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Insurer not liable for damage caused by marijuana growing operation

Posted On: Nov. 9, 2017 12:10 PM CST

An insurer does not have to cover the landlord of a property damaged by a marijuana grower, in part because the tenant was engaged in illegal or dishonest activity, a federal district court in Michigan ruled.

Wixom, Michigan-based K.V. G. Properties Inc. had sought coverage under its property policy for $510,894 in damage caused by tenants who altered several units it owned in Novi, Michigan, to grow marijuana, according to Wednesday’s ruling by the U.S. District Court in Detroit in K.V.G. Properties Inc. v. Westfield Insurance Co.

K.V.G. said the marijuana-growing operation was discovered after Drug Enforcement Administration agents searched the units in October 2015. KVG later evicted the tenants.

Westfield Insurance, a unit of Westfield Center, Ohio-based Westfield Group, denied coverage for the loss. KVG sued seeking coverage under its commercial insurance policy, which covered physical loss or damage.

The court cited the illegal/dishonest acts exclusion in the policy in denying KVG coverage. “The tenants’ use of the units to grow marijuana was illegal or at the very least dishonest,” the ruling said.

It also granted Westfield summary judgment under the policy’s unauthorized construction or remodeling exclusion.  “It is undisputed that the alterations performed by the tenants were not authorized and damaged the units,” including the heating, ventilation and air conditioning systems, said the ruling, which also granted the insurer summary judgment on the basis of the policy’s repeated moisture or humidity exclusion.