Admitted Carriers Offer Some Benefits, Some Dangers for Cannabis Industry
For the first time, an admitted insurance carrier has filed a cannabis insurance product with the State of California. California Insurance Commissioner Dave Jones made the announcement proudly during his keynote at the California Cannabis Industry Association's 2017 Business Conference. For Jones, whose efforts to improve cannabis coverage have focused strongly on bringing admitted carriers into the market, this is big win. For cannabis companies hoping for better insurance, however, admitted carriers represent at best a partial solution to what currently ails the cannabis insurance markets. To understand why admitted carriers are not a panacea for the industry, we need to understand the differences between such carriers and non-admitted "surplus lines" carriers. Admitted carriers file standard policy forms and rate information with the state. Because these forms and rates must be approved by the state, an admitted carrier generally offers consumers solid policy terms for standard business risks and lower rates than are available through surplus lines carriers. An industry in which companies regularly spend thousands each month just to maintain a checking account can certainly appreciate a price break. What the industry needs far more desperately, however, is insurance coverage that it can depend on to the same extent as do companies in other multi-billon-dollar industries. While available coverage has come a long way in recent years, truly dependable coverage for general liability, property, and especially products liability, is still not available--from any insurer. None of this is intended as a sleight toward the carriers serving the industry. For far too long, finding carriers that reliably paid out on routine claims was a challenge. At least with regard to the carriers most dedicated to the industry, this no longer appears to be an issue. Emissaries for these carriers are significant proponents of the cannabis industry, taking on leadership roles in organizations devoted to its growth and prosperity. As a coverage attorney, however, I am concerned less with the more routine losses and more with the seven and eight-figure claims that are on the way. And make no mistake, those claims are coming. The industry's insurers are keenly aware of this fact. Products liability claims are the most significant concern, but these bigger cases will take a variety of forms. Just defending against such cases can cost half-a-million dollars or more. It should be no surprise, then, that, like me, insurers pay much more attention to this type of claim. If there is language in a policy that enables an insurer to deny a major claim, the insurer will generally do so, regardless of the underwriter's initial intent in drafting particular language or the "spirit" of the insurance contract. Finally, while there are not many cases addressing cannabis-related coverage disputes, those that have come down suggest that the best case scenario for cannabis companies in these fights involves courts literally applying exclusions, despite what it may mean for the insured. A cultivator with a destroyed crop and a "growing plants" exclusion? Out of luck. An edibles outfit facing a dosage claim with a "psychotropic substances" exclusion? Sorry. No coverage. This brings us back full circle. The fact that these exclusions exist in policies issued to cannabis companies is the reason that there is actually some danger in for the industry presented by admitted carriers entering the market. While some are better than others, the CGL, Products, and Property forms currently available to cover the meat of plant-touching businesses' operations are not forms that the industry wants standardized and blessed by the Commissioner. The industry would be better served by finding creative ways to increase leverage and force the surplus lines carriers serving the industry to compete based on the strength of their policies, rather than on standardizing rates in the short term. To the extent that admitted carriers do begin serving the market, they will be most beneficial with regard to lines of coverage that do not require a carrier to pay out for "plant-touching" activities. This may be cyber-liability insurance, non-delivery auto policies, etc. Assuming that none of these carriers eventually attempt to use federal illegality to avoid paying on a claim (which would be more challenging after intentionally serving the industry), standardization of forms and prices could offer some real benefits. Because admitted carriers tend to be most squeamish about directly "touching the plant," it is likely that the path-breaking admitted carrier to which the Commissioner referred will offer a type of coverage that can be of some assistance to the industry. The industry is likely some years off, however, from being able to place all of its policies through admitted carriers.