Ashley Harris | Property Insurance Coverage Law Blog | October 28, 2018
A federal court in the Northern District of Georgia recently found that State Farm’s contamination clause was ambiguous regarding its application to a meth lab claim.
In Cochran v. State Farm Fire & Casualty Company,1 the Plaintiffs owned a rental property in Atlanta, Georgia. While the rental dwelling policy was in effect, the Drug Enforcement Administration executed a search warrant at the rental property, seizing a clandestine methamphetamine laboratory with an estimated yield of 260 kilograms of crystal methamphetamine. The agents processed approximately 200 gallons of hazardous liquid methamphetamine solution, approximately seven pounds of finished crystal methamphetamine, and approximately two additional gallons of liquid methamphetamine in a pot on a propone stove next to the kitchen.
Following the raid, the DEA informed Plaintiffs that the property was not safe to enter due to the presence of toxic and/or hazardous materials because of the meth lab. Testing revealed methamphetamine levels well over the allowable exposure limit mandated by the EPA, thus the property was uninhabitable following the loss.
Plaintiffs immediately submitted a claim to State Farm for the damages to their rental property. State Farm denied the claim based upon its contention that the hazardous methamphetamine residue constitutes “contamination” within the meaning of the policy, and that, therefore, the loss was not covered.
Plaintiffs filed suit, contending that the loss was a result of vandalism, a covered peril under the policy. On cross-motions for summary judgment, the issue before the trial court was whether the loss resulted from “vandalism” or “contamination.” The court found that the language of the policy regarding coverage for the loss was ambiguous.
Even after applying the canons of construction, the court was unable to resolve the ambiguity as a matter of law and left the question of coverage to the jury.
The Order also highlights that a majority of courts considering similar policy provisions in relation to both meth lab and marijuana grow operations have found the contamination clause does not apply to preclude coverage.
While this federal trial court order did not resolve the issue for the State of Georgia, this order, along with out-of-state appellate opinions cited in the trial court order, provide strong persuasive arguments for policyholders in this unfortunate situation.
1 Cochran v. State Farm Fire & Cas. Co., No. 1:17-cv-00984 (N.D. Ga. August 22, 2018).