CANNABIS EXCLUSION ENDORSEMENTS

(September 2022)

INTRODUCTION

Cannabis has long been considered Not Covered Property under the Businessowners Coverage form because, as a Schedule I drug under the Controlled Substances Act of 1970, it falls under of item c. Contraband, or property in the course of illegal transportation or or trade. Some recent Federal rule changes are making this less definite. In order to clarify the intent for both insured and insurers, ISO has introduced five new endorsements. All are optional.

BP 15 30–Cannabis Property Exclusion

This endorsement could be considered to be maintaining the status quo and clarifying the intended position of the insurance industry.

  1. Property Not Covered

Cannabis is added to the list of Property Not Covered.

 

Example: Carrie sells a variety of lotions and similar products. All are legal but some contain CBD oil.

Her CBD-infused products value is $15,000.

Her All-other products value is $50,000.

Carrie should be purchasing cover for only the $50,000 because the $15,000 is property not covered.

 

  1. Business Income and Extra Expense Operations Not Covered

This eliminates business income or extra expense coverage for that part of the named insured’s operations that are attributed to any of the following cannabis-related operations which are suspended:

·         Design

·         Cultivation

·         Manufacture

·         Storage

·         Processing

·         Packaging

·         Handling

·         Testing

·         Distribution

·         Sale

·         Serving

·         Furnishing

·         Possession

·         Disposal

This item B. would apply even if the reason for the loss was due to damage to only non-cannabis property.

 

Example: Carrie will not be paid for any loss of income or extra expense that is incurred due to the CBD-infused product. This will not impact pricing or limits because loss of income is covered on a 12-month actual loss sustained basis. She estimates her income/extra expense is as follows:

Loss of income/extra expense attributed to CBD - $5,000

Loss of income/extra expense attributed to all other products - $ 25,000.

 

  1. Cannabis Definition

If a good or product contains ANY amount of Tetrahydrocannabinol (THC) or another type of cannabinoid it is considered cannabis. This applies whether the amount is natural or synthetic.

Examples of items that could contain the THC or cannabinoid are:

·         All and any part of the Genus Cannabis L. Seeds, stems, flowers, stalks, and roots are all examples of parts.

·         Whether or not derived from the above, compounds, byproducts, extracts, derivatives, mixtures containing THC or cannabinoids such as the following examples:

 

Oil

Wax

Resin

Hash

Hemp

Infused liquid

Edible cannabis

 

 

 

Example: When a fire occurs all of Carrie’s property is destroyed and she is unable to resume operations for 60 days. Carrie will be paid $$75,000 for the non-CBD property and loss of income loss from the non-CBD property while the $20,000 property and loss of income loss due to CBD property damage is uncovered.

BP 15 31–Cannabis Property Exclusion with Hemp Exception

This endorsement is identical to BP 15 30 except for the addition of paragraphs under Item A. and B. which remove certain types of cannabis products from the exclusion.

  1. Property Not Covered – Hemp Exception

Paragraph 2. states that the following hemp-derived or hemp-contained products are not subject to the Cannabis Not Covered item.

 

Seeds

Food

Clothing

Lotions, oils, or extracts

Building materials

Paper

 

There is a limitation. If any of the above exempted products are illegal or prohibited under any state or local statute where the product or good is located, that product or good is not exempted.

 

Example: Carrie is located in a state that allows CBD sales. She requested that BP 15 31 be attached.

Scenario 1: The prior case, when she had a total loss, would be covered because the CBD would be considered covered property.

Scenario 2: Carrie decides to exhibit her product in a nearby state. She takes all of her products. When she has a car accident while traveling through one state in order to get to that nearby state, the damage to the CBD property is not covered because the state in which the accident occurred does not permit CBD products.

 

  1. Business Income and Extra Expense Operations Not Covered – Hemp Exception

Paragraph 2. states that the following hemp-derived or hemp-contained products are not subject to the Business Income and Extra Expense Operations suspension of cannabis operations not being covered.

 

Seeds

Food

Clothing

Lotions, oils, or extracts

Building materials

Paper

 

There is a limitation. If any of the above exempted products are illegal or prohibited under any state or local statute where the product or good is located, the suspension of operations related to such products or goods is not exempted.

BP 15 32–Cannabis Liability Exclusion

There is no specific exclusion that is applied to cannabis-related operations in the BP 00 03. However, coverage has been avoided by carriers declining to write such operations. If a loss should occur and investigation reveals such an operation is taking place, coverage is denied because of the Concealment, Misrepresentation or Fraud condition in the policy that voids policy because of fraud, concealing or or misrepresentations.

