Jenny had an investment property that she leased to residential tenants. When her tenants moved out, Jenny had the property tested for methamphetamine contamination.
Testing showed that three rooms in the property were contaminated. The levels of contamination indicated personal use of methamphetamine by the tenants.
Jenny arranged to have the property decontaminated, and then she submitted a claim to her insurer for the costs of the decontamination work.
Jenny’s insurer declined her claim based on an exclusion in Jenny’s policy for any loss caused by contamination. Jenny disputed her insurer’s decision because the policy had a clause that covered losses that were connected to the manufacture, storage, or distribution of a controlled drug.
Jenny’s insurer agreed that damage caused by methamphetamine contamination was covered under the policy, but only when it was connected with a commercial or large-scale drug operation. Because the contamination of Jenny’s property was caused by personal use of methamphetamine, Jenny’s insurer maintained their decision to decline the claim.
Jenny brought a complaint to FSCL about her insurer’s decision.
Dispute
Jenny argued that in order for her tenants to have used methamphetamine in her property, they must also have ‘stored’ it there. Jenny said that because the policy covered losses caused by the ‘storage’ of illegal drugs, her claim should be covered.
Jenny’s insurer said that the words ‘manufacture, storage, or distribution’ referred to commercial drug operations, so contamination caused by personal ‘use’ of methamphetamine alone was not covered under the policy.
Review
We reviewed the policy wording and agreed with the insurer’s interpretation of the clause that Jenny was claiming under. We considered that the use of the words ‘manufacture, storage, or distribution’ together, implied that cover was intended for loss caused by commercial drug operations.
We explained that in order to make a successful claim for contamination caused by storage of methamphetamine, the contamination needed to arise from the storage of the drug. There needed to be a link between the ‘storage’ and the contamination.
We explained that it was possible to see how the storage of large quantities of a drug could cause contamination of a property, but that it seemed less likely that small amounts stored for personal use would cause such contamination. In Jenny’s case, we explained that the contamination was caused by the ‘use’ of the methamphetamine, not the storage of it – which meant the claim wasn’t covered.
Resolution
Both Jenny and the insurer accepted our interpretation of the policy and our findings. Jenny decided to discontinue her complaint.
Insights for consumers
Losses caused by methamphetamine contamination are not uncommon in New Zealand, so it is particularly important for landlords to consider this risk when taking out insurance for a tenanted property.
There are many different policies available in the market with cover for methamphetamine contamination. It pays to select your policy carefully, because some policies offer better cover than others.
You should consider whether your policy covers contamination caused by personal use of illegal drugs, or if it only covers commercial operations like Jenny’s policy did. You should also understand the contamination testing level your policy requires, as well as the claim limit, so that you don’t end up getting caught short.
