Insurers are continuing to revise their policies to make it harder for property owners to make claims for damage caused by methamphetamine contamination.
DLA Piper law firm partner, Peter Leman, says insurers are making another round of changes to their policy wordings, as they’re being hit with more meth-related claims.
They’re either limiting, or outright excluding, cover for losses caused by meth damage.
Speaking to an insurance industry audience at an Insurance and Financial Services Ombudsman conference, as well as interest.co.nz separately, Leman says insurers are responding to meth like they have to leaky homes in past.
“Insurers are looking at ways to ensure their loss commensurate with what they are charging in premium, because the clean-up costs are so extreme,” he says.
In other words, they are covering their backs as they’re conscious of the amount meth contamination could cost them.
So what should landlords be conscious of?
1. Changing government standards
More meth residue now needs to be detected for a property to be considered contaminated.
The Ministry of Health on October 27 published a report recommending that for remediated houses where meth has been used to be deemed ‘contaminated’, 2 micrograms of meth needs to be detected per 100 centimetres if the area is not carpeted, and 1.5 micrograms if it carpeted.
This is an increase from the previous threshold of 0.5 micrograms, which the Ministry suggests should still apply to remediated meth labs.
The Ministry’s recommendations will be incorporated in a new proposed standard for meth residues.
The proposed new threshold will accordingly make it harder for landlords to submit meth damage claims to their insurers.
2. Losses required to be sudden and accidental
House insurance policies now largely require losses to be both sudden ‘and’ accidental.
Leman says this could be problematic for landlords trying make meth damage claims, as there might not be enough meth damage caused by one ‘sudden and accidental’ event for there to be ‘contamination’. Rather meth damage may be caused gradually.
Furthermore, it may be hard for landlords to identify when exactly a meth-related loss occurred.
3. Gradual damage exclusion
Leman says a number of insurers have added an additional clause to the ‘gradual damage’ part of their policies.
As well as listing what sorts of gradual damage are excluded - rust, corrosion, etc - they are keeping their options open by adding the line, “any other gradual damage”.
Leman believes it would be hard for a landlord to argue meth contamination doesn’t fall into this gradual damage exclusion.
4. Pollution and contamination exclusions
Leman says this common exclusion in house insurance policies may give insurers a sufficient leg to stand on to decline a meth damage claim.
5. Reasonable care clause
A number of house insurance policies require landlords to keep a record of regular checks they do on their properties. These checks may need to be done as frequently as every three months.
While Leman believes these clauses are effective, he says the law does state an insurer can’t apply an exclusion if the insured can show the breach wouldn’t have made a difference to the outcome of a situation.
For example, if a landlord did an inspection in July and then missed their October inspection, but in November found out the property had been contaminated by meth in August, their claim may be upheld as the contamination would have happened regardless if they did their required October inspection.
6. Meth detectors
Leman suggests landlords talk to their insurers about whether installing meth detectors in their properties will be at all helpful.
“It may be a protection for a landlord against a catastrophic event if the levels were suddenly rising rapidly and they were to get real time warning of that,” he says.
Leman maintains meth detector evidence may be valid in Court if the devices are properly made, calibrated and used.
Yet he believes it is still early days.
“I’m not sure whether the insurers have any internal policies themselves yet.”
A ‘business’ issue
All in all, Leman acknowledges there are a number of grey areas around meth, as insurers are seeking a lot of legal advice on the matter.
Asked whether he believes it is fair for the industry to be ducking for cover the way it is, he says:
“There’s no obligation to cover risks that are impossibly bad and there’s no reason why insurers shouldn’t be able to price those risks accordingly.
“I don’t see that the insurance industry is doing anything wrong in taking a good hard look at this because. It’s no difference to looking to the risk of flooding or earthquakes.
“I don’t think there’s a moral issue there, or an ethical issue. It’s a business issue.”