In January 2025 a Connecticut district court rejected an insurance claim for a business interruption loss allegedly caused when a fire damaged the insured’s facility, equipment and hundreds of marijuana plants used to produce cannabis products. Business interruption policies require proof of a causal link between the actual loss of income and the necessary suspension of operations of the business as a result of damage. The undisputed evidence did not establish the requisite causal link.

The business interruption coverage under a commercial insurance policy was:

“We will pay for the actual loss of Business or Rental Income you sustain due to the necessary “suspension” of your “operations” during the “period of restoration.” The “suspension” must be caused by the direct physical loss of or damage to Covered Property under this policy at premises which are described in the Declarations and for which a Business Income Limit of Insurance is shown in Declarations. The loss or damage must be caused by or result from a  Covered Cause of Loss.”

The insured never purchased crop insurance from the insurer. The insurer paid nearly $500 000 to the insured for damage to the building and equipment but nothing for the lost marijuana plants because the policy did not provide for it.

The court usefully stated that a business interruption insured party must establish (1) physical loss or damage; (2) to covered property; (3) caused by a covered peril during the policy period; (4) resulting in an actual loss of income; (5) due to necessary suspension of operations; (6) during the covered period of restoration.

At the facility, the marijuana plants go through several stages: cloning, propagation, flowering, curing/drying, and processing. The cloning stage lasts ten to fourteen days, and the insured had one cloning room. The propagation stages lasts twenty-one days. The next stage, flowering, takes fifty-six to sixty-three days, and the insured boasted of seven flowering rooms in its facility. If plants spend too long in one of these rooms, quality, potency, and yield can suffer. The insured tailored the lighting and irrigation system in each room to the relevant stage of cultivation.

In February 2020, a lightbulb in the Flowering Room 2 burst and dropped to the table, lighting a fire in a room containing 998 marijuana plants that were four days into the flowering stage. All the plants were disposed of and the insured could not use the Flowering Room from 8 February 2020 to mid-April 2020.

The undisputed evidence did not establish the requisite causal link. The insured did not put forward any evidence that it would have used Flowering Room 2 for a lost income-generating purpose had the repairs not been ongoing between February and April 2020. There was no evidence that the ongoing repairs delayed the transfer of plants from one flowering room to another.

The court observed that the purpose of business interruption insurance is to indemnify the insured against losses arising from an inability to continue normal business operations and functions, due to damage sustained as a result of the hazard insured against. Business interruption insurance does not exist to help the insured recover for damaged or destroyed property.

The judgment is interesting both for its six-part test for business interruption cover and its description of marijuana production.

[Theraplant LLC, v National Fire & Marine Insurance Company, United District Court, District of Connecticut 3:22-CV-0195 (VDO)]