Insurer must cover marijuana losses under commercial property policies, court rules

The US District Court in Colorado has ordered the property insurer of a medical marijuana firm to cover damage to plants, despite legality questions

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Marijuana is a covered item under commercial property policies despite remaining illegal at the federal level, the US District Court for the District of Colorado ruled this week.

According to a Westword report, medical marijuana business Green Earth Wellness Center filed a lawsuit against its insurer, Atain Specialty Insurance Company, after the carrier refused to pay for damages sustained to plants when a June 2012 wildfire cause smoke and ash to infiltrate the company’s ventilation system.

Atain again refused to pay for damages when thieves broke into Green Earth’s roof in 2013 and stole plants, citing a policy exclusion that prohibited “contraband” from being covered by the insurer.

Green Earth sued Atain for breach of contract, bad faith and delayed payment claims and the case ended up before US District Judge Marcia Krieger.

As a federal judge, Krieger may have been anticipated to side with the insurance company. However, this week’s ruling noted that “nominal federal prohibition against possession of marijuana conceals a far more nuanced (and perhaps even erratic) expression of federal policy.”

Krieger wrote that just weeks before Atain formally denied Green Earth’s claim related to the wildfire, federal authorities made statements that “reflected an ambivalence” toward enforcing marijuana laws. And given that the insurer’s argument rested solely on federal laws banning marijuana, Krieger failed to be convinced of the rightfulness of the claim denial.

“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,” she wrote.

“Green Earth’s breach of contract, bad faith and delayed payment claims will 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.”
Legal and industry authorities are not yet sure what far-reaching effects the decision may have when it comes to marijuana ad insurance requirements.

A conference between the two parties involved in the case has been scheduled for early May.
 

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