As in other industries, disputes between marijuana business owners and marijuana insurers arise frequently.

A cannabusiness may think it is covered for a specific risk only to find that when it comes to pass, their insurer has reasons not to pay out.

It no longer seems to matter that the business owner has been paying a premium for coverage against, for instance, fire or theft. Instead, the insurer brings up jargon like “subrogation”, “timely notice”, “reservation of rights”, and “failure to cooperate” to explain why it believes it is not liable.

At this point, marijuana business owners will question what they can do to ensure they collect at least some of the coverage for the premiums they’ve paid.

Most often in such situations, the policyholder starts a “coverage action” seeking declaratory relief, alleging breach of contract claims, or both. If the insurer is acting in an especially disagreeable manner, a claim for bad faith may also be possible.

However, most cannabis insurance policyholders should ask themselves four questions before starting any coverage action. In this article, we’ll briefly detail them.

1. Where to file litigation?

In an insurance dispute, litigation is most often filed at either a state or a federal court.

From the beginning, there will be questions over whether one or the other court has jurisdiction, how state and federal law interrelate in the matter and, as such, which law should apply.

From marijuana policyholders, such questions are all the more pressing given the disjoint between state and federal cannabis laws. Is it better to start a coverage action lawsuit at a state court in a jurisdiction that may treat marijuana goods and services favorably? Or is it better to opt for a federal court on the basis that a state court may play into the safe territory of an insurer?

There is no straightforward answer but it’s an important point to consider, ideally with an attorney who has cannabis industry-specific expertise.

2. When to file litigation?

Disputes between a marijuana business policyholder and an insurer are framed by rules and timelines in the policy agreement covering declaratory judgment actions and breach of contract claims. These also include statutes of limitations determining when a claim may be brought by policyholder against the insurer.

What’s important here for the cannabis business policyholder is to ensure it has fulfilled all its obligations. This includes submitting a coverage claim properly, cooperating fully in the claim’s investigation, and meeting any other requirements.

It’s generally a good idea to wait to file litigation until it is clear the marijuana policyholder has a prima facie case demonstrating coverage, in order to put the burden of proof on the insurer to detail why the coverage does not apply.

3. Who to file litigation against?

It may seem obvious that the marijuana policyholder is filing litigation against the insurer, but there could be other parties involved as well.

A cannabis policyholder could, after all, have two separate insurers at the same time but for different risks. It is important for the policyholder to consider whether both insurers may be a necessary party.

This may not be the case but failure to identify a necessary party can, on occasions, lead to the lawsuit being dismissed.

4. Who can help with filing litigation?

This article only touches on some of the considerations a marijuana business policyholder should have in the event of a dispute with their insurer.

If you are in such a situation, it’s necessary to seek the counsel of an attorney with experience in marijuana insurance claims.