Why insurers may assert subrogation rights against short-term renters

A 2023 B.C. Supreme Court ruling barring BFL Canada from making a subrogated claim against an Airbnb renter may have negative downstream implications for securing insurance for short-term renters in condo buildings, says a legal analyst.

“Short-term renters are commonly linked to higher property damage and maintenance expenses, due to their limited familiarity with strata bylaws and lack of personal investment in the property,” Christopher Mah of UBC Allard Condominium Law writes in CanLii Connects.

“Therefore, the [court’s] inclusion of short-term renters as ‘insured’ under section 155 of the [Strata Property Act] increases the assumed risk taken on by insurers of strata properties. If insurers do not modify their policies and expressly preserve their right to subrogate against short-term renters, then a potential response to the decision in Schappert could be for insurers to increase insurance premiums for strata corporations that have decided to permit short-term accommodations.”

What is the Schappert ruling?

In The Owners, Strata Plan VR 2213 v Schappert, the strata corporation of a condo building in Port Alberni, B.C., amended its bylaws in 2018 to restrict the number of strata lots that could be used for short-term accommodation. Its new rules allowed 10 full-time short-term rentals and five ‘casual’ short-term rentals, which could only be used as short-term rental units for a maximum of three weeks per year.

Condo owners had to apply in writing to the strata council to receive one of the limited short-term accommodation spots. Strata lot owners Rebecca Segal Konsolos and Amir Kia Rahmani applied and received approval to use their condo as one of the full-time short-term rentals.

In 2019, Konsolos and Rahmani entered into an agreement through Airbnb with John Schappert, who received a license to occupy their unit for five nights. “During his stay, he unintentionally started a kitchen fire that set off the building’s sprinkler system,” as the B.C. Supreme Court found in 2023.

The strata corporation had an insurance policy from BFL Canada covering the costs arising from the damage caused to the common areas by the fire and the sprinkler. The policy included a subrogation clause giving BFL Canada the right to recover costs from a third party responsible for the insured loss.

The strata corporation sought no further losses from Schappert. BFL Canada, on the other hand, advanced a subrogated claim against Schappert to recover the amounts it paid out.

Under the common law, an insurer is not allowed to subrogate against a named ‘insured’ under a strata corporation’s policy, Mah writes. And so, the question for the court was whether a short-term renter is considered an insured under the strata corporation’s policy.

Also in the news: How to advise your clients during Trump’s 90-day tariff pause

The case turned on an interpretation of whether short-term renters count as “the persons who normally occupy the strata lots,” as defined in the Strata Property Act.

“I disagree with the insurers’ position that s. 155(c) [of the Strata Property Act] only extends as far as ‘persons such as a spouse or children of an owner, who reside in the strata unit.’” B.C. Supreme Court Justice Simon Coval ruled in the case. “If that were the intention, then s. 155(c) would use the term ‘reside,’ as it does in other places, as opposed to ‘normally occupy.’’”

Schappert was found to be an insured under the strata corporation’s policy. And so, BFL Canada could not subrogate against him, the court concluded.

Effect of the ruling

Although the strata corporation won this case, a condo corporation’s ability to find insurance when it allows short-term rentals could be a casualty of this decision going forward, Mah suggests. For example, aside from raising rates to cover a material change in risk, insurers may start to include a specific right to subrogate in their policies.

“If insurers respond to Schappert by expressly preserving their right to subrogate against short-term renters, short-term renters will face significant exposure to claims for repair costs,” Mah writes. “This potential liability might discourage individuals from using short-term rental platforms or prompt hosts to require additional insurance from their guests.”