Author: Chris Boggs

Insurance Services Office (ISO) seems preoccupied with cannabis, which includes marijuana and other products containing THC. But then, a lot of people are discussing these products including the federal government and the states.

The feds still view these products as illegal; but states don't always agree. See the article, Marijuana in the US" for more details.

With the feds and the states at odds, the insurance industry is stuck in the middle. Carriers are forced to decide whether to insure or exclude cannabis and any related products or not. Because carriers are stuck, ISO was forced to respond.

So far, ISO's response has been exclusionary endorsements. In addition to the five BOP exclusions recently introduced, ISO promulgated 11 other cannabis-related exclusionary endorsements available for use with their:

• Agricultural Capital Assets program (Output Policy);
  
• Capital Assets program (Output Policy);
• Commercial Auto (focused on Auto Dealers);
• Commercial Property; and
• Commercial Inland Marine

Rather than describe all 11 endorsements, following are the key definitions and exceptions found in each.

Cannabis Defined

Cannabis" is defined the same in all 11 endorsements. Note that the paragraph references are generalized" in the following definition because each endorsement refers to a different paragraph.

"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 (X.#.) 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 (X.#2.x).

Cannabis" Exclusions

The methods for excluding cannabis vary based on the coverage part. Property-facing endorsements exclude cannabis simply by adding cannabis" to the list of property not covered:

A. Property Not Covered is amended as follows:

1. "Cannabis" is added to Property Not Covered.

This exclusion is initially absolute. However, four of the eight property endorsements contain a hemp exception which is detailed later in this article.

Exclusionary wording found in the three new liability-facing endorsements isn't as simple. Because liability forms extend protection for injury to or damage suffered by a third party, exclusionary wording is a bit more detailed. The liability-focused endorsements exclude cannabis-related liability 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 the cannabis-related liability exclusion appears absolute, it is not. There are two built-in exceptions applicable to every ISO cannabis liability exclusion. These are presented in the next section.

Built-in Cannabis Liability Exceptions

The two broad exceptions to the liability-related cannabis exclusions are:

• 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.
• The personal and advertising injury" exclusion does not apply to 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

Four of the property endorsements and two of the liability endorsements contain a hemp exception. Exceptions give back coverage previously excluded. How the exception is granted differs depending on the applicable coverage part.

In the property endorsements, the hemp exception states that the definition of cannabis" (and the ultimate exclusion) does not apply to goods or products containing or derived from hemp, including, but not limited to:

1. Seeds;
2. Food;
3. Clothing;
4. Lotions, oils or extracts;
5. Building materials; or
6. Paper.

As is highlighted, this is not intended as a complete list of excepted hemp products; this is only a sampling of hemp-related products extended coverage by exception. Because these products are no longer part of the list of property not covered, they are covered. Almost a duh" statement since exceptions give coverage back that had been previously removed.

Liability-related hemp exceptions use essentially the same language to return coverage; but, as would be expected, these liability exceptions refer to bodily injury," property damage" and personal and advertising injury." Liability hemp exceptions read:

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.

Again, this is not an all-inclusive list of hemp-related products. And once again, since these hemp-related products are no longer excluded, bodily injury, property damage and/or personal and advertising injury arising from these products is covered (provided no other exclusions apply).

A Caveat to EVERY Hemp Exception

Every hemp exception contains an exception. As is well known, an exception to an exception equals an exclusion. The hemp exception applies only if the state in which the insured is located allows the production or cultivation of industrial hemp.

As of August 2019, 47 states have enacted legislation allowing industrial hemp cultivation or production programs according to the National Conference of State Legislatures (NCSL). Click here for a state-by-state review.

The Lessors Risk Exception

One endorsement contains the Lessors Risk Exception which reads:

B. The exclusion in Paragraph (X.) does not apply to:

"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;

This wording extends liability protection to a lessor for any liability assigned to it 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. The exception is total, coverage is granted when the premises is leased to others. So, even if the tenant is involved in other cannabis-related activities, the lessor still has coverage.

The Endorsements

With all the necessary background already supplied, it is unnecessary to provide anything other than the endorsement number and title. The title indicates what is excluded, what is excepted from the exclusion and what is excepted from the exception (aka: excluded again).

For ease, the list is broken into property-related endorsements and liability-related endorsements. Note that all 11 have a 12/19 edition date.

Property Endorsements

• Agricultural Capital Assets (Output) program:
  
• AG 99 07 12 19 - Cannabis Exclusion
• AG 99 08 12 19 - Cannabis Exclusion With Hemp Exception
• Capital Assets Program (Output) program:
• OP 99 07 12 19 - Cannabis Exclusion
• OP 99 08 12 19 - Cannabis Exclusion With Hemp Exception
• Commercial Property program:
• CP 99 03 12 19 - Cannabis Exclusion
• CP 99 04 12 19 - Cannabis Exclusion With Hemp Exception
• Commercial Inland Marine program:
• CM 99 05 12 19 - Cannabis Exclusion
• CM 99 06 12 19 - Cannabis Exclusion With Hemp Exception

Liability Endorsements

• CA 27 12 12 19 - Cannabis Exclusion For General Liability Coverages
  
• CA 27 13 12 19 - Cannabis Exclusion With Hemp Exception For General Liability Coverages
• CA 27 14 12 19 - Cannabis Exclusion With Hemp And Lessor Risk Exception For General Liability Coverages

Notice that all three liability-related cannabis exclusions apply to the business auto program. More specifically, note that all three are used with the auto dealer program. So, if an auto dealer is also a dealer, these endorsements can be used (this is a joke). Actually, these are quite relevant to an auto dealer because some of the products they sell may include industrial hemp products. Pay attention if the carrier attaches these to the auto dealer's policy.

Cannabis Exclusion Endorsements

Are these the last of the cannabis liability endorsements from ISO? This is unlikely given the uncertainty surrounding cannabis laws surrounding federal vs. state authority. As others are introduced, the VU will stay on top of the changes.

Last Updated: November 8, 2019

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