What can be Learned from the only Lawsuit filed by a Cannabis Company against their Insurance Carrier
Dispensary Green Earth Wellness against Atain Specialty Insurance
The cannabis industry has experienced few lawsuits involving a cannabis operation suing their insurance company. We’re aware of just one and it occurred when Green Earth Wellness Center (“Green Earth”) of Colorado Springs, Colorado filed a lawsuit against their insurance carrier Atain Specialty Insurance Company (“Atain”) back on December 20, 2013. The case is filed in the United States District Court for the District of Colorado entitled The Green Earth Wellness Center LLC, Plaintiff v Atain Specialty Insurance Company, Defendant Civil Action No. 13-CV-03452-MSK-NYW.
Green Earth believed insurance coverage existed for living cannabis plants damaged by smoke from a nearby wildfire known as the Waldon Canyon Fire. That smoke damage made those plants essentially worthless. Green Earth claimed $200,000 to their grow facility primarily mother plants and clones and $40,000 in damage to buds and flowers.
Green Earth is a small business licensed by the State of Colorado to produce and sell medical marijuana from two locations. Atain is part of a large insurance empire known as the H.W. Kaufman Group that includes a subsidiary named Burns & Wilcox with over $1 Billion in premium written. Burns & Wilcox represented Atain as their licensed wholesaler underwriting Green Earth’s request for insurance.
Court records show Green Earth purchased through a retail insurance broker introduced by Burns & Wilcox. The policy included commercial general liability and business personal property. For those who may be unfamiliar with insurance, commercial general liability covers liability for a variety of reason related to your business and premise. The commercial general liability was never the issue during the lawsuit because no liability existed from a third party. The lawsuit was seeking payment for the property damaged by smoke.
Green Earth Wellness focused on the Definition of Stock
If coverage for a living plant was to be available, Green Earth would focus on the business personal property coverages because this is where a policy offers coverage for “things” a business owns. A cannabis company will own a variety of things such as grow equipment, computers, lighting, hvac systems, and cannabis. That cannabis might be alive or cured depending on the stage of production. If coverage is to exist, Green Earth would review their insurance policy for important terms and conditions to lead them in the right direction.
One of those terms most likely to catch the attention of Green Earth was the word “Stock.” The insurance policy defined stock as
“merchandise held in storage or for sale, raw materials and in-process or finished goods, including supplies used in their packing or shipping.”
It was the “raw materials and in-process or finished goods” Green Earth believed their living cannabis plants fall neatly into this definition. Many people reading this definition would consider this to be plausible. Marijuana clones will eventually mature into budding plants. Those buds are the raw materials for a variety of finish products such as joints, concentrates, and edibles.
However, most insurance industry professionals with experience in cannabis insurance during this time period would have known stock was never meant to cover living plants on the business personal property policy. This would have been difficult for Green Earth to know, unless they had been working with an experienced retail insurance broker. In 2012, there may have been one insurance carrier offering crop insurance to the cannabis industry during this period of time.
Green Earth believed coverage was purchased because of a medical marijuana crop application had been completed
Court records show a medical marijuana crop application was part of the underwriting process. How this form became part of the application process was murky by Green Earth and others deposed. A typical application will include standardized forms known within the insurance industry as Acord forms. Court records indicate Acord form numbers 125, 126, and 140 were submitted by the retail insurance broker to Burns & Wilcox.
Quite possibly, the medical marijuana crop application was part of another submission to a different insurance carrier and was inadvertently included with the submission to Burns & Wilcox.
Regardless, the fact a medical marijuana crop application was part of the underwriting file showed the possibility crop insurance was part of the insurance request.
The quote stated “Coverage does not extend to growing or standing plants.”
The quote and binder issued by Atain to Green Earth both stated “Coverage does not extend to growing or standing plants.” Most business owners contemplating the purchase of insurance are likely to read this statement and decide quickly this policy is not the right choice.
Court records indicate the retail insurance broker reviewed the insurance quote with Green Earth. Those same records further indicated neither the retail insurance broker and Green Earth having any recall of discussing this important disclosure. Atain had every right to believe they were not offering coverage for living plants.
Clear communication is essential during the procurement of insurance with the cannabis industry
Clear communication is a foundation in having good business relationships. Insurance is a complicated product that should be sold by experienced professionals with a good understanding of important terms and conditions. The Green Earth lawsuit could have been avoided if evidence existed to demonstrate a mutual understanding of the coverages being purchased by those parties involved.