(Article from Insurance Law Alert, February 2025)
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Holding
A Connecticut district court granted a property insurer’s summary judgment motion, ruling that business interruption coverage was not available because the policyholder failed to establish that a suspension of operations caused the alleged business losses. Theraplant, LLC v. National Fire & Marine Ins. Co., 2025 U.S. Dist. LEXIS 9709 (D. Conn. Jan. 18, 2025).
Background
The coverage dispute arose out of a fire at a cannabis production facility owned by Theraplant. The fire occurred in a “flowering room” that contained 998 marijuana plants that were only four days into the flowering stage. As a result of the fire, the plants in the flowering room were destroyed, and the room itself sustained property damage. During the period of repair that lasted approximately two months, Theraplant was unable to use that flowering room.
National Fire, Theraplant’s commercial property insurer, paid for the damage to the building and certain equipment. Theraplant did not contest those payments, but also sought coverage under a business interruption provision, that applied to “actual loss of Business or Rental Income you sustain due to the necessary ‘suspension’ of your ‘operations’ during the ‘period of restoration.’” National Fire denied coverage for the business income claim and in ensuing litigation, both parties moved for summary judgment.
Decision
Ruling in National Fire’s favor, the court explained that the phrase “due to” in the business interruption provision requires a causal link between the suspension of operations and the resulting loss in income. Further, the court agreed with National Fire that the factual record did not establish any such causal link. In particular, the court noted that Theraplant had several other flowering rooms and that Theraplant failed to put forth evidence that the damaged flowering room delayed operations or would have been used for an income-generating purpose had the repairs not been ongoing. Rather, communications in the record indicated that Theraplant did not plan to use that particular flowering room until mid-April 2020, the time at which repairs were seemingly completed.
While Theraplant argued that the other flowering rooms were fully occupied at the time of the fire, the court deemed this assertion insufficient to establish a causal link between the suspension of operations in the damaged room and the business income loss. The court stated: “Theraplant fails to explain how the suspension itself caused the business income loss. Plaintiff simply assumes the existence of a causal relationship, but the Court cannot do the same.”
Comments
In reaching its decision, the court emphasized that the primary purpose of business interruption coverage is “to indemnify the insured against losses arising from an inability to continue normal business operations and functions due to damage sustained,” and not “to help the insured recover for damaged or destroyed property.” Here, while Theraplant incurred property damage (for which it was reimbursed), it failed to establish that its suspension of operations in the damaged flowering room resulted in the scaling back of business operations. The court therefore concluded: “To allow Plaintiff to recover here would neither further nor serve the purpose of business interruption coverage.”