Attempt to Avoid Marijuana Exclusion with Claim of Business Interruption Fails

Attempt to Avoid Marijuana Exclusion with Claim of Business Interruption Fails

Post 4979
No Coverage for Fire at Marijuana Farm  Because Marjiuana was Exclluded as were Growing Crops

When a fire damaged its facility, equipment, and hundreds of marijuana plants, Plaintiff Theraplant, LLC (“Theraplant”) submitted several claims pursuant to its commercial insurance policy. Defendant National Fire & Marine Insurance Company (“National Fire”) denied Theraplant's claim for business income loss.

In Theraplant, LLC v. National Fire & Marine Insurance Company, No. 3:22-CV-1095 (VDO), United States District Court, D. Connecticut (January 18, 2025) interpreted the policy.

BACKGROUND

Theraplant cultivates marijuana and produces cannabis products at a facility in Watertown, Connecticut. At that facility, the marijuana plants go through several stages: cloning, propagation, flowering, curing/drying, and processing.

On February 8, 2020, a light bulb in Flowering Room 2 burst and dropped to the table below, lighting a fire. At the time, the room contained 998 marijuana plants that were four days into the flowering stage. The room itself, the nearby hallway, and the plants sustained smoke damage, prompting Theraplant to dispose of all the plants in the room.

Due to ongoing repairs, Theraplant could not use Flowering Room 2 from February 8, 2020, to mid-April 2020.

Theraplant's Commercial Insurance Policy (the “Policy”) was issued by National Fire. The Policy included building and personal property coverage. The Policy explicitly excluded from the definition of Covered Property “growing crops...” The Policy also included an endorsement that listed cannabis, marijuana, and products infused with marijuana as property not covered. Theraplant never purchased crop insurance from National Fire.

National Fire eventually paid $483,233.56 to Theraplant for the damage to the building and $12,482.31 for the damage to Theraplant's equipment.

In light of the crop and marijuana exclusions described above, National Fire did not provide Theraplant with coverage for the lost marijuana plants.

National Fire informed Theraplant that “the Policy may not apply to your claimed damage to your crop.” National Fire indicated that the business income loss “must be caused by a Covered Cause of Loss.” National Fire eventually denied coverage for Theraplant's business income claim. The insurance company explained that “[t]he claim as presented does not identify a Business Income loss during the Period of Restoration to the Building[.]”

DISCUSSION

National Fire argued that the Policy cannot cover Theraplant's business income loss because a suspension of the company's operations did not cause the loss at issue. Theraplant contended that a causal link ties the suspension to the business income loss. Second, National Fire claimed that Theraplant's losses were outside the “period of restoration” and therefore ineligible for coverage.

Policy Coverage

Under Connecticut law, a court should interpret an insurance policy by the same general rules governing the construction of any written contract. A court should give the policy's words their natural and ordinary meaning.

The insured party must establish (1) physical loss or damage; (2) to covered property; (3) caused by a covered peril during the policy period; (4) resulting in an actual loss of income; (5) due to necessary suspension of operations; (6) during the period of restoration.

National Fire argued that the Policy requires a causal link between the actual loss of income and the necessary suspension of Theraplant's operations. Theraplant must establish that a suspension of its operations caused the business income loss. Theraplant has not put forward any evidence that it would have used Flowering Room 2 for another income-generating purpose had the repairs not been ongoing between February and April 2020. No evidence supports the finding that the room, equipped only for the flowering stage, could be used for another stage of cultivation. Nor has Theraplant put forward evidence that the ongoing repairs delayed the transfer of plants from one flowering room to another.

The evidence leads to the conclusion that a suspension of Plaintiff's operations between February and April 2020 did not cause the business income loss.

The purpose of business interruption insurance is to indemnify the insured against losses arising from an inability to continue normal business operations and functions due to damage sustained as a result of the hazard insured against.

In support of its motion for summary judgment the Policy unambiguously excludes marijuana. Ultimately, Plaintiff attempts to recover for the loss of 998 marijuana plants. Since Theraplant did not purchase crop insurance it's suit tries to mold the claim into a business income loss.

However, Theraplant failed to form a causal link between its loss and the suspension of its operations from February to April 2020.

The Court granted National Fire's motion for summary judgment and denied Theraplant's motion for summary judgment. Judgment is entered in National Fire's favor.

ZALMA OPINION

Insurance polices are contract and the contract of insurance is interpreted just like any other contract. National Fire did not insure the marijuana plants destroyed by the fire because they were growing plants (a crop) and were specifically excluded. That Theraplant lost money after the fire was irrelevant to the issue of whether the business interruption coverage applied when there was no evidence that the two month delay had anything to do with the loss to property other than the marijuana plants. The exclusion resolved the claim in favor of the insurer.

(c) 2025 Barry Zalma & ClaimSchool, Inc.

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