Recent Denial of Business Interruption Coverage to Cannabis Manufacturer Highlights Importance of Diving Into the Weeds of Insured’s Business Practices

In Theraplant LLC v. National Fire & Marine Insurance Co., the U.S. District Court for the District of Connecticut denied the insured cannabis cultivator’s claim for business interruption coverage because the insured failed to demonstrate a causal link between its loss and the suspension of its operations.

The insured, Theraplant, suffered a loss when a fire at its facility in Watertown destroyed 998 marijuana plants and damaged one of seven flowering rooms. After the insurer denied coverage for the loss of the marijuana plants because of crop and marijuana exclusions in the policy, Theraplant alleged it suffered a business income loss because it was unable to use the subject flowering room for approximately two months while it underwent repairs. The insurer denied Theraplant’s business income claim because it did not “identify a Business Income loss during the Period of Restoration to the Building.”

The court agreed with the insurer, finding that Theraplant’s loss did not result from a suspension of its operations. The court’s determination stemmed from the specific nature of Theraplant’s operations. Marijuana plants go through several growth stages: cloning, propagation, flowering, curing/drying, and processing. The cloning stage lasts 10 to 14 days; the propagation stage lasts 21 days; and the flowering stage takes 56 to 63 days. Theraplant’s facility contained separate rooms for each process, and marijuana plants are moved from room to room as each growth stage is completed.

At the time of the fire on February 8, 2020, the subject flowering room contained 998 plants that were four days into the flowering stage. The subject flowering room was repaired and operational by April 12. Theraplant was unable to produce any evidence demonstrating that the ongoing repairs delayed the transfer of plants from one room to another; indeed, the evidence showed that no plants had completed the cloning and propagation stages until a week after the repairs were completed, meaning no plants were ready to be transferred to the subject flowering room until after the repairs were completed. Nor could Theraplant prove it would have used the room for another income-generating purpose if not for the ongoing repairs.

The court also rejected Theraplant’s argument that the policy must cover its business income loss because the fire was the efficient cause of loss. Under Connecticut law, “the active efficient cause that sets in motion a train of events which brings about a result without intervention of any force started and working actively from a new and independent source is the proximate cause.” The court held the efficient cause doctrine was inapplicable because Theraplant failed to establish that both the fire and the suspension caused the business income loss. Instead, “the very issue in the case is whether Theraplant’s loss resulted from the suspension of its operations.”

Because the insured could not form a causal link between the suspension of its operations and its alleged lost income during the repairs, the loss did not fall within the policy’s business income loss provision. The court’s decision highlights the importance of conducting an exhaustive investigation into an insured’s business practices and the business’s status at the time of loss. Here, the specific timeline involved in the cultivation of marijuana plants was key to whether the insured’s loss came within the business interruption provision.