It was way back in 1996 when California became the first state to legalize medicinal cannabis with Proposition 215. Over the next 16 years, state after state followed, in one form or another, until Colorado and Washington legalized recreational marijuana in 2012, followed by Oregon, Nevada, Maine, Massachusetts and, of course, California. Today, it’s much easier to count the states that have not passed some sort of notable cannabis legalization than it is to count the many that have. A new industry (well, newly legitimized industry) has been created, and it shows little sign of slowing down – let alone disappearing. So, when a purveyor of this new industry wants to do it right, to follow the rules and bring their business it into the light of legality, they will of course turn to their qualified legal professional to help them along the right path.
Wait, he… he was around here somewhere…
Alas, it seems that the same hurdles the cannabis industry is navigating when it comes to finding Product Liability, Workers’ Comp or even General Liability are being encountered by members of the legal industry who dare to represent them. At the moment, only a handful of markets will consider writing Lawyers Professional Liability insurance for law firms with clients in any aspect of the cannabis industry.
“If they come right out and say ‘we work with cannabis’ and that’s what they’re focusing on – regulatory, licensing, those kinds of areas – then no,” said an LPL underwriter I spoke with. “But, there are all kinds of other areas where a firm could be working and the type of client wouldn’t enter the conversation. It’s even possible that a firm may be working with a cannabis client and not even realize it. If they’re doing a real estate transaction and their client is purchasing a large plot of land, is it the firm’s responsibility to know what it’s being used for?”
Several LPL underwriters do acknowledge a “Don’t Ask, Don’t Tell” policy when it comes to the cannabis space, and most LPL applications do not specifically inquire if a firm has clients in the industry. Of course, a simple fix for this would be to ask the question, right? “Well, then what do you do with business that’s already on the books?” asks another Senior LPL Underwriter at a carrier that will not (knowingly) write such firms. “Now you’re risking having to runoff business you’ve already written. What do you do? Do you non-renew? Surcharge it?” In the current climate, not only might carriers be unknowingly writing new business in this space, but there is a good chance that a firm who is working with cannabis clients already has coverage unbeknownst to the carrier that is covering them.
It seems that, like many other lines, most LPL carriers have come down as either a yes or no on the issue from the beginning, with little movement thus far. There has been some entrance into certain aspects of the market; early in August, three carriers who plan to write surety bonds for the industry were approved by the California DOI. This spring another was approved for a cannabis product liability and product recall program. In fact, according to the Insurance Journal, California Insurance Commissioner Dave Jones said earlier this year that “’[w]henever anyone shops in, works in, sells products to, or invests in a cannabis business, I want there to be insurance coverage available.’” [1]
But still, it appears the majority of LPL carriers are looking at the chasm between the positions of the states and the Feds and treading lightly – especially considering that the little movement we have seen has been mostly moving away from the space.
“Our stance changed 180 degrees after the 2016 election,” said the Senior Underwriter. “The previous administration had been saying it was up to the states to decide and that they’re not going to prosecute.
The new administration took the opposite approach: ‘this is illegal federally and we intend to uphold the law.’”
It was January 4th of this year when Attorney General Jeff Sessions rescinded the Cole Memo[2] – which had established a Federal policy of not interfering with states’ decisions to permit the manufacture, sale, or possession of marijuana – days after California, with the fifth largest economy in the world, initiated recreational use.
“We wrote multiple lines of coverage in the cannabis space, and a decision was made to non-renew it all,” said a Senior Director at a large company that still considers law firms in the space. “We hadn’t had any losses on that business.”
But politics isn’t the only concern that is being discussed among company management. The other is actuarial. “There’s still no caselaw to follow, no precedent,” said the LPL underwriter I spoke with. “Let’s say Joe Weed has done X and we’re trying to assess the risk. Where am I going to refer back to Weed vs. the State of CA?” In many ways, this is the Wild West – a “Green Rush” if you will. For an industry whose very foundation is determining risk, some feel there’s just not enough to go on yet.
All that said, there are some carriers that are willing to take a risk, literally, on the legal advocates of this fledgling industry, which many feel will have its legs under it soon enough. “We’ll support law firms that have practices in states where legislation has been approved, both medical and recreational,” said the Senior Director. “They should be experts in the industry in their state, with around 25% of the practice committed to the industry, but we will consider all areas of practice: regulatory, real estate, plaintiff, criminal defense, et cetera. Right now, there are 29 states that have passed some kind of legislation geared towards the legalization of cannabis. At some point all fifty are going to be ok with it, and the only one left out will be the Feds.”
[1] https://www.insurancejournal.com/news/west/2018/05/16/489423.htm
[2] https://www.justice.gov/iso/opa/resources/3052013829132756857467.pdf
About the Author
Raffi Kodikian is a Lawyers Professional Liability Insurance Practice Leader for National wholesale insurance brokerage, Founders Professional. Raffi helps law firms across the Country secure professional liability insurance in conjunction with their retail insurance agency. Raffi can be reached at [email protected] or 415.850.8503.