Insurance Is Going to Pot in Colorado

A Crop of Pot is a Crop Even If Planted in Pots

Marijuana is a legal crop in Colorado and the product is legally insurable. However, as the marijuana farmer learned, no insurance policy covers everything and an insurer is only obligated to pay for risks it agreed to take.

In The Green Earth Wellness Center, LLC v. Atain Specialty Insurance Company…., United States District Court, D. Colorado, Slip Copy, 2016 WL 632357 ( 02/17/2016) the US District Court for the District of Colorado was asked to compel an insurer to pay for damaged pot plants under a commercial property policy. The insurer, for multiple reasons, including specific exclusionary language in the policy refused to pay.


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 (hereinafter “the 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. Atain, after conducting a thorough investigation, formally denied the claim.

Separately, on June 7, 2013, thieves entered Green Earths grow facility through a vent on the roof and stole some of Green Earth’s marijuana plants. At some unspecified point in time, Green Earth made another claim on the Policy for damage to the roof and ventilation system. Atain investigated the claim. On September 13, 2013, Atain denied the claim, finding that the damage to the roof and ventilation system amounted to approximately $2,400, less than the Policy’s $ 2,500 deductible.


The Waldo Canyon Fire Claim

The parties stipulation provides that Green Earth’s claim relating to the Waldo Canyon fire seeks coverage for losses relating to several different classifications of plants: “mother plants,” “flower plants,” “veg plants,” “clones,” and “finished product,” all of which were allegedly damaged by smoke and ash.

For purposes of this case, Green Earth’s claim under the Policy relating to the Waldo Canyon fire can be broken into two parts: a claim for more than $ 200,000 in damage to Green Earth’s grow operation, namely its growing mother plants and clones, and a claim for approximately $40,000 in damage to buds and flowers that had already been harvested and were being prepared for sale.

Policy Interpretation Generally

When construing the terms of a contract, the Court’s ultimate objective is to give effect to the parties’ mutual intentions. Absent some showing that the parties intended otherwise, the Court indulges in the assumption that the plain and ordinary meanings of the words used in the contract reflect the parties’ agreement. Where the plain language is, of itself, insufficient to compel an unambiguous interpretation, the Court turns to a variety of additional rules help shape its analysis, including various canons of construction such as that the Court should examine a given phrase in the context of the agreement as a whole.  Extrinsic evidence may be relevant in demonstrating whether particular language is or is not ambiguous.

Although these examples are infrequent and the term “raw materials” is used somewhat obliquely, the Court was satisfied that there is at least a colorable argument to be made that the term “raw materials” can sometimes include an agricultural producer’s growing plants. This would permit a conclusion that the term “Stock” as used in the Atain Policy could cover Green Earth’s growing plants.

“Growing Crops”

This does not end the inquiry, however. Assuming that the Policy extends coverage to the mother plants and clones as “Stock,” it nevertheless excludes coverage if the plants are “growing crops”.

Green Earth argues 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 saw 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. Interpreting “growing crops” as excluding coverage for Green Earth’s mother and clone plants.

Finding that there is no inherent ambiguity in the phrase “growing crops,” the Court declines to resort to “noscitur a sociis” (the meaning of a word may be known from accompanying words) to force a different conclusion.

Green Earth’s final, and most elaborate, argument is that it intended and expected that the Policy would cover the plants, and thus, the Policy should be construed to extend such coverage. Colorado law adheres to the “reasonable expectations” doctrine: that courts will honor the reasonable expectations of an insured where circumstances attributable to an insurer have deceived a objectively reasonable insured into believing that it is entitled to coverage for a certain loss. But the reasonable expectations doctrine is not applicable here. The doctrine requires an insured to show “that its expectations of coverage are based on specific facts which make these expectations reasonable”; “bare allegations of Policyholders that they expected certain coverage” is not, of itself, sufficient.  Since Atain repeatedly, plainly, and conspicuously, before the loss, advised Green Earth that growing plants would not be covered, and since there is no evidence that Green Earth ever objected, the reasonable expectations doctrine can’t apply to the facts.

The fact that Atain never sought details about Green Earth’s grow operation further refutes any contention that Green Earth’s expectations that the Policy would cover its growing plants was a reasonable one. Therefore the Policy’s exclusion of coverage for “growing crops” unambiguously encompasses any body of plants tended for their agricultural yield, at least until they are harvested. This term clearly encompasses Green Earth’s mother plants and clones.

Green Earth’s breach of contract claim with regard to the approximately $40,000 claim made by Green Earth for damage to harvested marijuana buds and flowers damaged in the Waldo Canyon fire must, however, be tried. Because Green Earth’s claim that Atain breached the contract remains colorable, the Court denied Atain’s motion for summary judgment on Green Earth’s statutory claims for bad faith breach and unreasonable delay in payment relating to that portion of the Waldo Canyon claim. Those claims shall proceed to trial as well.

Theft Claim – Genuine Dispute

This claim arises from an incident on June 7, 2013, in which thieves entered Green Earth’s grow facility through a roof vent and stole various plants. It appropriate to grant summary judgment to Atain on Green Earth’s bad faith breach of contract claim and unreasonable delay in payment claim as it relates to the theft claim.  Here, Atain’s original basis for denying the theft claim was that its adjuster valued the claim at approximately $ 2,400, below the Policy’s $ 2,500 deductible. Green Earth certainly disagrees with Atain’s adjuster’s valuation, but Green Earth has not come forward with evidence to show that Atain’s valuation was objectively unreasonable nor did it demonstrate that Atain’s adjuster conspicuously overlooked substantial components of the claim that would have been covered.

Because Green Earth has not come forward with evidence to demonstrate that Atain’s valuation of the losses covered under the theft claim was unreasonable, Atain is entitled to summary judgment on Green Earth’s bad faith claims relating to the theft claim.

Green Earth’s breach of contract, bad faith, and delayed payment claims must proceed to trial with regard to Green Earth’s claim for benefits arising out of damage to harvested marijuana buds and flowers allegedly caused by the Waldo Canyon fire, and Green Earth’s claim for breach of contract only will proceed to trial with regard to Green Earth’s claim for insurance benefits arising out of the June 2013 theft.


Regardless of the unusual product – at least in most jurisdictions – insurance law requires that both the insured and the insurer be treated fairly. Since the insured was told, at the application stage, that it had no coverage for growing crops its $200,000 claim went up in the smoke of the brush fire. The theft claim only disputed the amount and since the insurer had a reasonable – and uncontested – basis for reaching its conclusion as to the amount of loss, the issue must be tried on damages only without an ability to claim bad faith damages.

ZALMA-INS-CONSULT                      © 2016 – Barry Zalma

Barry Zalma, Esq., CFE, practiced law in California for more than 43 years as an insurance coverage and claims handling lawyer.  He now limits his practice to service as an insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes.

He founded Zalma Insurance Consultants in 2001 and serves as its only consultant.

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About Barry Zalma

An insurance coverage and claims handling author, consultant and expert witness with more than 48 years of practical and court room experience.
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