A Fort Smith medicinal marijuana cultivator was anything but chill in November 2021, when cooling equipment went off and heat from the facility’s growing lamps destroyed more than 5,000 cannabis plants, according to a federal lawsuit by River Valley Production LLC.
The grower, led by Fort Smith hotelier Storm Nolan, is suing the insurance carrier that rejected its claim, seeking $300,000 and damages from Obsidian Insurance of New York.
The case could hinge on whether four chillers “broke down” or “shut down.”
The loss took place Nov. 25-26, 2021, when 2,914 pre-flowering marijuana plants and 2,142 flowering plants were destroyed after four chillers serving the growing room of the cultivator’s facility stopped operating.
River Valley’s complaint, filed Feb. 13 in U.S. District Court for the Western District of Arkansas, says that the lost plants had a value of $511,735. The limit of insurance was $300,000, the suit said, and that was the main relief demanded. Nolan filed his insurance claim in August 2022, the lawsuit says. In November, a third-party administrator for Obsidian, Avant Specialty Claims, rejected the claim, saying the damage was excluded under an “equipment breakdown” provision.
River Valley’s claim says the chillers never broke down; instead, “freeze protection settings” that should not have been in place at a grow facility shut them off when outside temperatures fell below 40 degrees. The improper setting caused the outage, the lawsuit says, not a mechanical breakdown.
A Nov. 8 letter from Avant litigation specialist Rebecca W. Spence held that “living cannabis plants still in the growing medium are not ‘stock,’” and that “the policy includes no coverage for crop loss.”
“This is false,” River Valley’s lawsuit says. “Growing plants are specifically covered,” including “plants that are in the process of cultivation.”
Court documents show that River Valley paid a premium for a year of insurance from Obsidian in September 2021. The policy was fully paid up when the loss occurred two months later, the suit says.
Represented by Matthew T. Horan of Smith Cohen & Toran of Fort Smith, Nolan told Arkansas Business last week that he would let the complaint speak for itself. On Wednesday, Obsidian asked the judge for more time to respond to the complaint. The request was granted, and it now has until April 28 to respond.
The suit calls for the $300,000 insurance payout and a 12% penalty, attorney’s fees and costs, as well as damages for breach of insurance contract.
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