Methamphetamine contamination excluded as criminal act under apartment owners policy
September, 2006
Tualatin Valley Housing Partners v. Truck Insurance Exchange, --- P.3d ----, 2006 WL 2742666, Or.App., September 27, 2006.
The Oregon Court of Appeals held yesterday that an insurer is not obligated, under the specific language of the criminal acts exclusion in an apartment owners policy, to pay for methamphetamine damage caused by a tenant. This ruling is an important victory for insurers faced with methamphetamine contamination claims under similar policies throughout Oregon, and will serve as persuasive authority in other jurisdictions.
Bullivant Houser Bailey attorneys Andy Lauersdorf and Beth Cupani represented the insurer in this matter, Truck Insurance Exchange.
The Policy Provisions at Issue
The apartment owners policy at issue contained the following exclusion:
"Dishonest or criminal acts by you, anyone else with an interest in the property, or any of your or their partners, employees, directors, trustees, authorized representatives or anyone to whom you entrust the property for any purpose:
(1) Acting alone or in collusion with others;
(2) Whether or not occurring during the hours of employment.
This exclusion does not apply to acts of destruction by your employees; but theft by employees is not covered."
The Facts of Tualatin Valley Housing Partners
Police officers discovered a methamphetamine laboratory in the utility room of one of Plaintiff's apartment units during a robbery investigation. The tenant on the rental agreement was in the apartment at the time the drug lab was discovered, but denied involvement. One of the tenant's friends was also present in the apartment and claimed sole responsibility for the drug lab. Both the tenant and the tenant's friend were arrested for manufacturing methamphetamine.
The landlord sent the tenant a notice terminating her rental agreement and asking her to leave the premises. The notice stated that the tenant had been "caught manufacturing illegal substances" in her unit. When the tenant refused to leave, the landlord filed an action for forcible entry and detainer, and obtained relief in the municipal court. The tenant was evicted, and later pleaded no contest to the methamphetamine manufacturing charge.
The landlord filed an insurance claim for damage caused by the drug lab. After Truck denied the insurance claim, the landlord filed suit. Truck successfully moved for summary judgment based on the criminal acts exclusion. The landlord appealed, arguing that the criminal acts exclusion was inapplicable to tenants. The landlord argued, in the alternative, that even if the exclusion applied there was still insufficient evidence that the tenant (as opposed to the tenant's friend) caused the damage.
The Reasoning of the Oregon Court of Appeals
The court rejected the landlord's argument that the exclusion should only apply to the apartment owner and its officers and employees. The court read the exclusion broadly, ruling that tenants fit within the exclusion's language "anyone with an interest in the property" because they are persons with a legal share or right of control of the premises.
In addition, the court held that the landlord was judicially estopped from claiming that the tenant had no involvement in manufacturing methamphetamine, because the landlord took the opposite position in the previous eviction proceeding.
Implications for Insurers
The Tualatin Valley ruling upholds an insurer's right to exclude from coverage any damage caused by or resulting from the criminal acts of tenants, e.g., theft, drug manufacturing, vandalism, criminal mischief, and arson.
In addition, the court's estoppel ruling confirms that an insured cannot maintain a position in a subsequent legal proceeding that is contrary to a position the insured asserted in a prior legal proceeding, such as an eviction, bankruptcy, or criminal prosecution.