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K.V.G. Properties, Inc. v. Westfield Insurance Co.

United States District Court, E.D. Michigan, Southern Division

November 8, 2017

K.V.G. PROPERTIES, INC., Plaintiff,
WESTFIELD INSURANCE COMPANY, Defendant. Address: Tenant: Lease Term:



         I. Introduction

         This is a property loss insurance case. Plaintiff K.V.G. Properties, Inc. (KVG) is suing defendant Westfield Insurance Company (Westfield) claiming breach of contract and seeking a declaration of coverage. As will be explained, KVG seeks coverage for losses to commercial property caused by tenants growing marijuana, an activity not authorized by KVG.

         Before the Court is Westfield's motion for summary judgment. Westfield says that summary judgment is appropriate because (1) KVG has no proof that the damage occurred during the policy period, (2) coverage was properly denied based on exclusions relating to (a) illegal/dishonest acts, (b) unauthorized construction or remodeling and (c) the presence of moisture and humidity. KVG says that the damage was an act of vandalism which is a covered loss. For the reasons that follow, the motion will be granted.

         II. Background

         The relevant facts not in dispute follow:[1]

         A. The Property Units and Insurance Coverage KVG, a Michigan corporation with its principal place of business in Wixom, Michigan owns three commercial properties located at 42910, 42916 and 42920 Ten Mile Road, Novi, Michigan. The properties can be used for general office or light industrial businesses. Each building is divided into units which KVG generally rents under lease agreements.

         Westfield issued a commercial insurance policy to KVG, Policy No. CWP 3449419, effective January 30, 2015 - January 30, 2016 covering the units at the three properties against direct physical loss or damage. During the policy period, KVG had the following lease agreements:

Lease Term:

42916 Ten Mile Road Units 7 and 8

John Abdaal

7-1-2015 to 6-30-2015

42916 Ten Mile Road Units 9 and 10

Renee Shammas

7-1-2015 to 6-30-2015

42916 Ten Mile Road Units 11 and 12

Nahed Hamma

7-1-2015 to 6-30-2015

42920 Ten Mile Road Units 15, 16

Brian Yono

10-1-2012 to 3-31-2014 Addendum, 8-1-2-15 to 7-31-2018

42920 Ten Mile Road Units 17, 18

FHM Enterprises

12-1-2011 to 11-30-2014 Addendum 12-1-2014 to 11-30-2019

         B. The Loss and Claim .

         On or about November 2, 2015, KVG informed Westfield that its tenants in units 7, 8, 9, 10, 11, and 12 located at 42916 Ten Mile Road and its tenants in units 13, 14, 15, and 16 located at 42920 Ten Mile Road had damaged the property by using them for to grow marijuana. KVG apparently became aware of this when DEA agents executed a search warrant on the units on October 29, 2015.

         Following the raid, KVG, through its shareholder, property manager and representative, Kyriakos “Chuck” Damavoletes, filed eviction actions against the tenants in the affected units because of the damage to the units caused by the marijuana growing operations. KVG eventually obtained judgments for possession and eviction orders for all of the affected units.

         KVG says that the tenants caused significant damage to the units by removing walls, cutting holes in the roof, adding HVAC ductwork, and adding gas lines, which requires service/replacement of the heaters and air conditioning units in each unit. KVG estimates the damage as follows: $18, 182.98 for repairing the electrical systems, $74, 550.00 for repairing the HVAC system, and $418, 161.48 for replacing and repairing the units generally.

         C. Westfield's Denial

         Westfield denied KVG's claim following an investigation. A letter dated January 8, 2016 sets for the reasons for the denial and states in pertinent part:

Our investigation determined that the damage to your property was the result of modifications made by your tenant. This resulted in long-term exposure to condensation and damage to the electrical and HVAC systems.

         The letter also cited several policy exclusions which will be discussed below.

         III. Summary Judgment

         "The court shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(a). A moving party may meet that burden "by 'showing'-that is, pointing out to the district court-that there is an absence of evidence to support the nonmoving ...

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