If You Got’m, Smoke’m: New Cannabis Endorsements for Commercial Insurance

The legalization of cannabis is a growing trend in America.  We are lucky to have a national authority on cannabis and insurance here in North Carolina: Dr. Brenda Wells at East Carolina University is recognized as one of the most knowledgeable insurance authorities on this subject.  Access to some of her work on this subject can be found here and here.

Dr. Wells also has a webinar on the CPCU Society website.

Since I don’t smoke anything, my knowledge of the nuances of cannabis is limited.  What little I know is cannabis is a generic name for a specific variety of plants.  Apparently, the plants come in at least two groups: hemp and marijuana. (I actually had to look up the spelling of marijuana. You may be getting the picture of what a dull conformist I am.)   The main difference in these two species of cannabis is the level of THC or Tetrahydrocannabinol.  THC is a psychoactive substance that is associated with eating whole packages of Oreo cookies at a time.  Marijuana has high levels of THC and hemp has low levels of THC.  Marijuana is associated with the personal inhalation, ingestion, absorption or consumption for recreational or medicinal purposes of THC.  Hemp, on the other hand, has many commercial and industrial uses.  It can be used in food, clothing, lotions, oils, extracts, building materials and paper for example. 

The challenge that writers of insurance forms have is to choose what cannabis elements they want to insure versus the elements they do not want to insure. The emerging endorsement addressing cannabis exposures currently attaches to the General Liability on the Auto Dealers form, Inland Marine forms, and Commercial Property forms.  These endorsements typically follow two tracks.  Track one is an absolute exclusion of the cannabis exposure.  This would involve “bodily injury”, “property damage”, and “personal and advertising injury” for the General Liability on the Auto Dealers form.  For the Inland Marine and Property forms, “cannabis” is included in Property Not Covered.  Track two is the exclusion of cannabis with an exception for hemp.  The both sets of forms have explicit definitions for “cannabis” and the forms to permit coverage for hemp have explicit descriptions of the acceptable uses of hemp.  It is noteworthy that the forms excepting hemp from the exclusion do have an exclusion for hemp when such products are prohibited under state or local statutes, regulations or ordinances applicable in the areas where the products are used.

It is a known characteristic of the insurance industry to lag changes in social patterns and habits.  This is largely due to the need for historical data to determine loss frequency and severity for pricing purposes.  As this social trend continues to develop, the insurance industry will sort out its appetite and capacity for providing coverage for such substances and their uses. 

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