In Busato case (2025 BCCA 79), the British Columbia Court of Appeal considered the applicability of an exclusion clause in a homeowner’s insurance policy concerning marijuana cultivation. The case centered on whether coverage for a total loss fire claim could be denied based on the exclusion’s wording and its application to legal, licensed medical marijuana cultivation. 

Background

The Appellant, a licensed medical marijuana user, suffered from chronic pain following multiple surgeries between 2006 and 2013. In June 2013, he obtained a Health Canada license permitting him to cultivate up to 73 marijuana plants for personal medical use. This license was renewed and remained active “until the court orders otherwise”.

A year later, in June 2014, the Appellant purchased a homeowner’s insurance policy from the Respondent insurance company, which provided coverage for various risks, including fire damage. The policy was renewed annually and remained in effect at the time of the loss. 

In April 2017, the Appellant’s home was destroyed by an accidental kitchen fire, resulting in a total loss of the property and its contents. At the time of the fire, the Appellant had 25 marijuana plants in his home. While the investigation confirmed the fire was accidental, it denied coverage based on an exclusion clause in the policy. The exclusion barred coverage for loss or damage to any property “used in whole or in part for the cultivation, harvesting, [or] processing” of marijuana or other substances regulated under the “Controlled Drugs and Substances Act Narcotic Control Regulations”. The Appellant subsequently sued for indemnity under the policy. 

Trial

At trial, the Appellant argued the exclusion clause in the insurance policy should not apply for the following reasons:

• The marijuana cultivation was legal; 
• The cultivation did not cause the loss; 
• The exclusion functioned as a cause-based fire exclusion, thereby violating section 33 of the Insurance Act, RSBC 2012, c. -1 (the “Insurance Act”) and
• The exclusion was unjust and unreasonable under section 32 of the Insurance Act.

The Respondent countered that the exclusion clause applied because it broadly covered properties used for marijuana cultivation, harvesting, and processing, irrespective of legality. The Respondent further argued the clause did not violate the Insurance Act because it applied universally to all risks, not just fire-related losses. 

Relying on Pietrangelo v Gore Mutual Life Ins. Co. et al, 2010 ONSC 568 (“Pietrangelo”), the trial judge identified three sub-categories within the exclusion clause:

• Property used for marijuana cultivation, harvesting, or processing; 
• Marijuana-derived products; and 
• Other substances listed in the Controlled Drugs and Substances Act. 

The trial judge found the first subcategory applied to the case at bar and was unambiguous. 

The trial judge found the exclusion applied equally to both legal and illegal marijuana activities. The argument that legal cultivation should be treated differently was rejected, as the policy’s broad wording excluded all marijuana-related uses. 

The judge determined the exclusion did not require a causal connection between marijuana cultivation and the loss. The policy’s language – “direct or indirect loss or damage” – altered the scope of covered losses rather than the cause of those losses. 

The judge ruled that the exclusion was neither unjust nor unreasonable. Citing Marche v Halifax Insurance Co., 2005 SCC 6, the judge emphasized that a causal connection was not necessary for a policy breach. Further, since the exclusion applied universally to all marijuana-related uses, irrespective of legality, there was no discriminatory application. The judge also found no evidence to suggest the Appellant was unable to obtain any insurance for legal marijuana activities; rather, this specific policy did not provide such coverage. 

Ultimately, the trial judge upheld the validity and enforceability of the exclusion, allowing the Respondent to deny coverage.  

Appeal

The Appellant appealed, essentially reiterating the position he had taken in the trial-level court. The Court of Appeal framed the appeal around two central questions: (1) whether the exclusion clause applied to licensed marijuana cultivation for medicinal purposes, and (2) whether the exclusion was unjust or unreasonable. 

The appellate court reviewed the trial decision in Pietrangelo and agreed with its reasoning regarding the insurers’ legitimate business concerns over marijuana-related property risks. However, the appellate judge distinguished the present case from Pietrangelo, where the insured’s tenant engaged in illegal drug production that caused the fire. Unlike Pietrangelo, where the focus was on the criminal nature of the insured’s conduct, there was no evidence in the present case that legal marijuana cultivation posed unusual risks or was intended to be excluded by the policy. 

The appellate judge found the exclusion clause ambiguous for several reasons. Specifically, the wording conflated multiple pieces of legislation, and the structure of the clause led to uncertainty in its interpretation. Applying the principle of contra proferentem, the judge determined that ambiguous insurance clauses must be interpreted in favour of the insured. As a result, the appellate judge concluded that a reasonable policyholder would not expect the exclusion to apply to legal marijuana cultivation, absent explicit policy language to that effect.

Given this finding, the appellate court did not need to determine whether the exclusion was unjust or unreasonable. However, it noted that the trial judge could have further examined whether the exclusion’s application in this case led to an unfair outcome.

The appellate court allowed the appeal, interpreting the exclusion narrowly in favour of the Appellant and ruling that the Respondent was required to provide coverage.

Take-Away

This decision underscores the importance of clear and precise drafting in insurance policies, particularly for exclusion clauses. Courts will interpret ambiguities in favour of the insured, especially where the exclusion is broadly worded or reference multiple legislative frameworks. Insurers may wish to ensure exclusions are specific and aligned with legislative frameworks to avoid unintended coverage disputes. Additionally, the case underscores the role of fairness considerations in insurance disputes, reinforcing the need for balanced and well-structured policy terms.