What do you do when you own property that you lease out to tenants and find out that your tenant apparently used meth at the property and the property needs expensive remediation? See my previous article here.
Example Case Study: Property Owner who previously rented out the property lists the home for sale. Potential Buyer has the home tested for meth. The results come back necessitating remediation. You make a claim with your homeowners’ insurance policy, but it is denied.
Lesson Learned: Sometimes an initial denial of coverage can be overturned depending on the precise language of your insurance policy.
What To Do: Request a copy of your insurance policy and discuss the matter with a lawyer.
In actual matters in which the Case Study is based in part, the property owner/s went ahead and paid for the remediation and sold the home to the buyer/s. Then, the property owner/s asked for assistance in whether the costs of remediation might be recouped as they were substantial. The language of the specific insurance policy was helpful in persuading the insurance company to reverse its previous decision and it paid the costs.
Look at your insurance policy and compare it with the insurance company’s denial of insurance coverage letter. Is the company citing to language in your insurance policy? Does the language pertain to your situation?
In the Case Study, the initial denial letter/s from the insurance company/ies referenced language of “illegal manufacture, production, operation or processing of chemical, biological, animal or plant materials or any other natural or synthetic substance,” but that language simply did not apply to property owners’ situation as there was no evidence of any manufacturing, production, operation or processing of meth at the property. Insurance companies may be quick to try to use an exclusion that does not make sense as applied to your facts.
If there were no signs of chemical storage, no signs of manufacturing of meth, no visible staining, no evidence of chemical dumping outdoors, and no etching associated with meth use or production that was observed at the property by anyone, what is the basis for denial by the insurance company for manufacturing of meth? You can look at the photos, reports and testing done at the property. Was the property ever listed on the DEA’s website?
If the plain language of the insurance policy does not exclude insurance coverage, there may be a way to get your homeowner’s insurance company to pay the costs for meth remediation.
In order to avoid or deny policy coverage, “an insurer must establish that the exemption claimed applies in the particular case, and that the exclusions are not subject to any other reasonable interpretations.” Hecla Min. Co. v. New Hampshire Ins. Co., 811 P.2d 1083, 1090 (Colo. 1991). Words in a policy should be given their plain meaning according to common usage, not “by reference to what those who are experts in the construction of insurance contracts” might understand. Simon v. Shelter Gen. Ins. Co., 842 P.2d 236, 240 (Colo. 1992). “To the contrary, the construction of an insurance contract must be ascertained by reference to what meaning a person of ordinary intelligence would attach to it.” Standard Marine Ins. Co. v. Peck, 140 Colo. 56, 60 (1959).
The doctrine of reasonable expectations obligates insurers to convey coverage-limiting provisions clearly and adequately to insureds. Bailey v. Lincoln General Ins. Co., 255 P.3d 1039, 1048 (Colo. 2011). In Colorado, there are two general circumstances where the doctrine of reasonable expectations renders exclusionary language unenforceable: (1) where an ordinary, objectively reasonable person would, based on the language of the policy, fail to understand that he or she is not entitled to the coverage at issue; and (2) where, because of circumstances attributable to an insurer, an ordinary, objectively reasonable insured would be deceived into believing that he or she is entitled to coverage, while the insurer would maintain he or she is not. Id. at 1043. In order to fall under the doctrine, an ambiguity does not necessarily need to exist so long as the specific facts show that, through procedural or substantive deception attributable to the insurer, an objectively reasonable insured would have believed he or she possessed coverage later denied by an insurer. Id. at 1054. To avoid liability under the doctrine the insurance company must 1) not only use clear and unequivocal language evidencing its intent to avoid liability, but 2) it must also call such limiting conditions to the attention of the insured. Leland v. Travelers Indem. Co. of Illinois, 712 P.2d 1060, 1064 (Colo. Ct. App. 1985).
The word Manufacture is defined at C.R.S. § 18-18-102(17) as to produce, prepare, propagate, compound, convert, or process a controlled substance, directly or indirectly, by extraction from substances of natural origin, chemical synthesis, or a combination of extraction and chemical synthesis, and includes any packaging or repackaging of the substance or labeling or relabeling of its container. The term does not include the preparation, compounding, packaging, repackaging, labeling, or relabeling of a controlled substance: (by a doctor or pharmacist).
The word Processing refers to mechanical or physical processes, like chopping and drying, rather than chemical processes, like extraction. People v. Lente, 406 P.3d 829, 833 (Colo. 2017). It is arguable that “processing” only applies to drugs processed from plant matter like marijuana or poppies.
If you need help understanding your insurance policy and/or think your insurance company got it wrong when it denied coverage for something, please Cindy Manzano.
Read Part I of this article: My tenant used meth. Meth Cleanup is Expensive. Is it Covered by Insurance?