However, because cannabis use is spreading, ISO has developed an exclusion that is specific to it.

Attaching this endorsement could be considered a clarification of the status quo. However, because the endorsement eliminates some of the fuzziness regarding cannabis coverage the addition of this exclusion should be considered a reduction in coverage. Coverage fuzziness leads to ambiguities which normally result in decisions for the policyholders and against the insurance company.

This endorsement applies to both BP 00 03–Businessowners Coverage Form and BP 05 96– Electronic Data Liability – Broad Coverage Endorsement.

  1. Section II - Liability

Insurance in this policy does not apply to:

1.     Bodily injury, property damage or personal and advertising injury that arises from the following:

a.     Cannabis

·         Design

·         Cultivation

·         Manufacture

·         Storage

·         Processing

·         Packaging

·         Handling

·         Testing

·         Distribution

·         Sale

·         Serving

·         Furnishing

·         Possession

·         Disposal

b.     Cannabis

·         Inhaling

·         Ingesting

·         Absorbing

·         Consuming

·         Contact

·         Exposure

·         Existence

·         Presence

that is threatened, alleged, actual or merely suspected

 

Example: Carrie sells CBC products to her customers. A customer has a negative reaction to the drug and sues Carrie. Because BP 15 32 is attached, Carrie will not be defended or indemnified for the claim.

2. Property damage TO cannabis

 

Example: Carrie is a vendor at a cannabis/hemp exhibition. She sets up her candles a bit too close to the neighboring vendor’s product and is shocked when that vendor’s cannabis-based product begins smoldering. When the vendor sues Carrie, coverage is denied because the vendor’s product is cannabis as defined in the endorsement.

 

In a method similar to the one used in the liquor and auto exclusions, this exclusion also applies to claims regarding any alleged neglect in the supervising, hiring, employing, training, or monitoring of another individual by an insured when the claim is due to any of the above.

An especially important exception applies that bodily injury or property damage due to an individual doing any of the items in 1.b above does not apply when that individual is either an insured or is someone that an insured is responsible for under law. This exception does not apply, however, if the named insured sold, served, or furnished the cannabis to the excepted person.

 

Example: Marjory owns Marjory’s Joys. One day she consumed a little too much of a cannabis-infused brownie. While in her drugged state, she tripped and fell against Patricia, a customer. Patricia sued for the injuries she sustained in the fall.

Scenario 1: The brownie was an edible sold at Marjory’s store. All coverage that would have been provided by the CP 00 03 is excluded because Marjory had consumed a brownie sold in her store.

Scenario 2: The brownie was a homemade one which a friend had shared with her that morning. Marjory was quite surprised by its impact. Patricia’s claim will be defended because Marjory is an insured AND the brownie was not a product of her store.

 

  1. The following exception to Exclusion A. applies to personal injury and advertising injury when the offense is due to either of the following:

1.     Imprisonment, false arrest, or detention

2.     Violations of the right of a tenant’s private occupancy. This includes wrongful eviction from, wrongful entry into, or invasion of a space or a premises a person occupies. The act must be committed by the owner, landlord or lessor, or by parties that act on their behalf.

 

Example: Russ is terribly upset when he smells marijuana smoke coming from one of the apartment units he leased out because he had a strict non-smoking policy. He entered the apartment to confirm his suspicion and then proceeded with the eviction. When the tenant filed claim for wrongful entry and wrongful eviction, Russ’s carrier defended him even though the BP 15 32 was attached.
  1. Electronic Data Liability

Note: This applies only if CP 05 96–Electronic Data Liability – Broad Coverage Endorsement is attached to the policy.

Insurance in this endorsement does not apply to:

1.     Loss of electronic data that arises from the following:

a.     Cannabis

·         Design

·         Cultivation

·         Manufacture

·         Storage

·         Processing

·         Packaging

·         Handling

·         Testing

·         Distribution

·         Sale

·         Serving

·         Furnishing

·         Possession

·         Disposal

b.     Cannabis

·         Inhaling

·         Ingesting

·         Absorbing

·         Consuming

·         Contact

·         Exposure

·         Existence

·         Presence

that is threatened, alleged, actual or merely suspected

In a method similar to that used in liquor and auto exclusions, this exclusion also applies to claims regarding any alleged neglect in the supervising, hiring, employing, training, or monitoring of another individual by an insured when the claim is due to any of the above.

