Can a Marijuana Grow Operation Also Be a “Residence”?

Stephanie Poll | Property Insurance Coverage Law Blog | April 25, 2018

The case of Weingarten v. Auto Owners Insurance Company,1 may have raised some interesting ideas about insurance policy interpretation, yet it was ultimately decided by a number of case-specific facts. Connie and Edward Weingarten sued their homeowner’s insurer, Auto-Owners Insurance Company, arguing that the company had improperly denied their insurance claim, which sought coverage for property damage due to an illegal marijuana grow operation. The Weingartens alleged breach of insurance contract, breach of duty of good faith and fair dealing, and statutory unreasonable delay or denial.

Auto-Owners brought a motion for summary judgment on the grounds that the policy did not cover the Weingartens’ losses because the property was not “principally” used as a private residence but rather an illegal marijuana grow operation. While the Weingartens conceded that “virtually the entire house” They had leased to individuals was being used for that purpose, they argued the chief, primary, or most important use for the property was as a private residence.

To support this, the Weingartens provided the court with pictures and video showing the property’s condition when law enforcement discovered the grow operations. The pictures and video came from the district attorney’s file for the prosecution of the individuals allegedly growing marijuana at the property. Auto-Owners in turn argued these materials indicated the property was principally used as a marijuana grow operation, not a private residence.

The trial court ultimately denied the motion for summary judgment, finding that the video and pictures created a disputed issue of material fact as to whether the property was used principally as a private residence. The court noted that the evidence showed that the individuals paid for internet and received mail at the property. Additionally, the video indicated the house had a dining room table, photographs and art on the walls, a couch, television, a pool table, a washing machine and a bottle of detergent with clothes hanging nearby. There were also mattresses in two bedrooms; a desk, an office chair, and a night stand in one of the bedrooms; a bathroom with a toothbrush and mouthwash on the sink; clothes in one closet; and a coffee pot with coffee grounds in the kitchen.

Taking this evidence in the light most favorable to the Weingartens, the trial court concluded that a disputed issue of fact existed but also noted that “significant footage supporting the notion that the house was used principally as a marijuana grow operation” was contained in the video and photographs. The court further noted that while it was “doubtful” that the Weingartens would be able to prove the house was used principally as a private residence, that judgment was for the jury to make.
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1 Weingarten v. Auto Owners Ins. Co., No. 17-cv-01401 (D. Colo. April 17, 2018).

Faulty Workmanship, Even if Charged as Negligence, Isn’t Fortuitous Enough to Be an “Occurrence” Under Liability Policy

Richard Wolf | Claims Journal | April 16, 2018

Every once in a while, a court teaches us by judicial decision an entire chapter of insurance law lessons we can carry with us, secure in the knowledge that we can reason our way to the right result in insurance coverage disputes. Such a court opinion was filed March 30, 2018 by the US District Court for the Eastern District of Pennsylvania, applying Pennsylvania law. The case is State Farm Fire & Cas. Co. v. DTL Mechanical. It is reported at 2018 U.S. Dist. LEXIS 54953. It reminds us that commercial liability insurance is typically limited to defending against, or paying, damages from lawsuits against policyholders for property damage, bodily injury or personal and advertising injury, caused by an “occurrence”— an accident.

The facts of this State Farm case were certainly not unusual – which makes its teachings so useful, especially in resolving insurance coverage issues typically encountered in construction projects. Scott and Maria Evans engaged Bianco Contractors, Inc. (Bianco) to build an addition to their residence. Bianco, in turn, subcontracted with DTL Mechanical, LLC (DTL) to install a heating, ventilation and air conditioning (HVAC) system in the home addition. Numerous problems plagued the project, including the HVAC system, forcing the Evanses to replace what they alleged was a defectively designed and installed HVAC system. The property owners brought suit against Bianco in Pennsylvania state court, and Bianco sued DTL, alleging that the HVAC subcontractor was at fault in installing an improperly designed, sized and vented new HVAC system.

Bianco contended in the owners’ lawsuit that under the subcontract, DTL had assumed responsibility for installing a new HVAC system in the Evanses’ addition. The Evanses alleged that DTL’s work had failed to comply with pertinent building codes and DTL had breached implied warranties that the new HVAC system would comply with industry standards and be fit for ordinary usage. Bianco contended that the damages sustained by the Evanses were caused by DTL’s negligent performance of its installation work.

During the construction work, DTL was insured by a State Farm Business Owners liability insurance policy providing that State Farm would pay those sums Bianco became legally obligated to pay as damages because of bodily injury, property damage or personal and advertising injury caused by an “occurrence,” which the policy defined as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” (Emphasis added.)

