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Applying insurance deductibles to a condo building infested with marijuana grow-ops


May 11, 2012   by Canadian Underwriter


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Here’s a quick math question for strata insurance experts: If there is a $50,000 policy deductible for each “occurrence” of illegal drug activity losses, and 29 out of 90 condo units in a single building are damaged because of marijuana grow-op activities, what is the total deductible?

Is it a $50,000 deductible for one occurrence that is part of a series of related illegal drug activity losses? Or is it a $1.45-million deductible based on 29 separate occurrences?

The answer seems to be who snitched on whom, based on the 2009 B.C. Supreme Court decision, OSP LMS 3904 v. Commonwealth Insurance Co. and St. Paul Fire.

Krista Prockiw of Alexander Holburn Beaudin & Lang LLP referred to the case in her analysis of insurance deductible issues for strata corporations at the Insurance Brokers Association of B.C.’s annual general meeting in Kelowna, B.C. on May 10.

Commonwealth involved 90 condo units in the Cranberry Lane complex in Richmond, B.C., approximately one-third of which were being used for marijuana cultivation operations known as grow-ops.

The residential condo units used for grow-ops were discovered in a variety of ways. The most spectacular of these occurred in March 2005, when masked gunmen entered Unit #10; the police investigation later revealed they chose the wrong door, intending to break into the grow-op located in Unit #9.

Five days after the armed break-in, an anonymous tipster phoned police to suggest they investigate grow-ops in Units #7, #13, #14, #16, #21, #22, #44, #49 and #60 — nine units in total. Further investigation revealed a final tally of 29 units being used for grow-op purposes.

The strata corporation made a total insurance claim for almost $471,000 to repair damage caused by the illegal operations. The strata’s insurance policy had a $50,000 deductible for each “occurrence” of illegal drug activity losses.

The strata corporation sought a court declaration that all residential units serving as grow-ups constituted a single “occurrence” under the policy, for a total deductible of $50,000. Occurrence in the policy was defined as “a loss and/or a series of losses which are attributable directly or indirectly to one cause, disaster or occurrence.”

In response, the insurer argued each of the 29 units counted as separate “occurrences,” which would have made the deductible slightly more than $1.4 million, thus exceeding total damages.

The court found the tipster’s knowledge of nine grow-op units indicated he was likely part of a common criminal enterprise involving those operations. Therefore, only one deductible applied for all nine units.

However, the court concluded the rest of the 20 units constituted 20 separate occurrences, since no evidence was introduced that they were related to the nine identified by the tipster.


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