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K.V.G. Props., Inc. v. Westfield Ins. Co.

United States Court of Appeals for the Sixth Circuit

June 7, 2018, Argued; August 21, 2018, Decided; August 21, 2018, Filed

File Name: 18a0178p.06

No. 17-2421

Opinion

 [*820]  [***1]   McKEAGUE, Circuit Judge. This insurance-coverage dispute began when some of KVG's commercial tenants got caught growing marijuana in their rental units. Unfortunately for  [***2]  their landlord, the tenants caused substantial damage to the premises before the police caught up with them. KVG speedily evicted the tenants and sought coverage from its insurers for nearly $500,000 in related losses. Westfield denied the claims, prompting this lawsuit. The district court granted summary judgment to Westfield, reasoning that the damage was excluded by the policy, and KVG appeals. We AFFIRM [**2] .

This case arises out of a standard first-party commercial insurance contract. The policy provides a broad range of coverage, from general physical damage insurance to a "fine arts floater." The policy is organized under multiple "Forms," each with their own insuring agreements, terms, and exclusions. The claim in this case arose under the Building and Personal Property Coverage Form ("BPP Policy"). Under this Form, Westfield agreed to pay for "direct physical loss of or damage to Covered Property . . . caused by or resulting from any Covered Cause of Loss." For the purposes of KVG's claims, a "Covered Cause of Loss" is any "Risk[] Of Direct Physical Loss."

This generous insuring agreement is tempered by a litany of exclusions. One such exclusion states that Westfield "will not pay for loss or damage caused by or resulting from" any "[d]ishonest or criminal act by you, any of your partners, members, officers, managers, employees (including leased employees), directors, trustees, authorized representatives or anyone to whom you entrust the property for any purpose." The parties refer to this language as the Dishonest or Criminal Acts Exclusion.

With the basic terms of the policy out of [**3]  the way, we turn to the facts of this case. KVG, a commercial landlord, leased several pieces of real property to a group of commercial tenants. KVG authorized the tenants to use the property for general office or light industrial business. On October 29, 2015, the U.S. Drug Enforcement Agency raided the premises and caught the tenants growing lots of marijuana. KVG speedily evicted the tenants, but the damage had already been done: To accommodate their "business," the tenants removed walls, cut holes in the roof, altered ductwork, and severely damaged the HVAC systems. The total cost of repair appears to be around $500,000.

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900 F.3d 818 *; 2018 U.S. App. LEXIS 23296 **; 2018 FED App. 0178P (6th Cir.) ***

K.V.G. PROPERTIES, INC., Plaintiff-Appellant, v. WESTFIELD INSURANCE COMPANY, Defendant-Appellee.

Prior History:  [**1] Appeal from the United States District Court for the Eastern District of Michigan at Detroit. No. 2:16-cv-11561—Avern Cohn, District Judge.

K.V.G. Props. v. Westfield Ins. Co., 296 F. Supp. 3d 863, 2017 U.S. Dist. LEXIS 185005 ( E.D. Mich., Nov. 8, 2017)

CORE TERMS

tenants, criminal act, coverage, marijuana, insuring agreement, summary judgment, Dishonest, vandalism, eviction, raid

Civil Procedure, Appeals, Standards of Review, De Novo Review, Insurance Law, Claim, Contract & Practice Issues, Policy Interpretation, Exclusions, Judicial Review, Criminal Law & Procedure, Criminal Offenses, Controlled Substances, Manufacture, Judgments, Summary Judgment, Entitlement as Matter of Law, Evidence, Burdens of Proof, Allocation, Entitlement as Matter of Law, Need for Trial, Nonmovant Persuasion & Proof, Pleading & Practice, Pleadings, Hearsay, Exemptions, Statements by Party Opponents