Author: Chris Boggs

ISO released three cannabis exclusion endorsements for use with the commercial general liability policy (CGL) with effective dates of December 1, 2019. The newly available CGL endorsements are the:

• CG 40 14-Cannabis Exclusion
  
• CG 40 15-Cannabis Exclusion With Hemp Exception
• CG 40 16-Cannabis Exclusion With Hemp & Lessors Risk Exceptions

All three endorsements exclude cannabis, two have a hemp exception, and one has a lessors' risk exception. To adequately understand each endorsement, we must first understand four key factors:

• The broad and consistent definition of “cannabis" among the three CGL endorsements;
  
• The exclusionary wording common to all three endorsements;
• How the hemp exception applies to two of them; and
• How each state's governance or allowance of industrial hemp production affects the exception.

Detailing these factors up front allows each endorsement to be presented without the need to repeat definitions and/or concepts common to the endorsements.

Cannabis Defined

All three endorsements define “Cannabis" to mean:

"Cannabis":

1. Means:

Any good or product that consists of or contains any amount of Tetrahydrocannabinol (THC) or any other cannabinoid, regardless of whether any such THC or cannabinoid is natural or synthetic.

2. Paragraph C.1. above includes, but is not limited to, any of the following containing such THC or cannabinoid:

a. Any plant of the genus Cannabis L., or any part thereof, such as seeds, stems, flowers, stalks and roots; or

b. Any compound, by-product, extract, derivative, mixture or combination, such as:

(1) Resin, oil or wax;

(2) Hash or hemp; or

(3) Infused liquid or edible cannabis;

whether or not derived from any plant or part of any plant set forth in Paragraph (C.2.a).

Note the breadth of this definition. It states, “ANY good or product…" containing “…ANY amount…" of THC is considered cannabis. Further, the definition makes no distinction between natural or synthetic cannabinoids. Further, any byproduct of cannabis falls within the definition of “cannabis," which specifically includes hemp. So, cannabis and hemp are equal for purposes of these endorsements.

The “Cannabis" Exclusion

Exclusionary wording is the same among the three CGL endorsements. All three endorsements exclude cannabis as follows:

A. The following exclusion is added to Section II – General Liability Coverages:

This insurance does not apply to:

1. "Bodily injury", "property damage" or "personal and advertising injury" arising out of:

a. The design, cultivation, manufacture, storage, processing, packaging, handling, testing, distribution, sale, serving, furnishing, possession or disposal of "cannabis"; or

b. The actual, alleged, threatened or suspected inhalation, ingestion, absorption or consumption of, contact with, exposure to, existence of, or presence of "cannabis"; or

2. "Property damage" to "cannabis".

This exclusion applies even if the claims against any "insured" allege negligence or other wrongdoing in the supervision, hiring, employment, training or monitoring of others by that "insured", if the "accident" which caused the "bodily injury" or the "property damage", or the offense which caused the "personal and advertising injury", involved that which is described in Paragraph A.1. or A.2. above.

Although this exclusion appears absolute, it is not. There are two exceptions to the exclusion (giving coverage back for certain events) built into all three endorsements. Coverage still is available for:

• “Bodily injury" or “property damage" attributable to and caused by an insured or a person adversely affected by the ingestion or absorption of cannabis for whom the named insured (the you) is legally responsible. Basically, if an insured or a person for whom the named insured (the you) is legally responsible is “high" and causes “bodily injury" or “property damage" to a third party, that BI or PD is covered. But there is, of course, an exception to this exception (creating an exclusion). If the “cannabis" that made the person high is the insured's product, there is no coverage. So, if the employee smokes the store's weed and causes injury or damage, there is no coverage.
• “Personal and advertising injury" resulting from false arrest, detention or imprisonment; or the wrongful eviction from, wrongful entry into, or invasion of the right or private occupancy of a room, dwelling or premises that a person occupies, committed by or on behalf of its owner, landlord or lessor. Essentially, if the insured manufactures cannabis or cannabis-related products, that fact does not preclude coverage for these actions.

Hemp Exception

Two of the three endorsements contain a hemp exception. Exceptions give back coverage previously excluded. Both the CG 40 15 and CG 40 16 contain the same hemp exception:

B. The exclusion in Paragraph A. does not apply to:

1. "Bodily injury", "property damage" or "personal and advertising injury" arising out of goods or products containing or derived from hemp, including, but not limited to:

a. Seeds;

b. Food;

c. Clothing;

d. Lotions, oils or extracts;

e. Building materials; or

f. Paper.

2. "Property damage" to goods or products described in Paragraph B.1. above.

This, of course, is not an all-inclusive listing of hemp-related products eligible for the exception. Notice where it says, “…including, but not limited to."

Because these and similar hemp-related products are no longer excluded, bodily injury, property damage and/or personal and advertising injury arising from such hemp products is covered (provided no other exclusion applies).

A Caveat to the Hemp Exception - Governance of Industrial Hemp

The hemp exception itself contains an exception. As we all know, an exception to an exception equals an exclusion. The caveat (ultimate exclusion) states the hemp exception does not apply if the state in which the insured is located does NOT allow the production or cultivation of industrial hemp.

