Canadian Underwriter

What to tell clients when home insurer asks if property was previously a grow-op

March 18, 2021   by Greg Meckbach

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Home insurance clients who move to a new property should have the premises inspected and let the insurer know if there are signs it has been used to grow cannabis.

“If a home was a former cannabis grow-op, likely pipes and electricity have been manipulated and strained, which could increase the risk and consequently influence the premium,” an Insurance Bureau of Canada spokesperson told Canadian Underwriter.

Some insurers are asking clients if their home has been “previously identified” as an illegal grow-op. So Canadian Underwriter asked experts what happens if your client moves to a property not knowing a previous occupant has been caught illegally growing cannabis.

“If the home purchaser gained actual knowledge that there had previously been a grow-op there, during the course of the purchase of the property, or if they had a significant reason to believe that there was a grow-op previously at the property, they would have an obligation to disclose that to their insurer — in particular if they were asked that question by the insurer,” said Ari Krajden, a Toronto-based partner with law firm Kawaguchi Krajden LLP.

A grow-op — legal or illegal — poses an increased risk of mold damage from condensation emitted from plants, an expert told the British Columbia Supreme Court in Schellenberg v. Wawanesa Mutual Insurance Company, released in 2019. There is also an increase in fire damage risk from potential modifications to the electrical system as well as water damage from plumbing modifications.

“Prospective purchasers, prior to purchasing a home, should undertake a thorough inspection of the home, ideally by hiring a qualified inspector. Whenever there is a material change in risk, the customer must inform their insurer as issues may arise particularly in the context of the nondisclosure,” the IBC advises.

“If the insurer has concerns about the property, the insurer or the [mortgage] lender could require that the purchaser perform an environmental study of the property and in that scenario where something like that might come up,” Krajden said in an interview.

So what happens if a client is not aware a previous occupant was caught growing cannabis, but the insurer finds public records — such as police, court or media reports — confirming that the property was me a grow-op at one time?

“In the course of a normal home purchase, I don’t think that the insured has an obligation to take extraordinary measures to find out what the prior use of the property was,” said Krajden.

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