Q: How are homeowner’s insurance companies dealing with residential cannabis growing?
A: Like most legal issues regarding cannabis, this question — and the answer — is more complicated than it would seem. At a minimum, this question actually raises two different issues: whether homeowner’s insurance policies would cover your plants if they were damaged or stolen, as they do with other “personal property” in your home; and whether your policy would cover damage to your home caused by growing cannabis.
The homeowner’s insurance industry is just barely starting to consider issues of insurability regarding cannabis, so there is not a lot of industry-wide guidance. Relatedly, only a handful of court cases around the country have addressed these questions. Combined with the fact that there is not a one-size- fits all homeowner’s insurance policy and that insurance companies assess risk differently, there are few, if any, black and white answers. Nonetheless, the cases to date offer some guiding principles.
First, the fact that cannabis is illegal under federal law means that insurance companies have legal cover for denying any claim involving cannabis, but particularly if you are filing a claim for loss or damage to your plants themselves. In 2012, a U.S. District Court in Hawai’i rejected a homeowner’s claim related to the theft of 12 cannabis plants from her property. She argued in favor of coverage by pointing to the fact that she was growing the plants in compliance with state law and that her policy covered “trees, plants, or lawns” “for loss caused by theft.” The Court determined that requiring the insurance company to pay insurance proceeds for replacing her cannabis plants would be contrary to federal law and policy.
Second, if a residential grow operation causes property damage, insurance companies may argue that the risk is not covered because you were using your property in a manner not contemplated by the policy.
In a 2015 case in Michigan, a homeowner sought coverage after her house burned down because of her husband’s 28-plant basement grow operation, which involved butane extractions. It appeared he was operating within Michigan’s state law, but the Sixth Circuit Court of Appeals rejected the homeowner’s claim because the policy required her to notify the company of changes which might affect the premium risk, which she had not. Certainly one would argue that conducting butane extraction is inherently risky in a way that simply growing plants is not, but the Court’s reasoning focused not only on the butane risk but also on the fact that the insurance company could not have contemplated a grow operation at all.
Third, and relatedly, an insurance company’s knowledge (or lack thereof) is a critical factor. As the Michigan case suggests, courts will likely conclude that an insurance company should not have to cover a risk it knew nothing about in the first place. I was able to find one published case that came down in favor of insurability, but it involved a commercial policy where the insurance company entered into the policy with the Colorado cannabis business knowing that the purpose was to cover its cannabis products.
This case offers a small silver lining to an otherwise gloomy legal picture regarding insurability because the Court refused to declare the policy void because of federal public policy, as the Hawaii court did. However, the Colorado case doesn’t offer much help to homeowners who are likely growing cannabis in their homes unbeknownst to their insurance company.
In short, if you are growing cannabis in your home, know that your homeowner’s insurance company will likely fight you if you file a claim for damage caused to or by your plants. (This is especially true if you are not complying with state law, e.g., regarding number of plants, or if there is evidence that you are growing for something other than personal use, as most homeowner’s policies do not cover business activities.)
However, all hope is not necessarily lost. I spoke with my insurance agent, and he advised that there are some limited scenarios where a “sudden, accidental” loss might be covered, e.g., a water pipe to your hydroponic grow operation burst, causing flooding. In such a situation, the insurance company might conclude that your cannabis plant itself didn’t cause the damage. On the other hand, if the nature of the damage is more intrinsically related to growing cannabis, it will be more difficult to argue in favor of coverage, e.g., if your indoor grow caused mold in your walls or if your automatic drip system caused damage to your floors over time.
As always, as the law evolves, so too will insurance companies’ policies regarding cannabis. So,
*Disclaimer: This column is solely informational in nature and is not intended as legal advice.
Christina Semmer is an employment and business lawyer who counsels employers regarding
Proposition 64 and workplace drug policies. Ms. Semmer practices law at Wilson Turner
Kosmo, LLP, the largest certified women-owned law firm in San Diego.
To subscribe to The Cannifornian’s email newsletter, click here.