In February 2013, Jeremy Kaiser (Kaiser) learned the tenants living in his rental property might have been involved with drugs. On May 1, 2013, when the tenants willingly vacated the premises, he inspected the property and found evidence of methamphetamines. Kaiser contacted a bio recovery service to inspect and test the house. Methamphetamine vapors and residue were detected within the entire house and clean-up was recommended before new tenants could occupy the rental home.

Kaiser submitted a claim to his insurer for the clean-up cost, but the claim was denied. He continued clean-up nevertheless and incurred more than $38,000 in costs. Once clean-up was completed, Kaiser filed a complaint against his insurer for breach of contract and bad faith and requested reimbursement for remediation, lost rent and serving as the general contractor. He argued that the loss should have been covered under vandalism and malicious mischief.

The insurer had an expert witness, a chemistry professor at the University of Nebraska at Omaha, who found the tenants had manufactured methamphetamines in the house. The professor explained that methamphetamine vapor is a toxic chemical gas or liquid and that the residue is a contaminant, chemical residue and pollutant. The policy contained an exclusion for which these items are listed. The district court agreed that coverage is excluded for the loss and found in favor of the insurer. Kaiser appealed.

Kaiser argued to the appellate court that the property was contaminated in such a way that the clean-up was considered decontamination. Further, he stated that the cleaning company described the damage as contamination as well. Therefore, he understood the damage to be contamination and the policy's definitions were ambiguous. The appellate court disagreed.

Kaiser’s next argument was that the loss was sudden. The policy generally excludes vandalism, but has two exceptions as follows, “sudden and accidental direct physical loss caused by fire resulting from vandalism,” and “any act of a tenant that results in sudden and accidental direct physical loss caused by smoke.” However, Kaiser failed to show the loss was sudden.

The appellate court stated there is a disagreement in courts as to the definition of “sudden.” However, it found under the terms of the policy that pollution occurs over a period of time and is not considered sudden. Also, the court stated that the term is not ambiguous because even the average person understands the definition of sudden. The tenants lived in the residence for over a year, and the production of methamphetamine occurred over time. Kaiser had received reports from the neighbors that drug activity was taking place over this period. Kaiser also stated that the manufacturing and/or smoking of meth could have begun taking place on the day of move in. Kaiser failed to present his case of a sudden occurrence.

The following perils are excluded from the policy:

12.  Any type of vapors, fumes, acids, toxic chemicals, toxic gasses, toxic liquids, toxic solids, waste materials, irritants, contaminants, or pollutants, including, but not limited to:

e)    Contamination, including, but not limited to, the presence of toxic, noxious, or hazardous gasses, chemicals, liquids, solids or other substances at the residence premises or in the air, land or water serving the residence premises;

f)      Smog, smoke from the manufacturing of any controlled substance, agricultural smudging, and industrial operations.

18.  Vandalism. However, we do cover sudden and accidental direct physical loss caused by fire resulting from vandalism unless your dwelling has been vacant or unoccupied for more than 90 consecutive days immediately prior to the vandalism.

19.  Any act of a tenant, or guests of a tenant, unless the act results in sudden and accidental direct physical loss caused by:

d)    Smoke. However, we do not cover loss caused by smoke from the manufacturing of controlled substances, agricultural smudging or industrial operations.

Further, the policy included a provision which stated that, if a property loss resulted from multiple causes of loss, then the entire loss would be excluded from coverage if the primary cause of loss was excluded.

Kaiser’s final argument was that the district court erred in granting the insurer summary judgment since he was unsure if the loss occurred because of the tenants producing or using meth. He disputed the factual information presented by the insurer that the tenants were making meth. He stated that he did not have a basis for any conclusion when he reported the claim.

The appellate court disagreed and stated it is immaterial if the damage was caused by using or producing meth since the loss was concluded to be from the meth vapor and residue.

The appellate court concurred with the district court granting summary judgment to the insurer.

307 Neb. 562 Supreme Court of Nebraska. Jeremy Kaiser, appellant, v. Allstate Indemnity Company, appellee. No. S-19-858. Filed October 23, 2020