By Don Jergler December 3, 2018
There’s “still a really strong need” for specialty insurance to cover cannabis businesses as well as medical professionals prescribing cannabis, according to an attorney who specializes in the sector.
Ian Stewart, a partner in Wilson Elser and chair of the law firm’s cannabis law practice team, estimates there are nearly 30 surplus lines carriers and a few admitted carriers serving the cannabis industry across the U.S. While it has become easier for companies to find coverage, he believes that the industry is still underserved when it comes to insurance.
Stewart has defended complex litigation in state and federal courts for more than 20 years with a focus on product liability, complex general casualty, cannabis law, transportation and marine claims, data privacy and security and intellectual property litigation. He was a speaker at the Professional Liability Underwriting Society (PLUS) conference in San Diego, Calif., in November on “Navigating Cannabis Professional Liability Risks and Insurance.” He discussed insurance carriers’ obligation to follow federal cannabis-related guidelines, underwriting best practices and mitigating professional liability risks. He also talked about opportunities carriers and brokers in the growing cannabis industry.
He sees a potential wave of consumer class action lawsuits over cannabis as well as increasing risks for doctors.
Stewart spoke with Insurance Journal about the cannabis business and what insurance professionals should know about it.
This has been edited for brevity and clarity.
Insurance Journal: How would insurance agents go about getting into the cannabis business as a specialty?
Stewart: Well, so for a broker, education is really important. I think it’s hard for brokers just to enter this space without some baseline knowledge because it changes so quickly. Carriers leave, carriers enter, they change their coverage type.
You know, I think that joining associations is important. There are a couple cannabis business associations that do a good job connecting brokers with other professionals in the industry to educate. For example, there’s what’s called the NCIA, the National Cannabis Industry Association. There’s a California version, the CCIA, California Cannabis Industry Association. Those are both good organizations for all sorts of professionals – lawyers, accountants, other consultants, brokers – to join and really educate themselves about what’s happening at the ground level with licensed operators.
IJ: What sort of unique or interesting claims do you think that we’re seeing, expect to see, or are we seeing from these cannabis coverages?
Stewart: A couple years ago, the expectation, and it still could be true, is that product liability is the cat risk of the industry. We haven’t seen a wave of product claims that have come in, certainly in California over the last year as it’s been fully legal. But there are a few. I think that those claims are probably going to increase as public awareness happens, as the market expands, as there’s more retailers and more access.
This whole sort of cohort of new adult use consumers are, you know, turning towards cannabis. And the plaintiffs’ lawyers are now becoming more interested because of large companies that are forming that have assets and as insurance is becoming more available.
However, I think that the sort of unspoken danger that a lot of certainly the licensed operators don’t appreciate is the risk of consumer class actions. You know, basically there are cases where a consumer will come in and they’ll by a product that is technically adulterated or mislabeled or contaminated in some way, maybe they’re violating some state regulation, and the state cannabis regulations are really onerous. It’s really hard for operators to be fully compliant.
So, the trick is these lawyers will find a product that is in some way violating a state regulation and then file consumer class action under state consumer protection laws. Frequently those are uninsured or under-insured claims, and they’re dangerous because they have fee shifting where the attorneys can get their attorney’s fees, there’s statutory damages, disbursement of profits. They’re pretty dangerous, and we’re starting to see those get filed now in California and elsewhere.
IJ: You mentioned something in your talk (at PLUS) about doctors looking for coverage for prescribing marijuana and that you expect that to pick up. How do you see that picking up? Where do you see these doctors going to find coverage, and what sort of coverages are they going be looking for?
Stewart: I think if you were to ask, you know, just an emergency room physician, for example, five years ago whether or not he or she needed separate coverage for cannabis-related wrongful acts or risks, the answer would be probably not. But I think these days, certainly in California, physicians who are not in the practice of making recommendations for medical cannabis nevertheless are seeing more and more patients who are using cannabis medicinally, either through a doctor’s recommendation or perhaps self-treating, maybe they’re now adult use consumers who are just going out and finding cannabis on their own.
We’re seeing more and more issues of interactions, you know, overlay where in the past it may have been a patient who just has a drug history of marijuana and cocaine. But now that patient may be adding CBD or marijuana to their panel of medications, and maybe there’s overlay with mental health issues or substance abuse. So, it can be really difficult for physicians now to tread those waters, get informed consent, adequately advise their patients, and in some cases even offer CBD or marijuana instead of opiates, for example.
And then there are other issues that are coming out for doctors. For example, there’s a syndrome called “cannabis hyperemesis syndrome.” This is a syndrome that we’re seeing more and more now, and a lot of physicians aren’t educated on it. Basically, it’s heavy, heavy pot users tend to have high levels and concentrations of cannabinoids in the system, and it can actually make them ill. It can make them nauseated. So, the patient comes in and, you know, the report is, “Well, I’ve been nauseated. I feel bad.” And the doctors say, “Okay, what did you do about it?” “Well, I smoked a lot of pot because I thought it would help with my nausea.” You know, it’s a vicious cycle. Some physicians are not aware of that problem, but we’re seeing a number of those reported cases now in California.
We have multiple carriers that we work with to find the right coverage with competitive pricing to meet all of the insurance requirements listed below.
(a) An applicant for a distributor license shall provide the Bureau with a certificate of insurance that shows the types of insurance coverage and minimum amounts that have been secured as required by this section, and documentation establishing compliance with subsection (d) of this section.