The policy defined “property damage” as meaning “[p]hysical injury to tangible property, including all resulting loss of use of that property,” or “[l]oss of use of tangible property that is not physically injured or destroyed, provided such loss of use is caused by physical injury to or destruction of other tangible property.”

State Farm refused to defend or indemnify DTL in the state court lawsuit, because, the insurer said, the HVAC installation work, alleged by the Evanses and Bianco to have been negligently performed by DTL, did not constitute an “occurrence,” as defined by the policy.

Eventually, the Evanses, Bianco and DTL settled the state court litigation, with DTL assigning to the Evanses all of DTL’s rights of action under the State Farm liability policy based on the subcontractor’s right to a defense and/or indemnification, and any bad faith claims arising from State Farm’s refusal to indemnify and/or defend DTL in that lawsuit.

Still later State Farm brought suit in federal court against DTL and the Evanses for declaratory relief (the basis of federal court jurisdiction is unclear) and then moved for a summary judgment declaring that it did not owe DTL a defense or indemnification in the homeowners’ litigation against Bianco and DTL.

Procedurally, the court said, a summary judgment should be granted to State Farm if there is no genuine issue of material fact separating the parties, and, viewing the facts most favorably to the other parties, State Farm is entitled to judgment as a matter of law. A genuine issue of material fact exists if a reasonable jury could return a verdict for the nonmoving parties.

The homeowners asked the court to determine that they were entitled to recover as damages the cost of defending and indemnifying DTL for damages based on State Farm’s legal duties as a liability insurer for DTL in the litigation commenced by the Evanses. The court recited the general rule that the duty of a liability policy insurer to defend its policyholder is broader than the duty to indemnify it (see, e.g., California Practice Guide: Insurance Litigation (2016 Update), ¶ 7:501), so it necessarily follows that the insurer will not have a duty to indemnify its insured for a judgment in an action for which it was not required to provide it with a defense.

Accordingly, a typical first step in analyzing coverage is to assess whether the insurer has a duty to defend its policyholder. This is done by comparing the charging allegations of the complaint against the insured to the terms of the grant of coverage found in the policy of insurance. In this process, factual allegations of the complaint are taken as true and liberally construed in favor of the insured. The duty to defend is present if the allegations of the complaint could potentially fall within the coverage wording of the policy. In evaluating the policy duty to defend, the court must focus on factual allegations in the complaint, not the causes of action against the policyholder. In order to determine whether the duty to defend is triggered, the court held, a court must first examine the language of the insurance policy to determine the scope of coverage. Next, the court must analyze the complaint against the policyholder to determine if the claims asserted by the plaintiff potentially fall within the scope of the policy’s coverage.

The court concerned itself with a discussion of whether property damage caused by faulty workmanship qualifies as an “occurrence,” defined as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” The court, citing a decision of the Supreme Court of Pennsylvania, agreed that property damage caused by faulty workmanship is not an “occurrence”, because an “accident” requires a degree of fortuity not covered by faulty workmanship. Relying on the same case, the court in the new decision said that this type of policy does not cover “contractual liability of the insured because the product or completed work is not that for which the damaged person bargained.” Accordingly, an insurer has no duty to defend an insured against a lawsuit alleging only “property damage” resulting from poor workmanship. And this is true, moreover, even when faulty workmanship is cast as a negligence claim, is based upon a failure to follow industry standards or is couched as a breach of warranty.

Another coverage touchstone regarding liability insurance coverage analysis is that damages that are a reasonably foreseeable result of faulty workmanship are not covered. Put another way in the new case, there is no coverage under a liability insurance policy covering property damage where the only allegation of property damage involved damage to the completed construction work (here the HVAC system) itself, requiring its removal and replacement. The Pennsylvania Supreme Court decision the court relied on clarified that the risk intended to be insured against is the possibility of damage to property other than to the completed work itself – yet another touchstone in coverage analysis.

The court distinguished a decision where the court found coverage for a claim arising from an “occurrence” because, among other reasons, the plaintiffs asserted faulty workmanship claims for bodily injury. In the newly reported decision, on the other hand, the claims arose from DTL’s alleged faulty workmanship and the “foreseeable consequences of that workmanship” – replacing the HVAC system. Another decision distinguished in the current case completes the picture of coverage by involving claims against an industrial fan designer and manufacturer, where a fan failed due to design defects. The court concluded that the claims were an “occurrence” within the meaning of the policy, because they involved a product that actively malfunctioned, which could give rise to an “accident.”

