Fire-Damaged Cannabis Grower Loses $1.3 Million Business Income Loss Claim

A cannabis growing company has lost its bid to have its insurer cover $1.3 million in claimed business income losses after a building fire damaged almost 1,000 of its marijuana plants and shuttered one of its “flowering” rooms.

A federal district court judge has agreed with National Fire and Marine Insurance Co. that its policy for the Connecticut firm Theraplant did not cover the loss. U.S. District Judge Vern D. Oliver granted the insurer’s motion for summary judgment.

National Fire’s policy provided coverage for building and personal property damage. It also covered business income loss but only if the loss was caused by a suspension of operations or due to and during a period of property restoration.

Theraplant contended that its claim was in fact due to a suspension of operations while it was unable to use its fire-damaged flowering room and its equipment to develop crops because the room was being restored after the fire. The insured argued that this suspension of production was due to the building fire, not due to the cannabis crops it lost.

Cannabis Firm Fights Insurer’s Denial of Business Income Loss Claim Following Fire

National Fire maintained that Theraplant’s business loss was not caused by a suspension of operations but by the damage to the marijuana plants, which the policy explicitly did not cover.

The insurer further contended that the flowering room’s two-month unavailability had no effect on Theraplant’s production process and that the alleged losses came from its inability to sell products derived from the fire-damaged and uninsured cannabis crops. Theraplant had conceded that all other product was sold in the normal course of business, and all other production areas were still used in the normal course of business, the insurer pointed out.

In siding with National Fire, Judge Oliver found that Theraplant was attempting to recover for its loss of its marijuana plants and since it had not purchased crop insurance, it tried to “mold the claim into a business income loss.”

Theraplant failed, however, to form a causal link between its loss and the suspension of its operations, the judge concluded.

It all started on February 8, 2020 when a lamp in a light fixture exploded and caused a fire in one of seven flowering rooms. The fire damaged walls, equipment, and 998 marijuana plants in the room. All operations in the room were suspended for 68 days until it was repaired and deep cleaned.

The parties had no dispute over National Fire’s payments for damage to Theraplant’s building and personal property. National Fire paid $483,233.56 for the damage to the building and it paid $12,482.31 for damage to Theraplant’s business personal property.

The parties’ sole dispute was over Theraplant’s claim for business income loss.

Theraplant was unable to use the damaged flowering room from February 8, 2020 until April 20, 2020. When the fire occurred, all of its six other flowering rooms were fully occupied with cannabis plants that were in the growth stage.

“As a general proposition,” the district court stated, “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.” It added that business interruption policies “are not fire insurance policies that provide for the reimbursement for specific property destroyed by fire.”