Is your rental property really insured if it's contaminated with P?

Garth Bray
Source: Fair Go

Landlords be warned - you could be exposed to a huge loss on your rental property, even if you've taken out insurance.

Fair Go has been investigating insurance claims for meth damage.

The good news is that most of the big insurers now offer standard terms that explicitly cover 'chemical contamination' or something similar. It's usually capped at $30,000 and may come with an excess, but is still some comfort.

The bad news is that it may not yet be in effect -  especially if you are insured by Tower.

"We just wanted to give people a place to live. We're left out in the cold," said Nigel Roy, first-time landlord.

Fair Go is highlighting the case of three friends who went in together to buy a rental, suffered meth contamination and have so far been declined cover for the tens of thousands of dollars this has cost them.

"It's been heart breaking to have to go through that process," said Katherine Pierce.

The house is in an upmarket part of Christchurch close to a good school. 

A solo mum took the lease on Christmas Eve last year. The owners say they were keen and caring, but careful too.

"I think we did everything as landlords and more. We inspected this house every month, regular contact," said co-owner Diana Conner.

"It's not like we left it for three months and came back and went 'oh my goodness'."

Insurers recommend three-monthly inspections, but even being much more diligent, the trio never noticed any trace of drug use going on under their roof.

"There were no holes kicked in the wall or doors off or anything," said Nigel Roy, who was happy four children had a roof over their heads for Christmas.

The tenant left after four months, when armed police raided the house at Easter and charged a 34-year-old woman with possessing cannabis.

The owners had the property checked and sure enough it now had a positive meth reading that required a costly clean-up under new rules established this year.

Tower told them this wasn't covered -  their policy was for sudden events and this was case of gradual damage - like mildew, mould or a leaky pipe.

"Whether it was a one-off party, I guess we're never going to know that," Nigel Roy said.

Tower had hired a private investigator. He couldn’t track down the tenant, but he did interview the three co-owners, separately and at length.

He learned they'd checked one of the woman's references and it was good -  but Tower said: "The tenants who caused this contamination were evicted from their prior rental due to unpaid rent. Subsequent testing of that property showed that the tenants had contaminated it with meth. We understand that the prior landlord was not contacted for a rental reference. This important point should be made in your story."

Yes, it is important to check for yourself. That includes statements by insurance companies.  Fair Go followed up and found a very different story.

The former landlord said he couldn't recall anyone ringing for a reference check just before Christmas but it had been a tough time. 

The meth damage at his place wasn't discovered until months later, this year, well after any check would have happened - so he would have known nothing at the time.

He also told Fair Go the tenant was family, so in any case he would have given her a glowing reference to help his grandchildren into a home.

Tower also claimed that the property meth readings were consistent with habitual smoking and cited a 2008 academic paper to back that up.

The landlords say they're in an impossible position of having to prove it all happened suddenly.

"We've just been hung out to dry through a little bit, that's what we feel," says Nigel Roy.

Nigel found one more cruel twist to their tale.

The same day he was advising Tower of the meth test, Tower was writing to him to say it would be making next year's premium cheaper and granting them that meth damage cover we mentioned at the start of this story.

Just not for another four weeks.

Therefore, no help in this claim.

Nigel Roy wants to know when Tower decided to start offering that meth clause and how many others might be still on an old policy wording and exposed to a $30,000 loss like theirs.

Tower wouldn't say, but told Fair Go: "This case is a timely reminder that landlords need to conduct thorough background checks on their tenants, or engage the services of a reputable property manager."

A spokesperson pointed out Tower's decision to decline the claim had been upheld by mediation through the Insurance Ombudsman scheme.

"The customer paid for a one year insurance contract and this is the policy that the customer claimed against."

Fair Go urges anyone with concerns to contact their insurer and discuss a review of their policy. It may even worth shopping around and considering your options.

Tower announced an $8 million annual loss on November 14, following claims from weather damage and the Kaikoura earthquake.

Tower chief executive Richard Harding reassured the markets with the news: "We've had to work hard to keep claims costs flat."

Harding told analysts and investors at the results briefing the "positive" result on keeping the cost of insurance pay outs low was thanks in part to a "disciplined approach" and to "capping meth benefits", to avoiding paying out more than necessary.

Tower is seeking $70.8 million from investors to improve its IT systems after a merger with rival Vero/Suncorp failed to clear the Commerce Commission this year.