Landlord insurance “Drug manufacturing Labs and Clandestine Methamphetamine “P”

I have decided to write this post as the response to many enquiries I have received from my clients asking about rental properties and landlord insurance. Normally the question would be asked when the client is just about to purchase a rental property and became a landlord. Or if the local paper has published an article about the nightmare landlords had to go through due to the property damage caused by Drug manufacturing Labs and “P” Clandestine Methamphetamine.

In order for me to write this I had a number of discussions with underwriters and claim adjusters. In preparation of this article I was also using materials circulated by insurers. As the full disclosure to the discussed material I want to state that each and every claim is an unique set of events and cannot be answered by providing “black & white” answer.

Landlord insurance VS Drug manufacturing Labs

Let’s look at what an insurance cover is for and how it can be applicable in the event that your rental property was used as a drug manufacturing lab or “P” lab.
The essential aim of a general insurance policy is to provide cover for sudden and unforeseen (“accidental”) events that cause physical loss or damage to your property.
Consequently, if an exposure is known for instance an insurance provider knows that occasionally bad weather can cause damage, and it’s just a question of “when” loss or damage will occur.

From an insurance company perception, as long as the owner of an insured property is unaware of a P Lab or a Drug Lab operating at the property, then Insurance cover is likely to respond therefore the damage to the property is going to be covered by the insurer.

If you have a rental property there are a few things you should examine with your current property insurance:

  • The property insured for “Indemnity value” – this means that the property value you have is going to be established at the time of loss. Keep in mind this is only about the building only.
  • The property insured for “Replacement value”- most desirable option when you insure a rental property. Means that you and the insurer “agreed” on the value your property.

As a New Zealand landlord you would want to know when and how your rental property insurance is going to respond to a drug manufacturing Lab or to a “P” (Clandestine Methamphetamine) exposure and losses. Property cover is generally provided for:

  • the obvious physical damage to the property (i.e. to the dwelling structure) from fire/explosion and/or
  • damage (coating of the property with chemical residue) where no obvious signs of physical damage exists.

What your insurance company would ask you for/The main concerns for your insurer are the effects of:

  • major or total losses caused by fire/explosion – we all know explosion often happens in drug labs.
  • costs to clean residue from the property (whether other physical damage has occurred or not)
  • costs arising from alternative accommodation benefit – this is subject to that the existing cover you have on the property has this in-built benefit.
  • loss of rent until property is able to be re-let – again this is only applicable if you have Landlord insurance on the rental house which means that your loss of rent is the insurer loss.

Landlord insurance VS Drug manufacturing Labs – Clean up of chemical residue

Depending on the level of cover (which was explained above) applying to a tenanted house or unit, majority of reputable Insurers in New Zealand will cover the costs to remove chemical residue, as they currently view the damage as being accidental rather than malicious.

However, Insurers according to their statements do not intend covering the costs of clean-up where there is no actual evidence of chemical residue present. A number of Councils have demanded clean-up of properties based solely on the presence of P Lab material and chemicals (without evidence that any cooking has actually occurred at the property).

Let’s look at Exclusions:

  • Malicious or deliberate damage committed or caused by anybody renting, living or staying in the home

However, where the home is leased or rented, cover is generally provided for any loss or damage from fire or explosion resulting from malicious or deliberate damage by tenants.

  • unoccupied homes

Generally for more than 60 days. If you know that your rental house is going to be un occupied it is advisable to discuss the situation with your insurer and if your Insurer agrees then this exclusion is going to be removed.

Now let’s look at Landlord responsibility:

The “Landlord” is responsible for reducing the risk. Keep in mind this is your contractual liability. Policy conditions that put the responsibility onto the Insured Landlord (the home owner) are:

  • Care of Property

Landlord must take all reasonable steps to prevent loss or damage

  • Duty of disclosure/change of circumstances

Landlord must tell the Insurer everything that may be relevant to the Insurers decision to issue, renew or alter the policy, and tell the Insurer of changes to any circumstances relevant to the policy as soon as the Insured knows about them.

Landlord insurance VS Drug manufacturing Labs - Destroyed landlord's property by drug labThere are many prudent measures that landlord can take in an effort to reduce the risk of damage occurring to their property, as well as reducing the possibility for Drug manufacturing Labs and “P” Clandestine Methamphetamine to exist in New Zealand communities. Such measures include:

  • thoroughly checking the background of prospective tenants. It is easy to keep “Veda” profiles of your tenants.
  • evicting bad tenants as soon as practicable according to the Tenancy Act.
  • carrying out regular & thorough inspections of the property
  • asking neighbours if they have seen any suspicious behaviour
  • reporting any suspicions to police immediately

For all of the above if you do not employ a property manager – you have to be able to prove to your insurer that that all of the above was done in timely manner.

Losses arising from P Labs

As the landlord you understand that each claim is an unique event and each claim must be considered individually, as there are a number of factors involved and criteria to be met before a decision can be made to accept or decline such claims, including:

Whether or not the landlord:

  • took reasonable steps to prevent loss or damage
  • carried out regular inspections
  • met their insurance policy obligations
  • disclosed to the Insurer any known criminal history of the occupant(s)
  • knew of any criminal activities taking place prior to loss or damage
  • contacted police as soon as any criminal activity was suspected
  • was the occupant (therefore caused the damage themselves)

And whether or not:

  • the clean-up costs are legitimate
  • the policy coverage that is in place actually covers such damage
  • a policy exclusion applies

If you would like to have good landlord insurance in place please complete the following form:

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I would appreciate if you could let me know if you like the article by clicking share icon- it just mean a lot to know that it is helpful. Please let me know what you think about the article, what is yet in your opinion missing and what else would you want me to adjust. I also want to apologise for use of jargon and rough edges – after all English is my second language.

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Photos courtesy of Andrew Russeth(CC ShareALike)