Hanlon v. ING Insurance Company of Canada, 2011 BCSC 73

An unsuspecting Salmon Arm resident, Ms. Hanlon, had the misfortune of renting her home (the “Rental Home”) to tenants that used it to conduct a marijuana grow operation (the “Grow Operation”). As you may be aware, to conduct a successful grow operation one must create an excessively warm and moist environment by watering the marijuana plants at extremely warm temperatures. The tenants caused considerable damage to the Rental Home by way of their endeavour.

When Ms. Hanlon took possession of the Rental Home from the tenants in 2003 she turned to her ING policy to cover the repairs (the “Policy”). ING agreed that some of the damage, such as cutting through the walls, was covered under the vandalism provisions of the Policy. However, ING denied coverage for damage caused by excess humidity, including mould, on the basis that the Policy only insured for direct loss or damage caused by vandalism and excess humidity and mould were not direct damage.

The key provisions of the Policy relating to the dispute are:

Insured Perils

You are insured against direct loss or damage caused by the following perils as described and limited: …

7. Vandalism Or Malicious Acts. This peril does not include loss or damage:
   1. occurring while the building is under construction or vacant even if permission for construction or vacancy has been given by us;
   2. caused by you;
   3. caused by theft or attempted theft;
   4. to glass which forms part of a building.

(emphasis added)

Ms. Hanlon sought a declaration that she was entitled to coverage and indemnity from ING. The critical issue was whether moisture damage and mould, that resulted from conducting the Grow Operation, was covered under the Vandalism Or Malicious Acts coverage of the Policy.

ING had 3 main arguments in the alternative:

1. the damage caused by excess heat and moisture was caused by poor tenant maintenance and/or wear and tear and that neither of these causes is covered under the specified perils Policy;
2. the mould and moisture did not result from any acts of vandalism because the tenants did not intend to cause such damage; or
3. the mould was not direct damage caused by Vandalism or Malicious Acts as defined in the Policy because it was only indirectly caused by vandalism.

Ms. Hanlon’s argument was simple: the Grow Operation was an unlawful act and the tenants acted in reckless disregard for her property and with the intent to carry out acts of vandalism.

Mr. Justice Sewell followed the trend in grow-operation cases and found in favour of coverage under the Vandalism Or Malicious Acts coverage.

With respect to ING’s first argument, he said it was “inapt to characterize the damage from such acts as mere wear and tear or poor tenant maintenance”.

With respect to ING’s second position, it has been argued that the deliberate conversion of a house from a residential premises into a grow operation is done for a purpose and therefore does not constitute vandalism. Mr. Justice Sewell disagreed and relied on the definition of vandalism in Reliable Distributors Ltd. v. Royal Insurance Canada, [1986] B.C.J. No. 603. In that case it was held that there must be a wanton or wrongful intention accompanying the destruction of property to warrant the term vandalism. Mr. Justice Sewell held that the Grow Operation was clearly wanton, reckless and without regard for Ms. Hanlon’s rights.

Mr. Justice Sewell also disagreed with ING’s last argument, that the Policy only covered damage caused directly by vandalism and the mould found in the house was caused only indirectly by the Grow Operation. Mr. Justice Sewell held that, with respect to the excerpt above, the word “direct” was used as an adjective to describe the damage or loss and not as an adverb to describe or modify the verb “caused”. He held that there was nothing in the wording of the Policy to introduce any restriction of the application of the ordinary meaning of the word “caused”.

Mr. Justice Sewell’s analysis raises an interesting question regarding what then would constitute indirect damage or loss. Mr. Justice Sewell’s analysis also differs from the usual debate regarding concurrent causation in the context of exclusion clauses. The issue of whether damage is directly or indirectly caused by an event usually revolves around whether the loss is the result of several factors not all of which are insured.

In summary, Mr. Justice Sewell held that damage from excess moisture and mould caused by the Grow Operation was covered by the Policy. ING could perhaps have made the policy wording clearer by adding the caveat that mould damage was not covered, regardless of whether other causes (vandalism) acted concurrently or in any sequence to produce the loss. This is a welcome decision for unsuspecting home owners, but for property insurers in B.C., this is possibly an undesirable extension of the exposures arising from the illicit production of the apparently much sought after B.C. bud.