Editor's note: Steven A. Meyerowitz, Esq., is a director of FC&S Legal. FC&S and PC360 are both owned by Summit Professional Networks.

An insurance policy's criminal acts exclusion barred coverage of costs the insured would have to incur to clean-up a house contaminated by the tenant's manufacturing of methamphetamine, a Kentucky appeals court has decided.

The case

After Neighborhood Investments, LLC, leased a house in Louisville, Kentucky to a tenant, the tenant was arrested for manufacturing methamphetamine in the house. The authorities determined that the byproducts of the methamphetamine production had contaminated the house and had rendered it uninhabitable; accordingly, they prohibited Neighborhood from re-leasing the house to any other tenant until the premises had been decontaminated.

Neighborhood sued its insurance carrier, Kentucky Farm Bureau Mutual Insurance Company, seeking an order that the policy it had purchased from Farm Bureau covered these substantial decontamination expenses; Farm Bureau argued that the policy unambiguously excluded such coverage.

The trial court granted summary judgment in favor of Farm Bureau, and Neighborhood appealed.

The policy

The criminal acts exclusion provided:

1. We will not pay for loss or damage caused directly or indirectly by any of the following. Such loss or damage is excluded regardless of any other cause or event that contributes concurrently or in any sequence to the loss.

….

h. Dishonest 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: