Back on January 25, 2000 the Washington Court of Appeals opinion in Bowers v. Farmers Insurance Exchange, sent a very clear message that an innocent landlord whose property was damaged due to an illegal marijuana growing operation was covered under the vandalism language of the landlord’s policy.1
In Bower, the landlord became suspicious that her property was being used by its renters as an illegal grow facility and alerted the local authorities. It was discovered that massive damage caused by the grow included a fair amount of mold damage. Farmers paid portions of the claim but denied coverage for the mold, saying that the mold exclusion applied. The Washington appellate court was very clear in its ruling. The court stated:
We conclude the tenants’ acts constitute vandalism, for which there is coverage under Ms. Bowers’ landlord’s insurance policy. We further conclude that the tenants’ acts are the efficient proximate cause of Ms. Bowers’ loss.
In Bower, the policy was analyzed by the court and the Farmers’ policy specifically covered loss caused by vandalism or malicious mischief, but did not define those terms. It was clear to the court that mold was a byproduct of the tenant’s intentional acts of vandalism.
Now, just over 15 years later, policies have continued to evolve and the new policy language and multiple exclusions that preclude loss coverage to insured landlords in similar situations as the plaintiff in Bower, are not so kind and the language is questionable in light of other more recent court rulings.
I happened upon a policy this past week that is not friendly to landlords when it comes to the same situation as in the Bower matter. The landlord’s California insurance policy reads:
We do not insure for loss caused directly or indirectly by any of the following. . . .illegal growing of plants or the illegal raising or keeping of animals; or. . . .Such Loss is excluded whether by vandalism or any other cause and whether or not within the knowledge or control of an insured. . . .
Under such language, many landlords are finding their claims for vandalism as a result of a tenant’s acts of illegal plant grows are not covered, and flat out denied, leaving upwards of hundreds of thousands of dollars unpaid and policies rendered useless for the unsuspecting insured.
It is clear on the face of this policy language that the insurer intends to preclude loss coverage under vandalism or any other theory when an illegal grow operation causes the loss, but it puts the innocent landlord in a very awkward situation without recourse or coverage.
In California the concept of the “innocent insured” was solidified in the Century-National v. Garcia opinion released in February 2011.2 The court noted a “broad consensus” in other states to construe the standard form policy to include a willful acts exclusion protective of innocent insureds. The interpretation of the standard form adopted by the court effectively alters all California fire insurance policies to protect innocent insureds.
The question now arises whether the landlord—arguably the “innocent insured”—who had no knowledge as to the willful acts of vandalism exclusion should be covered in a situation where there is no knowledge or control of a tenant’s illegal plant grow under the ruling of the Century-National v. Gracia matter? This issue has yet to be litigated but the concept is ripe for controversy as landlords across the nation deal with tenants who grow plants (whether legally or not) and find their properties in a state of utter destruction needing thousands of dollars in special remediation due the mold that results from such activity. Under landlord tenant contracts, landlords must allow tenants the covenant of quiet enjoyment, yet under the new insurance policy language, leaving tenants alone to enjoy their property and finding out later about an illegal plant grow situation just leaves a landlord in a financial bind with no insurance coverage.