Damages from illegal marijuana cultivation operation not covered

An insurer has no duty to cover property damages caused by a tenant’s illegal marijuana growing enterprise, a California federal judge has ruled.

Safeco Insurance Co.’s “landlord protection” policy that covered the rental property specifically excluded damages caused by the “illegal growing of plants,” U.S. Magistrate Judge Paul S. Grewal of the Northern District of California said.

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Additionally, the judge noted, this exclusion “is quite short, and is drafted in plain language; no specialized terminology is used.”

Therefore, Safeco owed no duty for losses related to the illegal grow operation, including holes in the drywall, damage to the property’s electrical system, and installation of shelves, grow lights and wires, he ruled, granting the insurer partial summary judgment.

(Click here to read the order on Westlaw.)

Tenant’s arrest

According to the judge’s order, Anh H. Huynh leased property in San Jose to Cuong M. Bui for one year, beginning in December 2011.

A few weeks after the lease began, on Dec. 24, the police raided the property, breaking a rear patio sliding glass door to gain entrance, the order said.

Inside, they found Bui, another person, marijuana plants and cultivation equipment, the order said.  The police arrested Bui and the other person, charging them with illegal possession and unauthorized cultivation of marijuana.

Insurance claim

Huynh went to the property to collect rent Jan. 5, 2012, and discovered the broken glass door and damage inside the house, including holes in the wall, debris and problems with the water heater, the order said.

Huynh filed an insurance claim.  A Safeco adjuster found that most of the damage resulted from the marijuana growing process but attributed the damage to the rear sliding glass door, left-side gate and garage door to the police officers’ forced entry, the order said.

Safeco sent Huynh a letter saying it would pay only for damages arising from the police raid, not damages related to the marijuana growing operation, the order said.

Based on this decision, Huynh sued Safeco in the Santa Clara County Superior Court for breach of contract and bad faith.

The out-of-state insurer removed the action to federal court under diversity jurisdiction and moved for partial summary judgment.  It argued that the policy explicitly excluded damages from the marijuana operation.

Huynh argued in his complaint that Safeco wrongfully denied the claim because:

  • The exclusion for illegally growing plants is not conspicuous, plain and clear.
  • The California Supreme Court rejected a similar exclusion in Safeco Ins. Co. v. Robert S., 28 P.3d 889 (Cal. 2001).
  • The state permits certain marijuana grow operations under Cal. Health & Safety Code § 11362.765, and therefore the exclusion is inapplicable.

The judge disagreed with Huynh that the exclusion was invalid or did not apply.

He also distinguished the ambiguous exclusion in the Robert S. case, which barred coverage for “illegal acts,” but did not specify whether it only applied to criminal law violations or if it also excluded civil law violations.

Here, he said, the exclusion is specific and clear.

“The record contains no suggestion that Huynh bargained for and reasonably expected coverage for loss arising out of an illegal marijuana grow operation,” he wrote.

Huynh v. Safeco Insurance Co. et al., No. C 12-01574, 2012 WL 5893482 (N.D. Cal., San Jose Div. Nov. 23, 2012).