Admitted Insurance Carriers Are Here: Cannabis Buyers Beware
I have learned a number of Latin phrases since my legal career began. None, however, has been as useful in my practice as a risk management attorney serving cannabis industry clients as one I learned in school: Caveat emptor. Buyer beware.
First Admitted Cannabis Insurance Product Hits the Market
Last week, the California Department of Insurance accepted Golden Bear Insurance Company’s filing for a new commercial insurance program marketed to the cannabis industry. For Insurance Commissioner Dave Jones, the acceptance of this program, the first offered by an admitted carrier in California, was a major step toward accomplishing a longstanding goal of making admitted insurance products available to the cannabis industry.
Cannabis businesses, however, should look and hard at policy language before purchasing the Golden Bear program. As noted in a previous post, commercial insurance for cannabis businesses has lagged dramatically behind comparably-sized industries, and admitted carriers are not necessarily a panacea for these deficiencies.
It is important to note up front the Golden Bear program’s positive attributes: It cannot be overstated what an accomplishment it is for Commissioner Jones to have convinced an admitted carrier to jump into the cannabis market when all others have shied away, despite the substantial business opportunity. Any admitted carrier offering cannabis policies is in itself a good development for the industry. It is a step on the road to more competition and may even encourage other types of financial institutions to reconsider their stances on working with the industry.
What Is Covered?
Regardless of the broader impact of the Golden Bear's entry into the market, there is only tangible value to having an "admitted insurance policy" to the extent that the policy actually covers your operations effectively. The industry has historically had trouble consistently obtaining policies without language that allows carriers to deny coverage based purely on the fact that the business in question peddles marijuana.
On this score, the Golden Bear program’s general liability coverage grant sounds unequivocal: “This insurance applies to liability for ‘bodily injury’ and ‘property damage’ caused by or arising out of the ‘sale’ of ‘ medicinal cannabis’ or ‘medicinal cannabis’ products’ or adult-use ‘cannabis’ or adult-use ‘cannabis’ products.” There are also a variety of alternative forms modifying this coverage grant to apply to cultivators, manufacturers, and vertically integrated operations. This again, represents significant progress for the industry.
What Is Not Covered?
As with any insurance policy, however, this coverage grant is qualified through exclusions contained in the policy, and the Golden Bear forms contain a number of exclusions that are highly problematic for many cannabis companies.
First, commercial general liability (“CGL”) and products liability coverage under the program is subject to a "Cannabis Impairment" exclusion. This exclusion eliminates coverage for any claim against you based on cannabis "causing or contributing to  mental or physical impairment." Another exclusion carves "any illness or disease" arising out of "the actual or alleged use or exposure to 'cannabis'" out of coverage. Also excluded: Any claim alleging "exposure to or presence of pesticides, ... ingestion, inhalation, or absorption of pesticides."
For companies selling cannabis products these exclusions present significant dangers, as they eliminate precisely the risks that these businesses need covered . The most likely products liability lawsuits that cannabis companies will likely face in the coming years are those based on: 1) impaired driving, 2) cannabis overdosing, 3) exposure to pesticides through cannabis products, and 4) long term illness caused by cannabis products. At first glance, each of these exposures appear to be excluded from coverage under the program.
Proposition 65 liability (related to labeling of products determined by the state to cause cancer) is another well-publicized risk facing the industry. This risk is also excluded under the CGL and products coverage.
Further, some of the benefits commonly ascribed to purchasing coverage from an admitted carrier do not appear to be present in this instance. For example, admitted carriers often offer more competitive rates than “surplus lines carriers,” insurers that are not admitted but nonetheless authorized to sell policies in California. The rates published last week, however, compare unfavorably with the current surplus lines pricing that I have seen. And, while a policyholder can typically get out of a new policy after three months without forfeiting their premiums, Golden Bear’s program provides that 90% of a policyholder’s products liability premiums are earned immediately . This effectively locks policyholders into the products liability portion of the program for nearly the entire duration of the policy period.
While it is a positive in many ways to have an admitted carrier offering policies expressly covering dispensaries, cultivators, and manufacturers, it is critical to understand what the policies actually cover and what they do not. Speak with a broker you trust or an attorney about whether this or other policies purporting to cover your cannabis operations are right for your business. Caveat emptor.