K.V.G.

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Although any case has the potential to go sideways, the appeal in K.V.G. Properties, Inc. v. Westfield Insurance Company – which involves a policyholder’s right to insurance coverage for property damaged by a third party’s marijuana growing operation – should not be cause for alarm in the cannabis industry.

As driven home by the opening briefs recently filed by both parties in the U.S. Court of Appeals for the Sixth Circuit, any potential outcome of the appeal (No. 17-2421) is unlikely to negatively affect a legitimate cannabis-related business’ right to insurance.

At issue in K.V.G. is whether a commercial landlord is entitled to coverage from its own insurer for damage done to the landlord’s property by tenants who, unbeknown to the landlord, were using the property to grow marijuana illegally. Below, the federal district court explained that “there is no evidence” that “the tenants’ marijuana operations were legal under” applicable state law.Continue Reading Should the Cannabis Industry Fear the Sixth Circuit and K.V.G.?

A recent federal court decision in “a property loss insurance case” involving the unauthorized growing of marijuana could have a negative impact on the enforceability of insurance policies sold to legitimate marijuana-related businesses. How much of an effect remains to be seen, but there is reason to think it should be minimal.

At issue in K.V.G. Properties, Inc. v. Westfield Insurance Company, No. 16-11561 (E.D. Mich. Nov. 8, 2017), was an insurer’s denial of a commercial property owner’s claim for coverage under a “commercial insurance policy.”  Certain of the property owned by the policyholder, which was intended to be “used for general office or light industrial business,” was damaged when the tenants to whom the property was rented used the property to grow marijuana.  As the court explained, growing marijuana was “an activity not authorized” by the policyholder.  In fact, the property owner was unaware that its tenants were using its property for that purpose until learning that “DEA agents executed a search warrant on the” property.

Nonetheless, the insurance company denied the property owner coverage for the damage to the property caused by that unauthorized activity.

In relevant part, the insurer relied on the “illegal/dishonest acts” exclusion in its policy, which precludes coverage for damage caused by a “[d]ishonest or criminal act by … anyone to whom you entrust the property for any purpose.”
Continue Reading Marijuana and the “Illegal/Dishonest Acts Exclusion”: Making Sense of K.V.G. Properties, Inc. v. Westfield Insurance Company