Cleaning up the “campsite,” State Farm also moved for summary judgment on 13 counterclaims asserted against the insurer by the Evanses after they settled with the contractor and HVAC subcontractor and received an assignment from DTL of its claims against State Farm. The court held that, because all of the counterclaims other than one alleging insurer “bad faith” against State Farm fell outside the scope of the assignment of DTL’s rights of action against State Farm.

Finally, since the only counterclaim the Evanses owned and have standing to pursue as the real party in interest, is the one for “bad faith,” and the court already found that State Farm had no duty to defend or indemnify DTL for its faulty workmanship. It follows that DTL had no viable claim for bad faith –in its hands or in those of the Evanses.

What is Toxic Mold Litigation?

Vik Nagpal | Bremer Whyte Brown & O’Meara LLP

To understand what Toxic Mold Litigation is, it is important to first identify and understand what toxic mold is.  Mold is a fungus which is essentially everywhere, and certain types of mold, known as toxic mold, may cause severe personal injuries and/or property damage. Toxic mold refers to those molds capable of producing mycotoxins which are organic compounds capable of initiating a toxic response in vertebrates. Toxic mold generally occurs because of water intrusion, from sources such as plumbing problems, floods, or roof leaks.

It is this ageless life form that has spawned a new species of toxic tort claims and has had legal and medical experts debating the complex health implications that follow. Here is some information as to what toxic mold litigation is and when you should hire a lawyer for toxic mold.

  • What is Toxic Mold Litigation?

Toxic mold litigation is particularly complicated, as it often involves multiple causes of action, can implicate multiple defendants, and requires specific medical and scientific expertise. Some injuries and health conditions can be caused from exposure to toxic mold, including but not limited to, respiratory problems, flu-like symptoms, headaches, and skin irritation. Determining the proximate cause of the toxic mold is difficult because it could be the result of construction defect, faulty materials, poor architectural design, or if in a residential building, failure to disclose of mold by the previous owners of the property.

The most common theories of liability related to alleged toxic mold injuries include negligence, failure to disclose, breach of warranty, and bad faith. Litigation can arise against developers, contractors, sellers of property, or against landlords if it is determined they knew or should have known about the problem. Because toxic mold litigation is very time consuming and expert-intensive, it is important to know when you should hire a lawyer.

  • When should you hire a lawyer for toxic mold?

Toxic mold cases tend to be a combination of various areas of law including: (1) construction law; (2) personal injury law; (3) contract law; and (4) insurance law. It is widely accepted that property can be damaged, and injuries may occur, because of toxic mold exposure. The challenge in most toxic mold cases is establishing the causal link between the exposure to toxic mold and the injury(ies) claimed. This causal relation must be established early on, and the facts must be specific and proven through expert testimony usually as to the standard of care in the handling of the elements that caused the toxic mold to grow.

It is important to hire a lawyer when dealing with toxic mold because a lawyer should determine: (1) a person has suffered a bodily injury or property damage occurred; (2) that injury or damage was the result of exposure to toxic mold; and (3) someone is liable for the damages caused by the toxic mold. Without having an experienced toxic mold attorney at your side to establish or dispute the causal link, you could be stuck paying for damages such as, past and future medical bills, mental anguish, pain and suffering, and property damage.

  • What should you be looking for?

Mold generally grows and spreads because of moisture in the home or building from sources such as plumbing problems, floods, or roof leaks. While visible “black mold” is common, there are a variety of strains that can cause health issues to residents of homes and businesses. Other signs of exposure to toxic mold can be personal ailments.  Exposure to toxic mold can lead to health issues including, but not limited to, allergic reactions, respiratory difficulties, flu-like symptoms, headaches, and skin irritation.

Mold spores are naturally everywhere and can enter the homes through windows or open doors, pets, or even attach to people. Mold will grow when excessive moisture enters a home or commercial building. If you have discovered mold in your home or business or are experiencing health issues which may be caused by toxic mold, you should contact a lawyer immediately to discuss your situation and legal options.

 

No Coverage for Property that was not Insured’s “Primary Residence” as Described Under the Policy

Marie Laur | Property Insurance Coverage Law Blog | April 8, 2018

A Maryland court recently ruled there was no insurance coverage available to an insured for a loss to her property that was not her primary residence.