An important exception applies that bodily injury or property damage due to an individual doing any of the items in 1.b above does not apply when that individual is either an insured or is someone that an insured is responsible for under law. This exception does not apply, however, if the named insured sold, served, or furnished the cannabis to the excepted person.

  1. Cannabis Definition

If a good or product contains ANY amount of Tetrahydrocannabinol (THC) or another type of cannabinoid it is considered cannabis. This applies whether the amount is natural or synthetic.

Examples of items that could contain the THC or cannabinoid are:

·         All and any part of the Genus Cannabis L. Seeds, stems, flowers, stalks, and roots are all examples of parts.

·         Whether or not derived from the above, compounds, byproducts, extracts, derivatives, mixtures containing THC or cannabinoids such as the following examples:

 

Oil

Wax

Resin

Hash

Hemp

Infused liquid

Edible cannabis

 

 

BP 15 33–Cannabis Liability Exclusion with Hemp Exception

This endorsement is identical to BP 15 32 except for two items that are added to the Paragraph B.: the introduction of an Electronic Liability exception paragraph D. and the change from D. to E. for the Cannabis Definition.

Change in Paragraph B.

In the BP 15 32, personal and advertising injury due to certain activities is an exception to Paragraph A. This exception remains unchanged except that it becomes item 3.

Item 1. is added stating that bodily injury, property damage or personal and advertising due to the following hemp-derived or hemp-contained products are not subject to the Paragraph A exclusion.

 

Seeds

Food

Clothing

Lotions, oils, or extracts

Building materials

Paper

 

Item 2. is added stating that property damage TO cannabis described in Item 1 above is not subject to Paragraph A.

There is a limitation to Paragraph B. If any of the above exempted products are illegal or prohibited that product or good is not exempted. The determination of whether the product is prohibited, or illegal is based on the laws, regulations, and ordinances of the state where any of the following apply:

·         The injury or damage occurs

·         The occurrence takes place

·         The personal and advertising offense was committed

 

Example: Carrie is located in a state that permits the sale of all of the excepted items in paragraph B. She sells some items to a Jeremy. Jeremy takes the product with him and uses it in his home state where the product is not legal. Jeremy has an extremely negative reaction to the product and investigation traces it back to Carrie’s negligence in manufacturing the product. The occurrence therefore took place where it is legal but because the actual bodily injury took place in a state where the product was not legal, Carrie is not covered when Jeremy sues her for damages.

 

Addition of Paragraph D

In the BP 15 32, personal and advertising injury due to certain activities is an exception to Paragraph A. This exception remains unchanged except that it becomes item 3.

Item 1. is added stating that loss of electronic data due to the following hemp-derived or hemp-contained products are not subject to the Paragraph A exclusion.

 

Seeds

Food

Clothing

Lotions, oils, or extracts

Building materials

Paper

 

Item 2. is added stating that loss of electronic data due to the:

·         Design

·         Manufacture

·         Distribution

·         Sale

·         Serving

·         Furnishing

·         Use

·         Possession

of any of the products described in item 1. above is also excepted.

There is a limitation to Paragraph D. If any of the above exempted products are illegal or prohibited, that product or good is not exempted. The determination of whether the product is prohibited, or illegal is based on the laws, regulations, and ordinances of the state in which the loss of electronic data takes place.

BP 15 34–Cannabis Liability Exclusion with Hemp Exception and Lessors Risk Exceptions

This endorsement is identical to BP 15 33 except for one item added to the Paragraph B.

Item 3. is added stating that bodily injury, property damage or personal and advertising injury that arise from the named insured owning, maintaining, or using a premises that is is leased to others is not subject to Exclusion A. Note: This could be a particularly important exception for any named insured that owns property because there are NO limitations. Owners of multiple properties are not always aware of all of the activities, legal and illegal, taking place at its premises. Because of the lack of limitations in this exception the landlord will have much more protection than in the unendorsed BP.

 

Example: Jerry owns property in multiple states. Cannabis use is legal in some, only hemp is legal in some and in some states all products are illegal.

A tenant manufactures cannabis-related products. A fire occurs at the premises due to the manufacturing. Multiple bodily injury and property claims are brought against the tenant. The tenant’s insurance carrier denies all coverage because the tenant had misrepresented its operations. Jerry is sued as the landlord for negligence in leasing to the tenant. Because of this exception, Jerry should have coverage for defense and indemnity.