Landlords: Do you think damages from a meth lab on your rental property are covered under your policy?

Most landlords would probably answer yes, damages from meth labs are covered under an insurance policy. We agree. It has been our experience, however, that the claims are routinely denied under inapplicable exclusions. Landlords should seek coverage counsel in order to secure coverage for these claims. One common defense insurers rely on is the “criminal activity” exclusion. Insurers deny drug lab contamination claims on the basis that the contamination was caused by criminal activity, and their policies do not cover property losses caused by criminal activity. For the criminal activity exclusion to apply, it must be the policyholder that engages in the criminal activity that causes the loss. If the property loss is caused by a tenant at a rental unit, and the rental unit owner did not know (and had no reason to know) that the criminal activity was occurring, the exclusion does not apply.

Under first-party property coverage, insurers also claim that there is no covered “peril” for which the insurance applies. Though there is no Indiana coverage law interpreting meth lab cleanups under insurance policies, other jurisdictions have found that the damages from meth manufacturing are caused by “smoke” and “vandalism”—both covered perils under standard property policies. Indiana courts would also likely find that meth manufacturing is “criminal mischief,” another commonly covered peril.

PSRB has argued successfully against each of these exclusions and has secured coverage for all or part of the damages done to these rental properties. But coverage for drug manufacturing does not stop with first-party property coverage. These claims are standard environmental claims, and coverage is also available under the liability coverage in most policies. Insurers' typical defenses against environmental claims—pollution exclusions (both standard and absolute), personal injury coverage, suit, damages, all sums, owned property—all have been resolved in favor of policyholders. Indiana courts have given a narrow reading to standard liability policy exclusions or terms that insurers have tried to apply to reduce or eliminate coverage for standard environmental claims. Though yet to be tested in Indiana courts, this should hold true with respect to drug manufacturing claims as well.

Meth lab cleanup cases demonstrate the importance of allowing coverage counsel to review claim denial letters. Understanding policy language and how courts apply that language can provide quick results for the policyholder.

If you have been denied coverage for damages sustained from a drug lab, we are happy to evaluate the denial. Please contact me.