So, the question must be asked before this hemp exception is applied, is production of industrial hemp products or the cultivation of industrial hemp allowed in the insured's state? If it is not, the hemp exception found in the CG 40 15 and CG 40 16 does not apply. When the exception does not apply, any hemp byproduct is excluded because it qualifies as “cannabis" by definition.

The National Conference of State Legislatures (NCSL) tracks industrial hemp statutes; as of August 2019, 47 states have enacted legislation allowing industrial hemp cultivation or production programs. Click here for a state-by-state review.

Three New CGL Endorsements

With this information as prologue, let's review the three new CGL cannabis exclusion endorsements.

CG 40 14 - Cannabis Exclusion

The CG 40 14 is an almost absolute “cannabis" exclusion (applying the definition of “cannabis" as defined in the policy and this article). However, even this absolute exclusion contains the two built-in exceptions introduced previously.

CG 40 15-Cannabis Exclusion With Hemp Exception

Other than the exception for hemp-related products detailed previously, this exclusion mirrors the near “absolute" exclusion found in the CG 40 14. “Bodily injury," “property damage" and “personal and advertising injury" is excluded if the injury or damage arises out of “cannabis." But, as the name suggests, the exclusion does not apply to industrial hemp products when the production or cultivation of industrial hemp is allowed by the state.

CG 40 16-Cannabis Exclusion With Hemp & Lessors Risk Exceptions

Compare this endorsement to the CG 40 15 and there is only one difference, the addition of the lessor's risk exception which reads:

B. The exclusion in Paragraph A. does not apply to:

3. "Bodily injury", "property damage" or "personal and advertising injury" arising out of the ownership, maintenance or use of a premises leased to others by you;

Attachment of this endorsement allows a lessor to have liability protection for bodily injury, property damage or personal and advertising liability assigned to the lessor resulting from cannabis-related activities of its tenant.

Note that the lessor's risk exception is not limited to tenants involved in hemp-related activities - even though the title addresses only hemp in addition to the lessor's risk. The exception is total, coverage is granted when the premises is leased to others. So, even if the tenant is involved with other cannabis-related activities not part of the hemp exception, the lessor still has coverage. This allows a lessor to have coverage even if the tenant is a marijuana shop.

Other Cannabis-Related Liability Endorsements

Beyond these cannabis exclusions specific to the CGL, ISO filed similar exclusionary endorsements for use with other liability coverage parts. Endorsements identical to the CG 40 14 and CG 40 15 are available for the: Owners and Contractors Protective Liability (OCP) form, Pollution Liability form, Railroad Protective Liability form, Electronic Data Liability form, Product Withdrawal form, Limited Product Withdrawal Expense endorsement, and the Underground Storage Tank Policy.

Copies of the CG 40 14 – Cannabis Exclusion

• CG 34 46 – Cannabis Exclusion (for use with the Owners and Contractors Protective Liability Coverage Part)
  
• CG 34 50 – Cannabis Exclusion (for use with the Pollution Liability Coverage Part)
• CG 34 48 – Cannabis Exclusion (for use with the Railroad Protective Liability Coverage Part)
• CG 34 52 – Cannabis Exclusion (for use with the Electronic Data Liability Coverage Part)
• CG 34 54 – Cannabis Exclusion (for use with the Product Withdrawal Coverage Part and the Limited Product Withdrawal Expense Endorsement)
• CG 30 71 – Cannabis Exclusion (for use with the Underground Storage Tank Policy)

Copies of the CG 40 15 – Cannabis Exclusion with Hemp Exception

• CG 34 47 – Cannabis Exclusion With Hemp Exception (for use with the Owners and Contractors Protective Liability Coverage Part)
  
• CG 34 51 – Cannabis Exclusion With Hemp Exception (for use with the Pollution Liability Coverage Part)
• CG 34 49 – Cannabis Exclusion With Hemp Exception (for use with the Railroad Protective Liability Coverage Part)
• CG 34 53 – Cannabis Exclusion With Hemp Exception (for use with the Electronic Data Liability Coverage Part)
• CG 34 55 – Cannabis Exclusion With Hemp Exception (for use with the Product Withdrawal Coverage Part and the Limited Product Withdrawal Expense Endorsement)
• CG 30 72 – Cannabis Exclusion With Hemp Exception (for use with the Underground Storage Tank Policy)

Key Takeaways

• Liability exposures related to “cannabis" are excluded when any of these endorsements is attached;
  
• All listed endorsements apply the same definition of “cannabis;"
• Hemp and hemp-related products are initially included within the definition of “cannabis;"
• Hemp can be excepted from the “cannabis" exclusion when an endorsement containing a hemp exception is attached;
• The hemp exception applies only if industrial hemp production or cultivation is allowed in the state;
• The lessor's risk exception is not limited to tenants involved with hemp products; and
• Only the CGL has an endorsement with a Lessors' Risk exception. None of the other programs have this exception.

Last Updated: December 20, 2019