Insurers facing meth nightmare

Insurers facing meth nightmare | Insurance Business

Insurers facing meth nightmare
The rising number of methamphetamine contaminated homes has been billed as the new leaky homes crisis, but the situation is just the tip of the iceberg according to a New Zealand claims investigator who believes the insurance industry could even move away from the risk altogether.

Former member of the NZ Police national clandestine laboratory response team, Hamish Kerr, who is now managing director of investigation firm Scope, said meth cooks and their equipment were extremely mobile, and constantly relocated their operations to avoid police detection.

As a result, there was worsened potential contamination risk to multiple properties.

The country’s biggest landlord, Housing New Zealand, reportedly spends $12 - $13 million a year on remedial work on contaminated houses.

However, while most reports had focused on domestic dwellings, Kerr said he believed the risk to commercial buildings hadn’t been fully appreciated.

“I honestly believe we’re only looking at the tip of the iceberg,” he said.

“The extent of potential contamination within commercial properties hasn’t been truly realised as the majority of tests currently undertaken are in relation to pre-lease and purchase of domestic dwellings.

“The reality is that large scale methamphetamine operations are located in industrial or commercial structures.”

Using commercial property could be seen as a way of avoiding detection, by masking noise, afterhours activity and the chemical smells associated, he said.

“So once you start looking at the total property stock that could be contaminated in New Zealand, there’s a significant issue there and I think insurers will just have assess the claims volumes on a month to month basis to understand how big the ongoing risk is.”

Another development in recent years was the growth of a new industry that undertook property testing using guidelines put forward by the Ministry of Health.

Previously, said Kerr, contamination claims were lodged only once police discovered a lab or the remnants of a lab, and mandatorily notified the local council who would deem the location as being hazardous until the appropriate remediation was taken.

As more awareness of the risks of methamphetamine contamination had grown, the number of concerned owners, landlords and property managers getting their properties tested pre purchase or pre lease had also increased, and a new catalyst for lodging insurance claims had been created.

The Ministry of Health currently advises that for every 10cm squared readings should be below 0.5 micrograms for both residential and commercial properties.

Kerr said the key issue was that while the MOH had a set guideline of 0.5mg as the acceptable safe level, the process and methodology around the gathering of the samples were not standardised, with clear parameters around procedure.

Inconsistencies could therefore easily occur: “The ultimate forensic laboratory testing does not account for a poor sample gathering process and cross contamination if the sampler themselves has failed to follow a scientific methodology.

“Unless the correct methodology is followed, tests cannot be relied upon. The insurer must have reliable data at the outset to make informed decisions regarding these types of claims.”

Once contamination was established, insurance companies then faced more issues around working out a timeline for the contamination, which was necessary to apportion liability.

Kerr said there were ‘numerous difficulties’ with trying to establish when a loss had occurred, the loss being the contamination event.

“A single methamphetamine manufacture process could easily be sufficient to cause contamination above the guidelines of 0.5mg, and by the same token numerous manufacturing or consumption events may very well also cause contamination and build up over time so to establish a true date of loss is particularly difficult.

“We still don’t know how long contamination lasts for, it doesn’t have a known life span, where it becomes inert or below the 0.5mg standard.

“At the moment it would appear it doesn’t tail off, it stays and holds the same level and in some instances can actually get worse as the contamination leaches out.

“So it’s a particularly nasty issue that we have – at the lower end of the scale houses can be remediated by having the walls scrubbed with a specific cleaning agent and the carpets replaced. At the extremely high end of contamination, the property itself has to be totally demolished including, in some instances, the removal of top soil from the site the dwelling was on.

“That is the extreme but there will be many more of these properties out there that just haven’t been identified as being contaminated yet.”

Kerr said he believed the onus was firmly on the landlord, or property manager, to be aware at all times of what is going on at their property, which is an almost impossible task.

Getting a property checked for contamination prior to purchase could well become an insurance requirement, along with vetting tenants for criminal history and bad credit.
“In my mind that would make perfect sense and that way you’ve got a baseline of when the property wasn’t contaminated.

“At the other extreme insurers could write themselves away from that risk and simply advise they are not insuring against it.”

Insurance and financial services ombudsman (IFSO), Karen Stevens, said a previous case study they had dealt with where the insurer declined the claim due to gradual damage and intentional/malicious action were overturned, resulting in the insurer accepting the claim.

Firstly, since damage could have been caused by one episode of cooking as well as multiple episodes, IFSO found the gradual damage exclusion could not be used, and secondly, while cooking meth was illegal, there was no way of proving it was cooked maliciously with intent to damage the house.

Stevens was unsure what ramifications would follow the recent Osaki case, which means landlords are now liable for negligent and accidental damage caused by their tenants, whether or not they have insurance.

“Many landlord policies exclude malicious damage or intentional damage by tenants. The Osaki decision also says that intentional damage will be excluded. The problem with meth contamination is that damaging the house is not the intended outcome of making meth. Therefore it would depend on the policy wording and the facts of each case.”
5 Comments
  • TN 2016-06-09 12:01:41 a.m.
    I was just wondering if anyone has any recommendations of who to advise our clients to call when they want to use a tester.
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  • Chris 2016-06-09 12:56:19 a.m.
    A couple of observations: 1. The article refers to 'manufacture', while it is possible that much contamination in NZ homes results from smoking. Smoking-related contamination could elicit a different policy response. 2. While insurers could agree that meth contamination isn't 'malicious', the Property Law Act doesn't give the tenant the benefit of any cover when the damage results from imprisonable offences (i.e. not only manufacture but possession/consumption also). In other words, whether or not the landlord has cover for meth-related damage, Holler v Osaki doesn't protect the tenant.
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  • Hamish Kerr 2016-06-12 2:44:38 a.m.
    Hi TN, Feel free to email me at hamish@scope.co.nz and I am happy to provide a list of operators depending on your situation or requirements.
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