No Coverage Owed to Landlord for Tenant’s Marijuana Growing Operation

No Coverage Owed to Landlord for Tenant’s Marijuana Growing Operation

Tapas: Small Dishes of Insurance Coverage News & Notes

A New York Federal Court held in United Specialty Insurance Co. v. Barry Inn Realty, Inc., No. 14-4892 (S.D.N.Y. Sept. 8, 2015), [subscribers can access an enhanced version of this opinion: lexis.com | Lexis Advance], that no coverage was owed to a landlord, under a property policy, for damage to his building, caused by a tenant’s marijuana growing operation. The tenant had modified a number of building components and created extreme humidity needed to grow marijuana, which caused significant damage throughout the building. The court held that no coverage was owed on account of a policy exclusion for loss or damage caused directly or indirectly by dishonest or criminal acts by anyone to whom the insured entrusts the property for any purpose. It was not disputed that the damage was caused by acts that were criminal and dishonest in nature.

At issue was whether the landlord had “entrusted” the property to the tenant. The court held that entrustment had taken place: “Here, entrustment is manifest in the course of dealings between Barry [landlord] and Castelliano [tenant]. Negotiation of the lease took place over a three-month period. Denti [landlord] questioned Castelliano about his experience in operating a bar and restaurant, was shown a bar and a restaurant that Castelliano was allegedly operating in Yonkers, and met with an individual who claimed to be working on obtaining a liquor license for the planned sports bar. After extensive negotiations, the parties entered into a five-year lease for the Premises. The lease is fourteen pages in length and contains various negotiated terms and conditions. Denti’s interaction with Castelliano, the three-month negotiation process, and the lease itself suggest a measured and deliberate decision by Barry to permit Castelliano to occupy the Premises.”

Coverage Opinions is a bi-weekly (or more frequently) electronic newsletter reporting or providing commentary on just-issued decisions from courts nationally addressing insurance coverage disputes. Coverage Opinions focuses on decisions that concern numerous issues under commercial general liability and professional liability insurance policies. For more information visit www.coverageopinions.info.

The views expressed herein are solely those of the author and not necessarily those of his firm or its clients. The information contained herein shall not be considered legal advice. You are advised to consult with an attorney concerning how any of the issues addressed herein may apply to your own situation. Coverage Opinions is gluten free but may contain peanut products.

    Randy Maniloff is Counsel at White and Williams, LLP in Philadelphia. He previously served as a firm Partner for seven years and transitioned to a Counsel position to pursue certain writing projects including Coverage Opinions . Nonetheless he still maintains a full-time practice at the firm. Randy concentrates his practice in the representation of insurers in coverage disputes over primary and excess obligations under a host of policies, including commercial general liability and various professional liability policies, such as public official’s, law enforcement, educator’s, media, computer technology, architects and engineers, lawyers, real estate agents, community associations, environmental contractors, Indian tribes and several others. Randy has significant experience in coverage for environmental damage and toxic torts, liquor liability and construction defect, including additional insured and contractual indemnity issues. Randy is co-author of “General Liability Insurance Coverage - Key Issues In Every State” (Oxford University Press, 2nd Edition, 2012). For the past twelve years Randy has published a year-end article that addresses the ten most significant insurance coverage decisions of the year completed.

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