In the case Liberty Insurance Corp. v. Barnes,1 the district court ruled that the clear language of the policy barred recovery for the insured. In Liberty Ins. Corp. v. Barnes, the homeowner, Tracee D. Barnes (“Barnes”) purchased an insurance policy from Liberty Insurance Corporation (“Liberty”). On the insurance application, Barnes stated that the property was her primary residence and that no business was conducted on the property. During the policy period, the property was damaged by a fire. Barnes submitted a claim to Liberty.

While Liberty was investigating the claim, it discovered that the property was not Barnes’s primary residence, despite her assertion on the application that it was. Additionally, for years leading up to and at the time of the loss, Barnes leased the property to her business and used it as an assisted living facility.

The district court ruled for Liberty, holding that the policy unambiguously stated that the insured location was Barnes’s residence premises used for part or full-time personal occupancy. The court concluded that since Barnes had not resided at the property as stated under the policy, the property was not insured by the policy, and, therefore, Liberty was not liable for the loss.

Here, the clear language of the policy determined the outcome of the claim and case. Insureds should be certain to obtain the proper coverage for their property, or they could find themselves not covered for a loss.
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1 Liberty Ins. Corp. v. Barnes, No. PX 17-2058 (D. Md. April 3, 2018).

Jury Instruction That Fails to Utilize Concurrent Cause for Property Loss is Erroneous

Tred R. Eyerly | Insurance Law Hawaii | March 19, 2018

The Florida District Court reversed erroneous jury instructions that adopted the efficient proximate cause doctrine in determining whether the insurer was responsible for the insureds’ collapsed roof. Jones v. Federated National Ins. Co., 2018 Fla. App. LEXIS 561 (Fla. Ct. App. Jan. 17, 2018).

The insureds filed a claim for their damaged roof, contending that the damage was caused by a hailstorm. Federal National Insurance Company denied the claim based upon exclusions for “wear and tear, marring, deterioration;” “faulty, inadequate or defective design;” “neglect;” “existing damage;” or “weather conditions.”

The insureds filed suit for breach of their all-risk policy. At trial, the insureds presented evidence that the hailstorm caused damage to the roof. Federated presented evidence that the hailstorm caused no meaningful damage, and that all the damage had already existed prior to the hailstorm as wear and tear. In rebuttal, the insureds presented evidence that the leaking solar panels could not have been the only cause of damage, pointing to the presence of hundreds of divots spread across the roof.

The insureds took issue with the jury instruction that required them to prove that the hailstorm was the “most substantial or responsible cause” of damage to the roof. The instruction read:

Did [the insureds] prove by the greater weight of the evidence that they sustained a direct physical loss to their roof as a result of the hailstorm . . . which was the most substantial or responsible cause of the damage to the roof?

The insureds submitted that the trial court would be wrong to apply the efficient proximate cause doctrine as advanced by Am. Home Assurance Co. v. Sebo, 141 So. 3d 195 (Fla. 2d DCA 2013). They argued that the policy was all-risk, covering all losses except those caused by specifically excluded events. The insureds submitted that the concurrent cause doctrine applied pursuant to Wallach v. Rosenberg, 527 So. 2d 1386 (Fla. 3d DCA 1988).

The trial court did not change the jury instruction and the jury determined that the insureds could not satisfy their burden of proof as set forth in the jury instruction.

On appeal, the court noted that the efficient proximate cause provided that where there was a concurrence of different perils, the efficient cause – the one that set the other in motion – is the cause to which the loss is attributable. The concurrent cause doctrine, on the other hand, provided that coverage may exist where an insured risk constituted a concurrent cause of the loss even when it was not the prime or efficient cause.

The insureds also argued that the trial court erred by requiring them to first prove that the hailstorm was the efficient cause of damage to the roof. The Court of Appeals agreed.

The all-risk policy stated, “We insure against risk of direct loss to property described in Coverages A and B only if that loss is a physical loss to property.” Coverage A specifically covered, “the dwelling on the residence premises shown in the Declarations, including structures attached to the dwelling.” After explaining that Federated would cover all direct physical losses to the dwelling, the policy then listed the specific exclusions to the coverage.

Because the policy was all-risk, the allocation of proof in the jury instruction was erroneous. The trial court placed the initial burden of proof on the insureds to demonstrate that the hailstorm was “the most substantial or responsible cause of damage to the roof.” Under an all-risk policy, once the insured established the loss within the terms of the policy, the burden shifted to the insurer to prove that the loss arose from a cause which was excepted. This was consistent with the notion that an all risk policy guarded against all risks except those explicitly excluded by the policy.

Because the jury instruction was erroneous, the case was reversed and remanded for a new trial.