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Grow-Op Losses are Multiple Occurrences
Published in the May 2009 issue of Litigation Notes - View Article
The British Columbia Supreme Court considers whether losses sustained by condominium owners as a result of marijuana cultivation in the condominium units should be treated as one occurrence for the purpose of applying the deductible under the owners’ insurance policy.
In March of 2005, the Royal Canadian Mounted Police in Richmond, British Columbia were tipped off to the fact that marijuana was being cultivated in 9 units of a condominium complex known as Cranberry Lane. Further investigation by the police led to the discovery of marijuana “grow-ops” in 29 units in the complex. All of the units suffered damage and the owner of the condominium complex suffered loss of rental income, not only in respect of the units where the grow-ops were carried out but in the condominium complex as a whole, as a result of the complex gaining a reputation as a centre of crime and violence.
The owners had an all-risks property damage and business interruption insurance policy issued by the defendants and filed an interim proof of loss supporting a claim of $470,866.68. However, the policy had a deductible of $50,000 in respect of “illegal drug activity” which was defined as “… any activity relating to either the growing, cultivation, harvesting, manufacturing, distribution or sale of any non-prescription controlled substance…”. The deductible applied in respect of each occurrence which was defined as “…a loss and/or a series of losses which are attributable directly or indirectly to one cause, disaster or occurrence. All such losses shall be added together and the total amount of such losses shall be treated as one loss irrespective of the period or area over which the losses occur”.
The owners, plaintiffs in this case, argued that there was single occurrence and that only one deductible should apply. The defendants took the position that the damages in each unit constituted a separate occurrence.
The Court began by analyzing whether the plaintiffs or the defendants should have the burden of proving the applicability of the deductibles. There was no Canadian case law on the subject and the American case law tended to place the onus on the insured to establish the number of occurrences to which the deductible should apply. The plaintiffs argued that the insured should only have the onus in circumstances where the insured is seeking to establish multiple occurrences in order to take advantage of multiple limits. In circumstances where the insurer seeks to establish multiple occurrences in order to take advantage of multiple deductibles, the plaintiffs argued that the onus should be on the insurer. The Court concluded that “…the burden of proof should depend, as is normally the case in civil litigation, upon which party must establish a point in order to succeed.” The question was not which deductible applied, but whether the definition of “occurrence” aggregated the losses from the various units. The court concluded that “…where the question is whether losses that occurred in different places at different times should be aggregated or not, then the burden should fall upon the party seeking to establish the aggregation, or connection, whether it be relevant to limits or deductibles.” In this case that put the burden of proof on the plaintiffs.
The plaintiffs also argued that the losses all occurred as a result of a single cause, namely “illegal drug activity”. The plaintiffs argued that if there had been a loss in one unit as a result of a marijuana grow-op discovered in March and another loss in a different unit as a result of a methamphetamine lab discovered in November, the effect of the definition of “occurrence” would have been to aggregate the two losses, as both were attributable to the same cause. The Court did not accept this argument, stating that it is necessary to go beyond the classification of the type of loss to look at the actual cause of the loss. In this case the loss sustained in one unit was caused by damage arising from activities that took place in that unit and not by any of the activities carried on in any of the other 28 units.
The Court then went on to determine whether the losses could comprise “a loss or series of losses attributable directly to one occurrence”. The Plaintiffs attempted to establish a commonality in the various occurrences by adducing evidence from police officers to the effect that the operations in all of the units in Cranberry Lane must have been coordinated by a single criminal organization. However, there was insufficient evidence to enable the Court to reach that conclusion.
There was, however, sufficient evidence for the Court to conclude that the 9 units in respect of which the RCMP were tipped off were probably connected. It seemed likely that an informant who knew of 9 completely independent and unrelated grow-ops would have had some knowledge of an association or enterprise that was coordinating operations in those units. Consequently, the Court concluded that the losses incurred in those 9 units were a single occurrence and that the other 20 units were each separate occurrences in respect of which a separate deductible applied. The losses in respect of each of those units included the repair costs attributable to each unit and the rental losses attributable to the unavailability of each unit while it was being repaired.
However, the Court concluded that to the extent that the Plaintiffs were capable of proving loss of rental income arising from the unfavourable public perception of the complex as a whole, such losses would be a single occurrence subject to one further deductible of $50,000.
Owners of Strata Plan LMS 3904 v. Commonwealth Insurance Company, 2009 BSCS 613 (CanLII)