Coverage for Marijuana Grow Operations

Homeowners' insurers, particularly in British Columbia, seem to be facing an ever-increasing number of claims made by the owners of residential rental properties whose tenants establish marijuana grow operations, and, in the process, do extensive damage to the premises. The situation usually arises as follows:

An owner of a house (or, less frequently, a condominium), rents the premises to tenants. The tenants seal all the windows, install hydroponic equipment, and essentially turn the residence into a greenhouse.  In the course of the installation, significant damage is often done to the walls and electrical wiring  After the operation has been up and running for a period of time, excessive humidity causes rotting and mold to occur throughout the premises. Once the tenants vacate the premises, sometimes as a result of a police raid, the insured landlord returns to find significant damage, often amounting to tens of thousands of dollars.  

Many rental dwelling policies cover only named perils, usually including "vandalism and malicious acts."  Insurers of such properties have at times denied claims arising out of grow operations, on the basis that the deliberate conversion of a house from a residential premises into a grow operation is done for a purpose (albeit an illegitimate one), and therefore does not constitute vandalism.  The loss, it is argued, therefore falls outside the scope of any named peril.  

However, in Takhar v. British Columbia Insurance Co., a very recent decision of the B.C. Court, a landlord, whose claim had been denied, challenged the validity of such a denial.  The insurer's theory was that damage caused by a marijuana grow operation did not constitute vandalism or malicious acts, because the damage was not caused "out of spite," but was done for a purpose, namely the installation of a grow operation. The Claimant sued the insurer, and the Court decided the case in his favour. 

The Court in Takhar held that its 1995 decision in Huynh v. Continental Insurance Co., in which it was also held that damage caused by a grow operation constituted vandalism, was not wrongly decided, and in any event, the policy at issue was revised subsequent to Huynh.  In light of that fact, the Judge held that the Defendant could easily have included in the policy a specific exclusion for marijuana grow operations, particularly given the number of such operations apparently in British Columbia.

The Court went on to find that the damage did fall within the definitions of "vandalism" and "malicious" in the plain, ordinary and popular use of those words, and also fell within every cited dictionary and judicial definition of "vandalism" and "malice"  As a result, the claim was allowed. 

The Takhar decision, while technically not a binding authority, is the second B.C. decision on this issue, and it appears to be only a matter of time before  further decisions are rendered by the B.C. Supreme Court or a Superior Court in another province faced with a coverage action arising out of a significant loss.  Insurers wishing to avoid the risk of being forced to cover losses caused by illegal grow operations should seriously consider making an exclusion standard in homeowners' policies.  At least one insurer has taken this step, and others are presently considering doing so. 

In addition to the vandalism issue, losses caused by marijuana grow operations raise issues of concurrent causation, as well as issues specific to the policy language in the given case.  For example, in the Washington Court of Appeal's decision in Bowers v. Farmers Insurance Exchange, [2000] WA-QL 110 (C.A.), the Plaintiff landlord claimed for mold damage to a rental house which had been used by the tenant as a grow operation.  The policy contained a mold exclusion, but covered losses due to vandalism.  The Court held that the proximate cause of the loss was the grow operation, rather than the mold, and that the grow operation fell within the coverage for vandalism.  A complete discussion of concurrent causation in the context of mold claims can be found in Nigel Kent's paper entitled "First Party Mold Claims in Canada: Much Ado About Nothing. But Proceed With Caution!", which can be found on Clark Wilson LLP's website. 

A copy of the Takhar decision can be obtained on the Provincial Court's website. 

Claims handlers or others interested in obtaining a copies of the decisions and article cited above, or in discussing coverage issues surrounding losses caused by marijuana grow operations, are invited to contact Nigel Kent at npk@cwilson.com, Ph. 604-643-3135, Jonathan Hodes at jlh@cwilson.com, Ph. 604-643-3168, or any other member of Clark Wilson LLP's insurance practice group.