Supreme Court of Nebraska Enforces a Clear and Unambiguous Exclusion
Jeremy Kaiser (Kaiser) filed an insurance claim alleging that his tenants damaged his rental house by producing or using methamphetamine indoors. Allstate Indemnity Company (Allstate) denied the claim. The district court granted summary judgment for Allstate, holding that the loss was excluded from coverage under Allstate’s insurance policy with Kaiser. Kaiser appeals. In Jeremy Kaiser v. Allstate Indemnity Company, No. S-19-858., 307 Neb. 562, Supreme Court Of Nebraska (October 23, 2020) the Supreme Court was asked to interpret an insurance policy that excluded damage caused by toxic chemicals caused by the use and manufacture of methamphetamines.
Kaiser owned real property in Omaha, Nebraska that he maintained as a rental house. He carried a rental insurance policy for the property through Allstate. According to the policy, Allstate agreed to cover most, but not all, direct physical loss to the property.
Paragraphs 12, 13(e) and (f), 18, and 19(d) excluded from coverage any property loss “consisting of or caused by” the following perils: “12. Any type of vapors, fumes, acids, toxic chemicals, toxic gasses, toxic liquids, toxic solids, waste materials, [i]rritants, contaminants, or pollutants…”
Kaiser did not make regular inspections of his rental house. Beginning in February 2013, he received reports from persons living near the property that the house was being used for drug-related activity. After his tenants voluntarily surrendered the property on May 1, 2013, Kaiser inspected the house and found evidence of methamphetamine. Kaiser retained Absolute Bio Recovery Service to conduct preliminary tests of the house. Absolute Bio Recovery Service discovered methamphetamine vapor and residue throughout the house and recommended that the house be decontaminated before it could be safely rented to new tenants.
Kaiser submitted a claim to Allstate for the cleanup costs. Allstate denied the claim. Kaiser, after remediating the property with his own funds, sued Allstate. Kaiser asserted two claims: 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 lab and started producing methamphetamine.” According to the complaint, this claim should have been covered by Allstate as “vandalism and malicious mischief,” but it was wrongfully denied. Kaiser and Allstate both filed cross-motions for summary judgment.
The district court issued an order granting Allstate’s motion for summary judgment and denying Kaiser’s competing motion. The district court found that Kaiser’s tenants had manufactured methamphetamine in the house.
The issue presented on appeal was whether the district court erred in finding that under the Allstate insurance policy, Kaiser’s property loss was excluded from coverage.
Kaiser characterized his Allstate policy as an all perils policy. Allstate did not dispute that characterization. Assuming that Kaiser’s characterization is accurate, Kaiser met his initial burden when the parties stipulated that at the relevant time, the damaged property was covered under the Allstate insurance policy. In turn it became Allstate’s burden to prove that the property loss from Kaiser’s tenants’ producing or using methamphetamine in the house was specifically excluded from coverage by its policy.
The district court found that Allstate met its burden of proof by showing that Kaiser’s property loss was caused by the presence of “methamphetamine vapor” and “[m]ethamphetamine residue” in the house.
An insurance policy is a contract, and an appellate court construes it like any other contract, according to the meaning of the terms that the parties have used. An appellate court gives terms in an insurance policy that are clear their plain and ordinary meaning as a reasonable person in the insured’s position would understand them. But terms that are reasonably susceptible to multiple conflicting meanings are ambiguous and construed in favor of the insured.
Although the exclusionary terms in the policy were not defined in the insurance policy itself, the relevant terms are contained in standard dictionaries and were clear. Meth Lab Cleanup identified the scope of its work as involving a “decontamination and post remedial assessment.” At the time, Kaiser did not object to these characterizations of the property loss as contamination. This evidence goes to show that Kaiser, as the insured, reasonably interpreted the term “contamination” as encompassing the type of property damage he experienced.
Simply because multiple provisions in an insurance policy individually exclude coverage for a single peril does not mean that those terms are necessarily ambiguous. Instead, a well-written insurance policy will likely have terms that overlap, which might support the denial of coverage on several grounds in an appropriate case. Whether those terms are individually ambiguous will depend on the susceptibility of their language to multiple reasonable meanings, not on whether the terms overlap with each other. Like the rest of these terms, “contamination” is readily defined in standard dictionaries, and Kaiser himself used and accepted the term in describing the restoration of his house. Therefore, the district court did not err in finding that Kaiser’s property loss was excluded from coverage as “contamination,” among other perils of the Allstate insurance policy.
Viewed through a proper frame the evidence in the record indicates that Kaiser’s property loss as a whole occurred over time, not suddenly. It was Kaiser’s burden to prove that his property loss occurred “suddenly and accidentally.” But Kaiser did not put forth any evidence that his property loss occurred suddenly and to the contrary, the evidence that Kaiser himself offered established that the loss actually occurred as the result of his tenants’ smoking or producing methamphetamine in the house on an ongoing basis over a significant period of time, perhaps up to a year.
The dispositive fact remains that methamphetamine vapor and methamphetamine residue are excluded causes of loss under the Allstate insurance policy. The district court’s order granting Allstate’s motion for summary judgment was affirmed.
The manufacture of methamphetamine is highly toxic and usually dangerous. It is not unusual for a meth lab to explode destroying the property and injuring or killing its inhabitants and neighbors. Kaiser was lucky the lab only damaged the property. No insurance policy covers every possible cause of loss even if described as an “all risk” or “direct risk” of damage to property not excluded. The actions of the tenants manufacturing or using methamphetamine was clearly and unambiguously excluded. Summary judgment in favor of Allstate was proper. The tenants, who were responsible for the loss, should be sued and forced to pay or criminally prosecuted or both.
© 2020 – Barry Zalma
Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves 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 handling lawyer and more than 52 years in the insurance business. He is available at http://www.zalma.com and firstname.lastname@example.org.
Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.
Over the last 52 years Barry Zalma has dedicated 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 make it possible for insurers and their claims staff to become insurance claims professionals.
Read posts from Barry Zalma at https://parler.com/profile/Zalma/posts
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