Marijuana Grow Ops Spark Insurance Fears

Marijuana Grow Ops Spark Insurance Fears
Posted by CN Staff on January 16, 2004 at 08:43:33 PT
By Jane Gadd
Source: Globe and Mail 
They look like heaven-sent tenants.Typically a clean-cut young couple, sometimes with a toddler or two in tow, show up at an apartment building's property management office with job and personal references, and pay the first and last month's rent with a certified cheque. Sometimes they offer to pay for a whole year.
But they are a front.Once they have the keys, the couple hands them over to the real tenants -- investors in Canada's fastest-growing cash crop, hydroponic marijuana -- and the unwitting landlord can find himself in legal and financial hell.Walls, carpets, kitchen and bathroom fittings are ripped out. Wiring is rerouted. Soil is dumped all over the floor, and the heat is cranked up all the time, not only consuming vast amounts of energy but causing condensation and mould.Overloaded wiring can spark fires, and criminal elements start lurking around the property.The police raid of a massive marijuana-growing operation in an abandoned brewery in Barrie this week highlighted the extent to which production of the lucrative drug has grown in Ontario.But abandoned industrial facilities are hard to come by -- and highly visible -- so many growers have set up shop in residential rental units in Toronto-area subdivisions and apartment towers.The indoor cultivation causes massive damage to buildings -- the high condensation leads to mould, the extensive electricity use can lead to fires, and violent robberies can occur. The question of who should pay for this damage has placed landlords on a collision course with the insurance industry, which has decided to opt out of liability.Many insurers have sent letters to policy holders warning them that they are on their own when it comes to paying for fire, water or any other damage caused by grow ops -- even if they had no idea their property was being put to that purpose."Quite a few companies are putting specific exclusions in their policies," says Dave Way, co-ordinator of the standards and practices committee of the Insurance Bureau of Canada. "If landlords don't know what's going on in their properties, that's even more reason an insurance company shouldn't provide coverage."But owners of large rental properties are outraged by what they see as an unfair attempt to duck liability even as property insurance premiums continue to rise."There's no way in my mind that an insurance company can exclude something you're not aware of," says Paul Chisholm, president of Berkeley Property Management, which owns 3,800 apartment units in the Greater Toronto Area.Predicting the matter will end up in court if coverage is denied, Mr. Chisholm adds: "Any judge would say this is bogus. It would be like charging a landlord with accomplice to murder when a tenant kills his wife or something." It is impossible under landlord and tenant legislation in Ontario (and the rest of Canada) for landlords to forcibly enter their property and check for illegal activity, he and other landlords say.They are required to give 24-hour notice to tenants to enter a unit, and can be stonewalled by residents who refuse to acknowledge receipt of such a notice, or who request delays, Mr. Chisholm says. "We can only enter in an emergency, such as water dripping through the ceiling of the apartment below."Allan Weinbaum, whose company -- WJ Properties -- operates eight apartment buildings in Toronto, says he doesn't see how insurers can justify making landlords pay when tenants have set out deliberately to deceive them."I don't see how we could prevent that," says Mr. Weinbaum, who has direct experience with the grow-op problem.Earlier this year, the superintendent of one of WJ Properties' buildings stumbled upon one such operation by chance after entering an apartment because of a flood."It was amazing -- everything in the apartment that took space had been stripped out. They were growing marijuana from wall to wall, floor to ceiling," Mr. Weinbaum recalls. "What really got me is I went to the file and the tenant had been screened in every way except a credit report."The references all checked out, but the name and social insurance number were fake, which a credit report would have detected, he says. Now it's company policy to do a credit check for every potential tenant.In that case, the building's insurer -- Chubb Insurance Co. of Canada -- did pay, Mr. Weinbaum says.But another company -- Economical Insurance Group -- is going a different direction. It explained its attitude in a letter sent recently to all its property insurance policy holders."Dear policy holder," it says. "Your policy contract does not include coverage for: 1) marijuana-growing operations; 2) mould. To clarify these points, we have added specific exclusions to our policies."Cindy Graham, a spokeswoman for Economical, says the company sent the letters because "we wanted to ensure that [landlords are] not caught."In addition to notifying policy holders of the exclusions, the letter lists warning signs for landlords that a tenant may be intending to set up a grow-op, as well as signs that marijuana is already being grown in a unit.Mr. Way of the insurance bureau says the grow-op issue has become "a hot potato" in the industry since lucrative hydroponic operations have spread from British Columbia to Southern Ontario and many other parts of Canada."It's amazing the ignorance on this issue," he says. Police have told the industry that a crop that costs between $2,000 and $5,000 to grow can be sold for $50,000 only 90 days later -- a powerful incentive for many individuals, not just biker gangs.Even if a person is legally permitted to grow marijuana -- for example, as a supplier for a person with a medical exclusion to pot laws -- the risks are too great to cover, he says.As well as the potential for fire, floods and mould, there is the danger a legal grower will be targeted by criminals."It is not a risk envisaged by insurers," Mr. Way says. Landlords should view it as a business risk and plan accordingly, he adds.Mr. Weinbaum sees it differently. "If companies refuse to pay for this, I would like to know what figures they've got to show this is such a big problem for them. There should be actuarial tables."But neither the insurance bureau nor Economical was able to provide figures."There are too many variables to accurately price this," says Ms. Graham of Economical. "So instead of penalizing policy holders by raising rates for risks we cannot accurately predict, we put in the exclusions."Tenants from hell People who rent out homes or apartments are advised by the Economical Insurance Group to watch out for the following red flags in potential tenants:They offer to pay in cash.They are willing to pay more than market value.They give vague or incomplete answers on their application.They register with utilities under a different name.They have no home phone number and give only a cellphone number.They are not interested in the layout of the home or apartment, how many bedrooms it has, etc.They are very interested in the electrical service.People are also advised to check for these signs that major marijuana cultivation is going on:The windows are always covered up, sometimes with makeshift covers such as bed sheets.Bright light can be seen around the edges of window coverings.Condensation is apparent on the windows.Ventilation equipment can be seen or heard.A strong, skunk-like odour is emanating from the property.Residents only stay in the building for short periods of time.Equipment and garbage bags are regularly carried in and out -- particularly fans, lights and soil.Hydro meters have been tampered with or consumption is unusually high. Note: Landlords worried insurers won't cover damage done to residential rental units. Source: Globe and Mail (Canada)Author: Jane GaddPublished: Friday, January 16, 2004 - Page G4Copyright: 2004 The Globe and Mail CompanyContact: letters globeandmail.caWebsite: Articles:Pot Bust Worth $30-million, Police Say High on Big Brewery Bust
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