Discussion of insurance coverage, concerning the legal use of marijuana – medical and recreational – has been growing. With the number of legal states getting higher, it is a budding area of coverage law.

A few insurers have begun to issue property and casualty policies specifically designed to insure various aspects of the marijuana supply chain. In The Green Earth Wellness Center v. Atain Specialty Ins. Co., No. 13-3452 (D. Colo. Feb. 17, 2016), the court addressed coverage for damage to marijuana plants under an old fashioned commercial property policy. It is a very interesting decision.

The facts are simple and described by the court like this: “Green Earth operates a retail medical marijuana business and an adjacent growing facility in Colorado Springs, Colorado. In April 2012, Green Earth sought commercial insurance for its business from Atain. Atain issued Green Earth a Commercial Property and General Liability Insurance Policy that became effective June 29, 2012. A few days earlier, on June 23, 2012, a wildfire started in Waldo Canyon outside of Colorado Springs. Over the course of several days, the fire advanced towards the city. The fire did not directly affect Green Earth’s business, but Green Earth contends that smoke and ash from the fire overwhelmed it’s ventilation system, eventually intruding into the growing operation and causing damage to Green Earth’s marijuana plants. In November 2012, Green Earth made a claim under the Policy for the smoke and ash damage.”

Green Earth sought coverage for damage to its growing operation -- $200,000 worth of “‘mother plants and ‘clones.’ For the uninitiated, the court described these as follows: “mother plants” are plants of each individual strain of marijuana that Green Earth offers. Mother plants are not cultivated to produce useable marijuana on their own; rather, they are maintained by the grower solely for the purpose of producing a constant and reliable supply of genetically-identical ‘clones.’ A clone is a portion of the mother plant that is cut off and planted in a growing medium until it produces its own root, becoming a viable marijuana plant in its own right. The clones then grow to maturity.”

The court addressed several issues. I’ll address three interesting ones here:

The insurer argued that the policy’s exclusion for “growing crops” applied. Green Earth challenged this on the basis that “crops,” “by definition, must grow in outdoor soil, and that plants raised indoors in containers – such as its mother plants and clones –– do not fit that definition.” The court was not convinced, seeing “nothing in the plain meaning of the word ‘crop’ that would seem to differentiate between ‘crops’ growing naturally in the solid earth and ‘crops’ of plants growing in pots or otherwise in artificial conditions such as an indoor greenhouse.”

It also didn’t help Green Earth’s cause that the quote issued to Green Earth stated: “Coverage does not extent to growing or standing plants” and that Colorado law permits the consideration of extrinsic evidence for the purpose of ascertaining whether an ambiguity exists in the Policy. However, despite this seemingly easy solution, the court still spilled a lot of ink explaining why the plants were “crops.”

The insurer also argued that the “contraband” exclusion applied since the possession of marijuana for distribution purposes constitutes a federal crime. However, the court didn’t see it this way: “Attain offers no evidence that the application of existing federal public policy statements would be expected to result in criminal enforcement against Green Earth for possession or distribution of medical marijuana, nor does Atain assert that Green Earth’s operations were somehow in violation of Colorado law. In short, the Policy’s ‘Contraband’ exclusion is rendered ambiguous by the difference between the federal government’s de jure and de facto public policies regarding state-regulated medical marijuana.”

It also didn’t help the insurer’s cause that it issued the policy to Green Earth knowing that it was operating a medical marijuana business and knowing – or should have known – “that federal law nominally prohibited such a business.”

Lastly, the court rejected the insurer’s argument that public policy precluded it from providing coverage. The court was guided by the lack of any clear and consistent federal public policy concerning marijuana and on the basis that the insurer issued the policy “of its own will, knowingly and intelligently” and, thus, it was “obligated to comply with its terms or pay damages for having breached it.”

Thus, following this lengthy opinion, a need existed for a trial concerning coverage for approximately $40,000 for damage to harvested marijuana buds and flowers damaged in the Waldo Canyon fire.