A provocative new opinion from Colorado (where else) has explored the potential scope of first-party property insurance coverage for a loss of marijuana plants. The opinion highlights some of the problems that first party insurers face in evaluating losses in an area that is emerging into the mainstream but has not yet entirely lost its lawless history.

In The Green Earth Wellness Center, LLC v. Atain Specialty Ins. Co., 13‑03452 (D. Colo. Fed. 17 2016), smoke and ash from a nearby fire overwhelmed the ventilation system for the insured’s retail medical marijuana growing facility in Colorado Springs, killing growing plants and contaminating product that was ready for sale.

The insured submitted a claim to its property insurer, arguing that the damaged plants were “stock” covered under the policy. The insurer responded that these were in fact, excluded “growing plants” and any that weren’t were subject to the “contraband” exclusion in the policy.

On cross-motions for summary judgment, Chief Judge Krieger distinguished between different classifications of marijuana plants including “mother plants”, “flower plants”, “veg plants” and “finished product.” In this case, the insured had sought $200,000 for damage to growing mother plants and clones as well as $40,000 for damage to buds and flowers that had already been harvested and were ready for sale. While expressing some perplexity with respect to the notion that the mother plants and marijuana clones could be considered “stock”, the court found that the issue was uncertain.

On the other hand, while finding that the damaged marijuana was stock, Judge Krieger ruled that significant portion of the insured’s claim was excluded from coverage as involving “growing crops.” Despite the insured’s argument that a “crop” necessarily meant something that was grown outdoors, the District Court held that the plain meaning of the exclusion applied to the marijuana mother plants, even though they were grown indoors in containers. The court found affirmation of her analysis in extrinsic evidence of the drafting discussions between the parties which suggested that there was never an intention to cover the insured’s marijuana plants. On the other hand, the court ruled that marijuana buds and seed that was ready to be sold was not subject to this exclusion.

The District Court also rejected the insured’s argument that denying coverage for this key aspect of its business enterprise would confound its “reasonable expectations” of coverage. In this case, the court found that the policy provided many different types of coverage apart from the risk of loss to growing plants and that eliminating coverage in this instance did not render the policy worthless. The court also refused to eliminate coverage on the basis of a “contraband” exclusion in light of the conflicting policies of state and federal government concerning medical marijuana.