Jeremy Kaiser (Kaiser) filed an insurance claim claiming that his tenants damaged his apartment building by producing or using methamphetamine indoors. Allstate Indemnity Company (Allstate) denied the claim. The district court issued a summary judgment for Allstate and considered that the loss was excluded from coverage under Allstate's insurance with Kaiser. Kaiser appeals. In Jeremy Kaiser v. Allstate Indemnity Company, No. S-19-858., 307 Neb. 562, the Supreme Court of Nebraska (October 23, 2020), the Supreme Court was asked to interpret an insurance policy as excluding damages caused by toxic chemicals caused by the use and manufacture of methamphetamines.
Kaiser owned real estate in Omaha, Nebraska which he maintained as an apartment building. He had a rental insurance policy for the property through Allstate. According to the policy, Allstate agreed to cover most, but not all, direct physical losses to the property. "Consisting of or caused by" the following hazards: "12. Any kind of vapors, vapors, acids, toxic chemicals, toxic gases, toxic liquids, toxic solids, waste materials, [i] irritants, contaminants or contaminants … ”
Kaiser did not carry out regular inspections of his apartment building. As of February 2013, he received reports from people who lived near the property that the house was used for drug-related activities. After his tenants voluntarily handed over the property on May 1, 2013, Kaiser inspected the house and found evidence of methamphetamine. Kaiser retained the Absolute Bio Recovery Service to perform preliminary tests of the house. Absolute Bio Recovery Service detected methamphetamine fumes and residues throughout the house and recommended that the house be decontaminated before it could be safely rented out to new tenants.
Kaiser filed a claim with the Allstate for remediation costs. Allstate denied the claim. After rejecting the property with his own funds, Kaiser sued Allstate. Kaiser made two allegations: breach of contract and bad faith. According to Kaiser, "[a] t sometime [sic] after April 15, 2012, the tenants converted the property into a methamphetamine laboratory and began producing methamphetamine." According to the complaint, this claim should have been covered by Allstate as "vandalism and harmful evil", but it was wrongly denied. Kaiser and Allstate both filed cross-proposals for summary judgment.
The district court issued a decision granting Allstate's request for summary judgment and denying Kaiser's competing proposal. The district court found that Kaiser's tenants had manufactured methamphetamine in the house.
The question presented in the appeal was whether the district court erred in finding that Kaiser's loss of property under the Allstate insurance was excluded from the coverage.  Kaiser characterized his Allstate policy as an all-risk policy. Allstate did not dispute that characterization. Provided that Kaiser's characterization is correct, Kaiser met its original burden when the parties decided that the damaged property at the time in question was covered by Allstate insurance. In turn, it became Allstate's burden to prove that the property loss from Kaiser's tenants who produced or used methamphetamine in the house was specifically exempted from coverage through their policy.
The district court found that Allstate met its burden of proof by showing that Kaiser's loss of property was caused by the presence of "methamphetamine vapor" and "[m] ethamphetamine residues" in the house.
An insurance is a contract, and a court of appeal interprets it as any other agreement according to the meaning of the terms used by the parties. An appellate court provides conditions in an insurance that clarify their simple and ordinary meaning that a reasonable person in the insured's position would understand them. However, terms that are reasonably receptive to several conflicting meanings are ambiguous and are interpreted in favor of the insured.
Although the exclusive terms of the insurance were not defined in the insurance itself, the relevant terms are found in standard dictionaries and were clear. Meth Lab Cleanup identified the scope of its work as a "cleanup and reassessment." At the time, Kaiser did not oppose these characterizations of property loss as pollution. This evidence shows that Kaiser, like the insured, reasonably interpreted the concept of "pollution" as encompassing the type of property damage he experienced.
Simply because several provisions in an insurance policy exclude individual coverage for a single risk does not mean that these terms are necessarily ambiguous. Instead, a well-written insurance policy is likely to have overlapping conditions, which in an appropriate case may support refusal of coverage for several reasons. Whether these terms are individually ambiguous is due to the fact that their language is receptive to several reasonable meanings, not to whether the terms overlap. Like the rest of these terms, "pollution" is easily defined in standard dictionaries, and Kaiser himself used and accepted the term to describe the restoration of his house. Therefore, the district court did not err when it found that Kaiser's loss of property was excluded from coverage as "pollution", among other risks in the Allstate insurance.
Viewed through a correct frame, the evidence in the document shows that Kaiser's loss of property as a whole occurred over time, not suddenly. It was Kaiser's burden to prove that his loss of property occurred "suddenly and by mistake." But Kaiser did not present any evidence that his loss of property occurred suddenly and vice versa, the evidence that Kaiser himself offered confirmed that the loss actually occurred as a result of his tenants smoking or producing methamphetamine in the house continuously for a significant period of time, perhaps up to a year .
The available fact remains that methamphetamine vapor and methamphetamine residues are excluded causes of loss under Allstate insurance. The district court's decision to grant Allstate's request for a summary judgment was upheld.
The manufacture of methamphetamine is highly toxic and usually dangerous. It is not uncommon for a meth lab to explode and destroy the property, damaging or killing its residents and neighbors. Kaiser was lucky that the lab only damaged the property. No insurance covers all possible causes, even if they are described as an "all risk" or "direct risk" of damage to property that is not excluded. The measures taken by the tenants who manufactured or used methamphetamine were clearly and unequivocally excluded. Summary assessment in favor of Allstate was correct. The tenants, who were responsible for the loss, should be sued and forced to pay or be prosecuted or both.
© 2020 – Barry Zalma
Barry Zalma, Esq., CFE, now limits his practice to serving as an insurance consultant specializing in insurance coverage, handling insurance claims, cheating and insurance fraud almost equally for insurance policyholders. He also acts as an arbitrator or mediator for insurance-related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims lawyer and more than 52 years in the insurance industry. He is available at http://www.zalma.com and email@example.com.
Mr. Zalma is the first recipient of the first annual Claims Magazine / ACE Legend Award.
For the past 52 years, Barry Zalma has devoted his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to enable insurers and their claims staff to become insurance claims staff.
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