(b) A distributor licensee shall at all times carry and maintain commercial general liability insurance in the aggregate in an amount no less than $2,000,000 and in an amount no less than $1,000,000 for each loss.
(c) A distributor licensee shall maintain the insurance required in subsection (b) from an insurance company that is:
(1) A non-admitted insurer, that meets the requirements of Insurance Code section 1765.1 or 1765.2, and the insurance is placed pursuant to Insurance Code section 1763 and through a surplus line broker licensed under Insurance Code section 1765; or
(2) An insurer qualified to do business in California by the Secretary of State and authorized by the Insurance Commissioner to write the liability and property classes of insurance as defined by Insurance Code sections 102, 103, 107, 114, 108, and 120; or
(3) A registered risk retention group compliant with the California Risk Retention Act of 1991. (See California Insurance Code sections 125-140.)
(d) Admitted insurers and risk retention groups must show proof of capitalization in the amount of at least $10,000,000.
(e) A distributor licensee shall notify the Bureau in writing within 10 calendar days of a lapse in insurance.
Authority: Section 26013, Business and Professions Code. Reference: Section 26070, Business and Professions Code.
Did you know that all legal Cannabis shops need to have a bond? We specialize in all coverage, including Bonds for this industry.
An applicant shall provide proof of having obtained a surety bond of at least $5,000 payable to the State of California to ensure payment of the cost incurred for the destruction of cannabis goods necessitated by a violation of the Act or the regulations adopted thereunder. All bonds required under this regulation must be issued by a corporate surety licensed to transact surety business in the State of California.
Authority: Section 26013, Business and Professions Code. Reference: Sections 26051.5 and 26070, Business and Professions Code.
The American Disabilities Act (ADA) requires that businesses ensure products and services are accessible to disabled persons. Title III of the ADA addresses the services provided by websites and other digital devices.
The World Wide Web Consortium (W3G) has developed a Web Content Accessibility Guideline (WCAG 2.0) which is the recommended accessibility standard today. Hundreds of complaints and lawsuits are filed every year based on non-compliance with WCAG 2.0. And the numbers are expected to continue growing.
You may already be aware of these guidelines and know they are compliant. If not, you should discuss this topic with an attorney and other professionals experienced in ADA and web accessibility.
Spring and summer both bring severe weather like hurricanes, hail storms, thunderstorms, high winds, flooding, lightning and tornadoes.
Business owners should take action to prepare for severe weather before it arrives:
When storms are expected, policyholders should pay close attention to weather reports. The National Weather Service (NWS) and other agencies offer various ways to stay on top of approaching storms and weather warnings. Business owners can reference https://www.weather.gov/about/warning-dissemination for more information and resources.
The Consumer Product Safety Commission is charged with protecting the public from injury or death associated with the use of the thousands of products under the agency's jurisdiction
Honeywell has voluntarily recalled certain hardhats for their inability to provide the level of protection for which they were designed.
Commercial Rooftop HVAC Units:
Carrier recalled the Weather Expert commercial packaged rooftop HVAC units due fire hazard.
Packaged Terminal Air Conditioners/Heat Pumps (PTAC):
These PTAC units are common, but not limited to hotels, motels, and habitational operations. They were sold under various names from 2010 to January 2018. The fan motor can overheat posing a fire hazard.
Schneider Electric 2 & 3 Phase Safety Switches:
These units can stay on, even in the "OFF" position,creating a shock or electrocution hazard. Additional information about these and other product recalls can be found at https://www.cpsc.gov/Recalls.
The Consumer Product Safety Commission also offers help and guidelines so businesses can comply with federal safety regulations. Encourage your policyholders to check out https://www.cpsc.gov/Business--Manufacturing/Business-Education or https://www.cpsc.gov/Business--Manufacturing/Small-Business-Resources for valuable resources, standards and best practices.
If you own a business and have employees driving for company business, a policy should be in place that prohibits the use of cell phones, other devices, or activities that take away from the employees' main focus of driving.
According to industry studies, Driver Distraction is a major factor in crashes, with an estimated 1 in 4 crashes involving cell phone distraction-hand-held or hands-free.
If you have employees improperly using a tool which exposes them to a four times greater risk of injury, it only makes sense to establish rules and guidelines to help reduce that risk. Employers should take actions to protect their employees. Distracted Driving Policies should be a part of every Safety and Injury Prevention Program.
Visit http://www.nsc.org/learn/NSC-Initiatives/Pages/distracted-driving-awareness-month.aspx for resources, including a Safe Driving Kit
Life insurance is a simple answer to a very difficult question: How will my family manage financially when I die? It’s a subject no one really wants to think about. But if someone depends on you financially, it’s one you cannot avoid. There are many types of life insurance, but for all of them the bottom line is the same: They pay cash to your family after you die, allowing loved ones to remain financially secure. Life insurance payments can be used to cover daily living expenses, mortgage payments, outstanding loans, college tuition and other essential expenses. And, importantly, the death-benefit proceeds of a life insurance policy are almost never subject to federal income taxes. If you’ve worked hard to establish a solid financial framework for your family—investments, home equity, a savings plan, retirement accounts—life insurance is the foundation upon which it all rests. It can guard against the need for your loved ones to make drastic changes to future plans when you die. Certain types of life insurance even have a built-in cash-accumulation feature that can help you reach savings goals. Most Americans need life insurance, and many who already have it may need to update their coverage.