Be aware, cannabis growers: insurers can deny coverage for property damage due to pot growing. Cannabis is becoming increasingly legal on a state-by-state basis. And so, it has become difficult to regulate the plant due to the differing state and federal laws. The discrepancy in legal terms is a somewhat grey for businesses that have to deal with cannabis companies. In one recent case, the federal courts decided to put their foot down when it came to an illegal marijuana grow operation.
An Odd Case
A federal district court in Detroit, Michigan made an interesting ruling on Wednesday pertaining to landlords dealing with property damage. They ruled that insurers can deny coverage for property damage due to pot growing. Mainly because the tenant actively participated in illegal, or dishonest operations.
“The tenants’ use of the units to grow marijuana was illegal or at the very least dishonest,” the court ruling said.
KVG Properties Inc is based in Wixom, Michigan. They were seeking coverage for $510,894 worth of damages. The tenants who caused the damage had apparently turned the commercial property into a cannabis grow facility.
KVG said the DEA discovered the grow operation back in October 2015 after agents searched the units. KVG evicted the tenants following the administration’s findings.
Their insurance providers, Westfield Insurance denied KVG coverage for the loss due to the illicit activities happening in the building, which they say voided their contractual agreement. KVG was seeking coverage under Westfield’s commercial insurance policy, which covered physical loss or damage.
Additionally, the court granted Westfield summary judgment under the commercial policy’s unauthorized construction or remodeling exclusion.
“It is undisputed that the alterations performed by the tenants were not authorized and damaged the units,” the ruling said.
Final Hit: Insurers Can Deny Coverage For Property Damage Due To Pot Growing
Considering recreational cannabis is still not legal in Michigan, the results of the case aren’t all too surprising. Although medical marijuana is legal in the state, the residents of the KVG clearly didn’t have the required mandates to grow medicinal cannabis. Especially in that type of property.
However, many believe Michigan is going to be one of the next states to legalize cannabis for recreational purposes. What if recreational weed was legal at the time of this incident? It would certainly have been interesting to see what the results of the case would have been. Although it’s difficult to determine if the rulings would be any different.
Even if weed was legal, there are still limitations on how much one can grow for recreational use. Typically, it’s only up to one plant, and to run a large grow operation, you would need a license, along with a sanctioned area to start your operation. And if they had licenses, the growers would have to disclose to KVG what they planned on doing with the property.
Additionally, a federally-sanctioned courthouse made the ruling, which would deem the operation illegal, even if the state permitted it. Essentially, it’s a lose-lose situation for KVG Properties.
The lesson: be careful who you rent to.