It should go without saying that when a business purchases any insurance policy – including, but not limited to, a commercial general liability (CGL) insurance policy – the business expects the policy to provide coverage for its line of business and the specific risks it faces. Cannabis-related businesses are no different. However, they must be especially vigilant to make sure that what an insurance company gives with “one hand” (the coverage grant), it does not take away with the “other” (an exclusion). Remarkably, marijuana-related exclusions may still be found in CGL and other insurance policies marketed and sold to businesses in the cannabis industry.
To better illustrate the concern, consider the following non-cannabis-related scenario: When purchasing insurance, a swimming pool manufacturer would, of course, want to make sure that its CGL policy will provide coverage in the event that a third-party sues the manufacturer for bodily injury allegedly arising out of the use of one of its swimming pools. Conversely, that manufacturer would not want to purchase a CGL policy that excludes coverage for any bodily injury arising out of the use of its swimming pools. While, in that latter situation, the CGL policy may still provide the manufacturer some coverage for certain, limited types of claims, the policy would not provide the manufacturer coverage for the real risks that it faces — that is, those arising out of the use of its swimming pools. Such coverage, therefore, would essentially be illusory coverage. In other words, it would be basically no coverage at all.
While, thankfully, there is no common “swimming pool exclusion” found in CGL or other policies sold to swimming pool manufacturers (or anyone else, for that matter), there can be marijuana-related exclusions in CGL and other policies marketed and/or sold to cannabis-related businesses. As a result of such an exclusion, a cannabis-related business could be left with essentially no coverage, or at least no meaningful coverage for the specific risks it faces – that is, marijuana-related risks.
For example, one insurer has sold a policy that includes a “Marijuana/Cannabis Products Exclusion” that modifies the commercial general liability coverage provided. That exclusion states, “This insurance does not apply to ‘bodily injury,’ ‘property damage’ and/or ‘personal and advertising injury’ arising out of the sale, consumption, use or the exposure to the consumption or use of ‘marijuana,’ ‘edible marijuana-infused product,’ ‘marijuana-infused product,’ ‘cannabis,’ or ‘cannabis containing product, or any material, substance or item containing tetrahydrocannabinol (THC)” (emphasis added).
Another insurer markets to the cannabis industry a CGL policy that contains a similar exclusion, albeit under a different name – “Health Hazard” exclusion. That exclusion states that the “insurance does not apply to any claim or ‘suit’ for ‘bodily injury,’ ‘property damage’ or ‘personal and advertising injury’ arising directly or indirectly out of, related to, or, in any way involving the real or alleged emergence, contraction, contribution to, aggravation or exacerbation of any form of adverse health effect, impairment of health, abnormal condition or conditions, disorder, sickness, ailment, unhealthiness, symptom, disease, illness or malady of the human body as a result of the use, consumption or exposure to any product that is manufactured, sold, handled or distributed by, for or on behalf of any insured and includes any … Cannabis sativa, cannabis indicia, hemp or marijuana or any of their derivatives …” (emphasis added).
Pause there for a moment and ask yourself: Isn’t coverage for bodily injury or property damage arising out of the manufacture, sale, distribution, consumption, use, or exposure to marijuana precisely the coverage that a cannabis-related business would need and want? While CGL policies with exclusions such as those above may still provide some nominal coverage to the policyholder, they do not cover the most important risks and potential losses/claims faced by most cannabis-related businesses –, that is, risks, losses, and claims associated with the manufacture, sale, distribution, consumption, use, and exposure to marijuana.
As such, when purchasing insurance, reviewing coverage already in place, or “doing a deal” involving a cannabis-related business, CGL and other insurance policies must be carefully reviewed to ensure that they do not include marijuana-related exclusions that would render the coverage afforded by the policies all but illusory.