(July 2026)
Cannabis has
traditionally been classified as Not Covered Property in the Businessowners
Coverage form because, as a Schedule I drug under the Controlled Substances Act
of 1970, it is considered contraband or property involved in illegal
transportation or trade. However, recent Federal rule changes are creating some
ambiguity. To clarify the intentions for both insured parties and insurers, ISO
has introduced five new optional endorsements.
This endorsement could be considered to maintain the status quo and
clarify the intended position of the insurance industry.
Add cannabis 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 are valued at $15,000, and her “all-other”
products at $50,000. Carrie should purchase coverage only for the $50,000
because the $15,000 is property not covered by the policy. |
This eliminates business income or extra expense coverage for that part
of the named insured’s operations that is 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 loss was due to damage to only non-cannabis property.
|
Example:
Carrie will
not receive payment for any income loss or additional expenses caused by the
CBD-infused product. This does not affect pricing or limits because income
loss is covered under a 12-month actual loss sustained basis. She estimates
her income and extra expenses as follows: Loss of income/extra expense attributed to CBD -
$5,000. Loss of income/extra expense attributed to all
other products - $25,000. |
If a good or product
contains ANY amount of Tetrahydrocannabinol (THC) or another cannabinoid, it is
classified as cannabis. This rule applies regardless of whether the
cannabinoids are natural or synthetic.
Examples of items that could contain
THC or a 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, or
mixtures containing THC or cannabinoids, such as the following:
o
Oil
o
Wax
o
Resin
o
Hash
o
Hemp
o
Infused
liquid
o
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 for loss of
income from the non-CBD property, while the $20,000 property and loss of income
due to CBD property damage are not covered. |
This endorsement is
identical to BP 15 30, except for the addition of paragraphs under Items A and
B, which remove certain types of cannabis products from the exclusion.
Paragraph 2. states
that the following hemp-derived or hemp-contained products are not subject to
the Cannabis Not Covered item.
·
Seeds
·
Food
·
Paper
·
Clothing
·
Lotions,
oils, or extracts
·
Building
materials
A limitation exists: if any of the
exempted products are illegal or prohibited by state or local laws where the
product is located, they are not considered exempt.
|
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 to reach that nearby
state, the damage to the CBD property is not covered because the state where
the accident occurred does not permit CBD products. |
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
·
Paper
·
Clothing
·
Building
materials
·
Lotions,
oils, or extracts
A limitation exists: if
any of the exempted products are illegal or forbidden by state or local laws
where the product or good is situated, then suspending operations for those
products or goods is not exempt.
The BP 00 03 does not explicitly exclude
cannabis-related operations. However, carriers often avoid coverage by refusing
to insure these activities. If a loss occurs and it is found that a
cannabis-related operation was involved, coverage will be denied under the
policy's Concealment, Misrepresentation, or Fraud clause, which voids the
policy due to deceit or concealment.
However, because cannabis use is spreading, ISO
has developed an exclusion specific to it.
Adding this endorsement might serve as a
clarification of the current situation. Nonetheless, since it removes some
ambiguity about cannabis coverage, including this exclusion should be seen as
decreasing coverage. Ambiguities in coverage tend to cause uncertainties,
usually favoring policyholders and disadvantaging the insurer.
This endorsement applies to both BP 00
03–Businessowners Coverage Form and BP 05 96– Electronic Data Liability – Broad
Coverage Endorsement.
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 against 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. |
This exclusion, similar to those for liquor and
auto claims, also covers claims related to alleged neglect in supervising,
hiring, employing, training, or monitoring another person by an insured, when
the claim arises from any of these activities.
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 homemade and a friend shared it 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.
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 a claim for wrongful entry and wrongful
eviction, Russ’s carrier defended him even though the BP 15 32 was attached. |
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
Similar to the method used in liquor and auto
exclusions, this exclusion also applies to claims alleging any neglect by an
insured in the supervising, hiring, employing, training, or monitoring of
another individual when the claim is due to any of the above.
A key exception is that bodily injury or
property damage caused by an individual performing the actions in 1.b does not
apply if that individual is either an insured or someone the insured is legally
responsible for. However, this exception does not apply if the named insured
sold, served, or furnished the cannabis to the person in question.
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:
o
Oil
o
Wax
o
Hash
o
Resin
o
Hemp
o
Infused
liquid
o
Edible
cannabis
This endorsement is the
same as BP 15 32, with two additions to Paragraph B: an Electronic Liability
exception in Paragraph D. and the relettering of the Cannabis Definition from
D. to E.
Change in Paragraph B.
In BP 15 32, personal and advertising injury
from specific activities are exceptions to Paragraph A. This exception stays
the same, except it is now listed as item 3.
Item 1 is added, stating that bodily injury,
property damage, or personal and advertising injury due to the following
hemp-derived or hemp-contained products are not subject to the Paragraph A
exclusion.
·
Seeds
·
Food
·
Paper
·
Clothing
·
Building
materials
·
Lotions,
oils, or extracts
Item 2. is added stating that property damage
TO cannabis described in Item 1 above is not subject to Paragraph A.
Paragraph B has a limitation. 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 illegal or prohibited 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 in a state that allows the sale of all
items listed in paragraph B. She sells some items to Jeremy. Jeremy then
takes the product to his home state, where it is illegal. Upon using the
product, Jeremy has a severe negative reaction, and an investigation links
the issue to Carrie’s negligent manufacturing. The incident technically
occurred in a state where sale was legal, but since the bodily injury
occurred in a state where the product was illegal, Carrie is not covered when
Jeremy sues her for damages. |
Addition
of Paragraph D
In BP 15 32, personal and advertising injury
caused by specific activities is an exception to Paragraph A. This exception
stays the same except it is now listed as item 3.
Item 1. now states that loss of electronic data
caused by the specified hemp-derived or hemp-contained products is not covered
under the Paragraph A exclusion.
·
Seeds
·
Food
·
Paper
·
Clothing
·
Building
materials
·
Lotions,
oils, or extracts
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.
Paragraph D has a limitation: if any of the
listed exempted products are illegal or prohibited, they are not considered
exempt. Whether a product is deemed illegal or prohibited depends on the laws,
regulations, and ordinances of the state where the electronic data loss occurs.
This endorsement is
identical to BP 15 33 except for one item added to the Paragraph B.
Item 3. now states that bodily injury,
property damage, or personal and advertising injury resulting from the insured
owning, maintaining, or using a leased premises is not excluded under Exclusion
A. This is especially significant for insured owners of property, as there are
no limits to this exception. Owners with multiple properties may not be aware
of all activities—legal or illegal—occurring on their premises. Due to the
absence of restrictions in this exception, landlords gain considerably more protection
compared to the unendorsed BP.
|
Example: Jerry owns properties in
various states. Some states legalize cannabis, others only permit hemp, and
in some, all cannabis-related products are prohibited. A tenant involved in
manufacturing cannabis products causes a fire at the premises. This results in
multiple bodily injury and property damage claims against the tenant. The
tenant’s insurer denies coverage, citing misrepresentation of operations.
Jerry faces a negligence lawsuit as the landlord for leasing to the tenant.
Due to this exception, Jerry should have coverage for defense costs and
indemnity. |