While it's not as glamorous as sex, drugs, and rock and roll, we've had some interesting questions related to the use and manufacture of drugs. These questions typically involve an impaired insured, which raises concerns regarding intent. Can an inebriated or stoned individual be held responsible for his actions? Regardless of whether the authorities hold him responsible, how does the homeowner's policy handle related claims? In this month's column, we look at both the impaired insured and the insured who manufactures drugs in the home.

Our first situation involves the 17-year-old who was under the influence of drugs and hallucinating. The teenager threw rocks at the neighbor's home, causing damage. The question presented to FC&S was whether or not the intentional acts exclusion would apply. The exclusion is for expected or intended injury or damage, so the issue is whether or not the individual on drugs could have expected or intended the damage. In this particular situation, the person was hallucinating. Therefore it's reasonable to say that the intentional acts exclusion doesn't apply. However, that doesn't mean that there is coverage.

Another, more relevant exclusion pertains to controlled substances. This exclusion is for injury or damage arising from the use, sale, manufacture, delivery, transfer, or possession of a controlled substance as defined by the Federal Food and Drug Law. Controlled substances include—but are not limited to—cocaine, LSD, marijuana, methamphetamine, and all narcotic drugs. If the insured is using drugs at the order of a physician and is following the prescription, then an exception applies. In the situation presented above, however, it's unlikely that the teenager was under doctor's orders to take a hallucinogen. This means that there is no coverage, whether the act was intentional or not, because the teenager was using a controlled substance.

We're also seeing a lot of cases involving a tenant making methamphetamine in a rental property. Making meth is a messy operation, which creates toxic smoke and leaves a nasty residue. We recently fielded a question about an incident in which the tenant was arrested for making meth, and the owner of the property was being required to test for and remove any meth residue. The policy is an ISO DP 00 03 12 02, and the carrier wanted to deny coverage because of the contamination exclusion. In the contamination exclusion, there is an exception that allows coverage if the cause of the release of the pollutant is listed as a "coverage C peril." Vandalism is one of the coverage C perils. The policy doesn't define vandalism, so we go to a standard desk reference. Merriam Webster Online defines vandalism as "willful or malicious destruction or defacement of public or private property." Willful is defined as "done deliberately."

The tenant didn't make meth accidentally; it was a willful act. Also, while the tenant may not have known before making the first batch of meth how messy it is, certainly he did afterwards. Therefore, any additional batches of meth can be considered vandalism, as the tenant knew it would be messy. Couch on Insurance, Third Edition agrees and states in section 155:94 that "even though the tenant caused no visible damage to the house and no physical damage preceded the methamphetamine-related damage, the laboratory created harmful vapors and residues that damaged the rental house, the tenant's acts were intentional in disregard of the landlord's property interest, and the resulting damage was almost a certainty."

The Washington case Graff v. Allstate Ins. Co., 54 P.3d 1266 (Wash. Ct. App. 2002) clearly highlights this.  In this case, the property owner, Graff, had rented out the property. The police executed a search warrant and discovered that the tenant had been manufacturing methamphetamine in the house. While the house wasn't visibly damaged other than the doors the police broke through, the city inspected the house and determined it was unsanitary because it had been used as a meth lab. The insured couldn't rent the house until the situation was remedied. Graff repaired the house at his own expense. He replaced the carpet, painted, and hired an environmental firm to clean up the methamphetamine residue. In January 2000, the City of Tacoma notified Graff that the repairs were satisfactory. Graff then filed a claim with Allstate for reimbursement of his clean-up expenses. Allstate denied the claim, advising Graff that his insurance policy excluded "contamination" as a cause of loss. The court held that the operation of a meth lab was vandalism, and that the contamination exclusion did not bar coverage.

A similar case was presented for a DP 00 01 policy. The insured filed a claim for smoke damage. As it turned out, the smoke was residue from a drug lab. The question presented was whether the damage qualified as a covered loss under smoke damage. While smoke is a named peril and therefore covered, the policy covers sudden and accidental damage. Cooking drugs is not accidental; it is deliberate. Also, our research indicates that many drugs involve a slow-cook process, meaning the resultant smoke or residue is not sudden, either. Similar to the prior case, while the insured may have been inexperienced the first time he made the drugs—and wasn't aware of the damage it would cause — the smoke occurred over time, and none of the cookings was accidental. Therefore, there is no coverage for this situation.

Meth Goes Mobile

Not all meth labs are stationary. As authorities have found more meth labs in houses, the makers have started moving the labs into vehicles. This makes it much harder for the authorities to find the labs; it doesn't damage the maker's home; and it dissipates the smell of cooking meth. This brings us to the personal auto policy. Making meth in either homes or cars is hazardous, and explosions are possible. The policy covers direct and accidental loss, and explosion is covered as other than collision. Certainly the meth maker didn't intend to blow up the vehicle. Therefore the explosion was accidental, and the loss is covered, even though the insured was involved in an illegal activity at the time. There is no exclusion in the personal auto policy for illegally making drugs.

Most meth makers aren't going to file a claim to have their cars cleaned. Usually rolling meth labs come into play in theft situations. A vehicle is stolen only to be later recovered with meth ingredients, paraphernalia, or both. The auto policy does not exclude contamination or pollution. Therefore, the cost to clean the vehicle of smoke and residue is covered as part of the theft loss.

While recreational drug use isn't usually associated with insurance claims, more claims are arising out of drug use and manufacture. Whether the insured is impaired because of drug use or a tenant manufacturing drugs causes a loss, an insurance policy can come into play. While tenants may be engaging in illegal activities, their actions do not affect the insured's ability to collect on the loss. As seen in Graff, the damage may not be visible but it is there nonetheless, and the policy does respond.