Green Earth Wellness Center, LLC v. Atain Specialty Insurance, 163 F. Supp. 3d 821

Background

Green Earth operated a retail medical-marijuana dispensary and an adjacent indoor grow in Colorado Springs and purchased a commercial property/general liability policy from Atain effective June 29, 2012.
Waldo Canyon wildfire (June 23, 2012) produced smoke/ash allegedly damaging both (a) indoor growing plants (mother plants, clones, veg/flowering plants) and (b) harvested finished product (buds/flowers). Green Earth claimed >$200,000 for grow operation and ≈$40,000 for harvested product.
Atain investigated and denied the wildfire claim (citing misrepresentation as to date of loss, failure to mitigate, late notice, and that growing plants were excluded), and denied a June 7, 2013 theft-related claim (roof/ventilation damage) as below the $2,500 deductible.
Green Earth sued for breach of contract, statutory bad faith (C.R.S. §10-3-1104(h)(VII)), and unreasonable delay (C.R.S. §10-3-1115). The parties filed cross-motions for summary judgment and Atain sought rulings on legal questions including whether federal law/public policy barred payment for marijuana-related losses.
The Policy: covers “Stock” (including raw materials and in-process or finished goods) but expressly excludes “growing crops” and “Contraband” (not defined). Pre-policy communications (quote and binder) stated coverage did not extend to "growing or standing plants."

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether indoor potted mother plants/clones are covered as “Stock” or excluded as “growing crops”	Plants are in-process goods/stock and thus covered under the Policy’s definition of Stock	The “growing crops” exclusion unambiguously excludes plants tended for agricultural yield, including indoor potted plants	Held: plants are excluded as “growing crops”; Atain entitled to SJ on coverage for growing plants
Whether harvested buds/flowers (inventory) are covered or excluded by the Policy/Contraband/public policy	Harvested product is Stock and should be covered; public policy/federal law should not bar enforcement of the insurance contract	Atain argues Contraband exclusion or federal public policy forbids recovery for marijuana-related losses	Held: genuine dispute; Contraband exclusion ambiguous in context; coverage for harvested inventory survives summary judgment and must be tried; court declines to void policy on public policy grounds
When loss “commenced” under the Policy (timing of Waldo Canyon damage)	Dispute of fact — losses began July 1, 2012	Losses began earlier (June 23–26) before policy effective date, so not covered	Held: term “commencing” = beginning; timing is a factual dispute — trial required
Theft claim — whether building/vent damage is covered and whether insurer acted unreasonably (bad faith/delay)	Building/vent damage and consequential interior damage exceed deductible; Atain acted unreasonably in denial/delay	Atain contends theft exclusion applies; alternatively the building damage caused by thieves is below deductible (~$2,400) and its handling was reasonable	Held: triable dispute on breach (coverage/amount) — breach claim proceeds; but Green Earth failed to show insurer acted unreasonably as a matter of law, so Atain entitled to SJ on bad-faith/unreasonable delay for the theft claim

Key Cases Cited

Anderson v. Liberty Lobby, 477 U.S. 242 (summary judgment standard and genuine dispute analysis)
Celotex Corp. v. Catrett, 477 U.S. 317 (summary judgment burdens and nonmovant evidence requirements)
Bailey v. Lincoln Gen. Ins. Co., 255 P.3d 1039 (Colo. 2011) (reasonable expectations doctrine for insureds)
State Farm Mut. Auto. Ins. Co. v. Nissen, 851 P.2d 165 (Colo. 1993) (ambiguities in insurance contracts construed against drafter)