Article by Robert Gilroy
Despite the efforts of insurers to exclude coverage in habitational insurance policies for losses caused by cannabis cultivation or production, a recent Alberta case serves as a reminder that coverage may, nevertheless, apply where an insured’s tenant’s grow-op causes a loss.1 This is due to the existence of so-called “innocent insured” provisions in the Insurance Acts of Alberta, British Columbia and Manitoba.
Home insurance policies have traditionally excluded coverage for losses caused by illegal activities. Many have also specifically excluded coverage for losses arising from illegal drug activity. With the Cannabis Act having come into force on October 17, 2018, Canadians may now legally cultivate up to four cannabis plants at a time in their dwelling-house.2 As such, some insurers have amended their policies to exclude losses caused by growing cannabis, regardless of its legality.
However, insurers in Alberta, British Columbia and Manitoba may still be at risk of cannabis-caused losses even with broad exclusions on the growing or production of cannabis in a dwelling.
The innocent insured provisions
The innocent insured provisions protect insureds who are not responsible for or complicit in intentional acts that cause damage. Specifically, exclusions barring coverage for losses caused by a criminal or intentional act or omission are of no effect vis- à-vis an insured person who does not:
- Cause the loss;
- Abet or collude in causing the loss; and
- Consent to the act or omission while knowing—or having ought to have known—that the act or omission would cause the loss.
The innocent insured provisions of the three provinces are all identical.3 British Columbia, Alberta and Manitoba brought their provisions into force in 2011, 2012 and 2014, respectively. Their enactment was a response to the Supreme Court of Canada’s (SCC) decision in Scott v. Wawanesa Mutual Insurance Co. [Scott].4 In Scott, the majority of the SCC held that, upon the insured plaintiff’s son intentionally setting fire to the plaintiff’s house, coverage was not available to the plaintiff, as the policy excluded coverage for loss caused by a criminal or wilful act of the insured.5
While the innocent insured provisions have received relatively little judicial consideration, the recent 2019 Alberta case of Lafferty v. Co-Operators General Insurance Co. [Lafferty] should serve as a reminder that an insurer in Alberta, British Columbia or Manitoba could be on the hook for damage caused by a tenant’s grow-up, notwithstanding a cannabis exclusion.6
In Lafferty, the insured plaintiffs owned a house in which their tenants were growing cannabis. The insureds had no knowledge of this. The grow-op caused damage to the house. After the insurer denied coverage based on an illegal drug operations exclusion, the insured sued for coverage. Ultimately, the Court held the innocent insured provision to be unavailable to these insureds, as the loss occurred in 2010, while the provision came into force in Alberta on July 1, 2012.7
Nevertheless, the Court in Lafferty commented that the innocent insured provision could have prevented the insurer from relying on the drug operations exclusion had the loss occurred after the provision came into force.8
One may contrast the Court’s comments in Lafferty with a recent decision out of Saskatchewan, a province that does not have an innocent insured provision in its provincial Insurance Act. In the 2018 case of Carteri v. Saskatchewan Mutual Insurance Co., the Court dismissed the insured plaintiffs’ claim for coverage after an explosion and fire severely damage their rental property.9 The explosion and fire evidently resulted from the tenants’ attempt to produce cannabis resin.10 The insurance policy contained an exclusion denying coverage for loss caused by the manufacturing of illicit drugs.11 The exclusion functioned to bar coverage, even though the insured property owners were arguably “innocent of any wrongdoing.”12
Rental properties are at a much higher risk
The innocent insured provisions afford protection to property owners when a tenant’s act or omission causes a loss, provided the insured is a natural person (as opposed to a corporation), and does not consent to or collude in such activity. This may prove problematic for insurers writing habitational policies in Alberta, British Columbia and Manitoba.
As rental properties already represent a higher risk exposure, insurers will want to underwrite such policies carefully, especially considering the increased likelihood of tenants seeking to grow marijuana plants in their dwellings legally, regardless of whether the property owner forbids it. Given that cannabis exclusions may not protect insurers in this situation, it is even more prudent that insurers require their insureds to conduct regular, periodic inspections of rental dwellings, in an effort to sniff out any cannabis production before it causes a loss.