Damages suffered by 20 different condo owners from a grow-op may constitute separate occurences

The action by the Insured owner of a condominium against an Insurer under All-Risks Property Damage and Business Interruption policy was allowed in part. The Court held that nine of the claims were subject to only one deductible because they all arose from one occurrence of illegal drug activity. However, separate deductibles attached to each of the other 20 claims because there was insufficient evidence to establish that the grow-operations were all part of a co-ordinated effort.

Strata Plan LMS 3904 v. Commonwealth Insurance Co., [2009] B.C.J. No. 909, May 5, 2009, British Columbia Supreme Court, J.C. Grauer J.

The insured owners of a condominium complex brought an action against the Insurer for a declaration that the losses they suffered as a result of damage to the residential units used as grow-ops constitute a single “occurrence” as that term was defined in the policy. The policy provided for a deductible of $50,000 in respect of each “occurrence”. “Occurrence” in the policy was defined as “a loss and/or a series of losses which are attributable directly or indirectly to one cause, disaster or occurrence”.

The grow-operations were discovered when an anonymous tipster phoned the police to suggest that they investigate nine of the units in the condominium. Grow-operations were found in those nine units, along with twenty other units in the condominium.

The Court, after noting that the issue of whether the insured or insurer has the burden of proving the applicability of deductibles has not been considered by a Canadian court, found that the burden should fall upon the party seeking to establish the aggregation or connection of losses, in this case the Insureds. The court found that the Insureds failed to meet this burden.

The fact that the losses all related to drug activity did not make them connected by one cause. One must look beyond the classification of the type of loss to the actual cause of the loss. The type of activity per se is irrelevant to the question of cause as an aggregating factor in the absence of something that is common to the series of losses other than type classification. Accordingly, in the absence of such a connecting factor, it cannot be said that the losses from the 20 units were all directly attributable to one cause simply because activities of a similar type were carried on in them. Here, that connecting factor did not exist. The evidence failed to support an inference of shared knowledge of intelligence amongst multiple actors or of a coordinated plan. Had the evidence supported the belief that the grow-ops were connected by a single king-pin or organization, then this would have established that the Insureds losses were indirectly attributable to one cause or occurrence. However, the evidence did not support this. The evidence did support a finding that the nine units reported by the informant were connected. It is improbable that the informant would have known of nine completely independent and unrelated grow-ops.

The above reasoning applied only to the repair costs claim and the component of the rental loss claim attributable to the unavailability of each unit while it was being repaired. However, there were also losses due to the unwillingness of the renting public to rent units at the complex after the negative media coverage. These losses did share a common denominator; unfavourable public perception . It followed that the loss arising from the reduction in gross rentals attributable to unfavourable public perception, as opposed to the unavailability of the units while undergoing repairs, constituted another single occurrence as the term is defined.

In the result, the losses arising from repair costs and rental losses attributable to the unavailability of the units during repair for the nine units that were reported by the informant constituted one occurrence and were subject to one deductible. The losses arising from repair costs and rental losses attributable to the unavailability of the units during repair for the remaining 20 units constitute 20 separate occurrences, each subject to a further deductible. The additional rental loss attributable to the unfavourable public perception of the complex constituted one more occurrence subject to one further deductible.

This case was originally summarized by Natasha D. Morley and originally edited by David W. Pilley.

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