance, a broker with offices across southern Ontario, says that in the case of cottages that are used frequently for short-term rentals, municipalities are looking for what is essentially a commercial general liability policy or an endorsement on the home insurance.

Fraser, however, says that in some municipalities or townships, officials now treat short-term rentals much the same way as they would a restaurant, which means more onerous safety and inspection requirements, and liability insurance that goes well beyond personal policies.

The commercial general liability insurance policies, he adds, weren’t originally envisioned for uses such as short-term rental. “These sorts of uses weren’t the norm.” Now, he says, those cottages are more like commercial enterprises. “To me, this is just the changing environment. The insurance industry will respond in due course as well.”

For Rees, the more elusive question hanging over these new requirements has to do with the fact that some of the uses don’t involve the cottagers’ property, yet they are being told to take out insurance that essentially extends the liability zone to include spaces such as small public docks on Crown land or shared use easements.

The motivation is that municipalities, which are often financially stretched, don’t want to leave themselves exposed to the sort of lawsuit where the plaintiff seeks damages from as many parties as possible. “Lawyers cast the net widely to see what sticks,” he says. Morison agrees, and says the push for these policies likely traces back to a lawsuit. “Something must have happened.”

Rees and Fraser, who served as FOCA’s insurance broker, say the group is looking to secure liability insurance products that suit the needs of cottage associations whose members are increasingly confronted with demands that they take out this additional form of coverage. As Fraser says, “the caveat in insurance is that nothing is impossible.”