MARIJUANA 'GROW OPS' SPARK INSURANCE FEARS

Landlords Worried Insurers Won't Cover Damage Done To Residential Rental
Units

They Look Like Heaven-Sent Tenants.

Typically a clean-cut young couple, sometimes with a toddler or two in
tow, show up at an apartment building's property management office
with job and personal references, and pay the first and last month's
rent with a certified cheque. Sometimes they offer to pay for a whole
year.

But they are a front.

Once they have the keys, the couple hands them over to the real
tenants -- investors in Canada's fastest-growing cash crop, hydroponic
marijuana -- and the unwitting landlord can find himself in legal and
financial hell.

Walls, carpets, kitchen and bathroom fittings are ripped out. Wiring
is rerouted. Soil is dumped all over the floor, and the heat is
cranked up all the time, not only consuming vast amounts of energy but
causing condensation and mould.

Overloaded wiring can spark fires, and criminal elements start lurking
around the property.

The police raid of a massive marijuana-growing operation in an
abandoned brewery in Barrie this week highlighted the extent to which
production of the lucrative drug has grown in Ontario.

But abandoned industrial facilities are hard to come by -- and highly
visible -- so many growers have set up shop in residential rental
units in Toronto-area subdivisions and apartment towers.

The indoor cultivation causes massive damage to buildings -- the high
condensation leads to mould, the extensive electricity use can lead to
fires, and violent robberies can occur. The question of who should pay
for this damage has placed landlords on a collision course with the
insurance industry, which has decided to opt out of liability.

Many insurers have sent letters to policy holders warning them that
they are on their own when it comes to paying for fire, water or any
other damage caused by grow ops -- even if they had no idea their
property was being put to that purpose.

"Quite a few companies are putting specific exclusions in their
policies," says Dave Way, co-ordinator of the standards and practices
committee of the Insurance Bureau of Canada. "If landlords don't know
what's going on in their properties, that's even more reason an
insurance company shouldn't provide coverage."

But owners of large rental properties are outraged by what they see as
an unfair attempt to duck liability even as property insurance
premiums continue to rise.

"There's no way in my mind that an insurance company can exclude
something you're not aware of," says Paul Chisholm, president of
Berkeley Property Management, which owns 3,800 apartment units in the
Greater Toronto Area.

Predicting the matter will end up in court if coverage is denied, Mr.
Chisholm adds: "Any judge would say this is bogus. It would be like
charging a landlord with accomplice to murder when a tenant kills his
wife or something." It is impossible under landlord and tenant
legislation in Ontario (and the rest of Canada) for landlords to
forcibly enter their property and check for illegal activity, he and
other landlords say.

They are required to give 24-hour notice to tenants to enter a unit,
and can be stonewalled by residents who refuse to acknowledge receipt
of such a notice, or who request delays, Mr. Chisholm says. "We can
only enter in an emergency, such as water dripping through the ceiling
of the apartment below."

Allan Weinbaum, whose company -- WJ Properties -- operates eight
apartment buildings in Toronto, says he doesn't see how insurers can
justify making landlords pay when tenants have set out deliberately to
deceive them.

"I don't see how we could prevent that," says Mr. Weinbaum, who has
direct experience with the grow-op problem.

Earlier this year, the superintendent of one of WJ Properties'
buildings stumbled upon one such operation by chance after entering an
apartment because of a flood.

"It was amazing -- everything in the apartment that took space had
been stripped out. They were growing marijuana from wall to wall,
floor to ceiling," Mr. Weinbaum recalls. "What really got me is I went
to the file and the tenant had been screened in every way except a
credit report."

The references all checked out, but the name and social insurance
number were fake, which a credit report would have detected, he says.
Now it's company policy to do a credit check for every potential tenant.

In that case, the building's insurer -- Chubb Insurance Co. of Canada
- -- did pay, Mr. Weinbaum says.

But another company -- Economical Insurance Group -- is going a
different direction. It explained its attitude in a letter sent
recently to all its property insurance policy holders.

"Dear policy holder," it says. "Your policy contract does not include
coverage for: 1) marijuana-growing operations; 2) mould. To clarify
these points, we have added specific exclusions to our policies."

Cindy Graham, a spokeswoman for Economical, says the company sent the
letters because "we wanted to ensure that [landlords are] not caught."

In addition to notifying policy holders of the exclusions, the letter
lists warning signs for landlords that a tenant may be intending to
set up a grow-op, as well as signs that marijuana is already being
grown in a unit.

Mr. Way of the insurance bureau says the grow-op issue has become "a
hot potato" in the industry since lucrative hydroponic operations have
spread from British Columbia to Southern Ontario and many other parts
of Canada.

"It's amazing the ignorance on this issue," he says. Police have told
the industry that a crop that costs between $2,000 and $5,000 to grow
can be sold for $50,000 only 90 days later -- a powerful incentive for
many individuals, not just biker gangs.

Even if a person is legally permitted to grow marijuana -- for
example, as a supplier for a person with a medical exclusion to pot
laws -- the risks are too great to cover, he says.

As well as the potential for fire, floods and mould, there is the
danger a legal grower will be targeted by criminals.

"It is not a risk envisaged by insurers," Mr. Way says. Landlords
should view it as a business risk and plan accordingly, he adds.

Mr. Weinbaum sees it differently. "If companies refuse to pay for
this, I would like to know what figures they've got to show this is
such a big problem for them. There should be actuarial tables."

But neither the insurance bureau nor Economical was able to provide
figures.

"There are too many variables to accurately price this," says Ms.
Graham of Economical. "So instead of penalizing policy holders by
raising rates for risks we cannot accurately predict, we put in the
exclusions."

Tenants from hell

People who rent out homes or apartments are advised by the Economical
Insurance Group to watch out for the following red flags in potential
tenants:

They offer to pay in cash.

They are willing to pay more than market value.

They give vague or incomplete answers on their application.

They register with utilities under a different name.

They have no home phone number and give only a cellphone
number.

They are not interested in the layout of the home or apartment, how
many bedrooms it has, etc.

They are very interested in the electrical service.

People are also advised to check for these signs that major marijuana
cultivation is going on:

The windows are always covered up, sometimes with makeshift covers
such as bed sheets.

Bright light can be seen around the edges of window
coverings.

Condensation is apparent on the windows.

Ventilation equipment can be seen or heard.

A strong, skunk-like odour is emanating from the property.

Residents only stay in the building for short periods of
time.

Equipment and garbage bags are regularly carried in and out --
particularly fans, lights and soil.

Hydro meters have been tampered with or consumption is unusually high.