Chapter 7 - § 7.8 • A VALUATION DISPUTE, WITHOUT MORE, MAY BE INSUFFICIENT TO SUPPORT A CLAIM FOR UNREASONABLE DENIAL OF BENEFITS

• Jurisdiction: Colorado

§ 7.8 • A VALUATION DISPUTE, WITHOUT MORE, MAY BE INSUFFICIENT TO SUPPORT A CLAIM FOR UNREASONABLE DENIAL OF BENEFITS

Green Earth Wellness Center, LLC v. Atain Specialty Insurance Co., 163 F. Supp. 3d 821 (D. Colo. 2016), involved claims by a medical marijuana business for breach of contract, bad faith, and statutory bad faith arising out the insurer's denial of fire loss and theft loss claims. The court granted the parties competing motions for summary judgment in part and denied them in part. The court held that the insured's bad faith claims arising out of the viable part of its fire loss claim must proceed to trial, but that the insured had failed to muster any evidence to demonstrate that the insurer had acted unreasonably in denying its theft loss claim.

The plaintiff, Green Earth, operated a medical marijuana business in Colorado Springs where it grew and harvested marijuana plants. Green Earth obtained a commercial insurance policy from the defendant, Atain, in April 2012. The policy went into effect on June 29, 2012. The Waldo Canyon fire started near Colorado Springs on June 23, 2012. In November 2012 Green Earth made a claim that smoke and ash from the fire penetrated its ventilation system and damaged growing plants and inventory. Green Earth claimed damages of $200,000 for its growing plants and $40,000 for harvested buds and flowers. In a separate incident on June 7, 2013, thieves broke into a roof vent and stole some of Green Earth's plants. Atain denied coverage for the fire loss claim for several reasons, including that the loss occurred before the effective date of the policy; damage to the growing plants was negated by the "growing crops" exclusion; coverage was barred by the contraband exclusion; and payment for damage to marijuana plants and products would contravene federal law and public policy. Atain denied the theft claim because it concluded that the damage to the roof and ventilation system amounted to only $2,400, less than the deductible of $2,500.

Green Earth argued that the damage to its marijuana plants and inventory was covered because the policy provided coverage for business personal property, including "stock." Atain agreed that the harvested buds could qualify as stock but disputed that growing plants were stock. While the court agreed with Green Earth that growing plants might be considered stock, as "raw materials" for Green Earth's finished product, the court agreed with Atain that the "growing crops" exclusion...