Is Your Cannabis Business Really Covered?

Cannabis businesses, like any other, would do well to make certain that their commercial insurance policies cover potential product liability from claims of “bodily injury” caused by “adulterated marihuana.”

Under MCL 333.27408 (“Section 408”) of the Medical Marihuana Facilities Licensing Act (MMFLA), an applicant/licensee must provide proof of financial responsibility in an amount not less than $100,000 for liability for “bodily injury” to “lawful users” resulting from the manufacture, distribution, transportation, or sale of “adulterated marihuana.”

When an applicant/licensee for a Michigan medical cannabis license purchases a policy of liability insurance to comply with Section 408, the issuing insurance carrier completes a corresponding Attestation J form, certifying that “no products liability exclusion exists in the liability coverage . . . that would exclude the coverage mandated.” 

Despite the requirements of Section 408 and the Attestation J certification, liability policies issued to MMFLA applicants/licensees that contain certain policy exclusions likely render such policies inadequate for purposes of satisfying the financial responsibility requirements of Section 408.

For example:

• Pollution exclusions are broadly applied by Michigan courts to bar coverage for “pollutants,” as defined by a given policy. The presence of even acceptable levels of pesticide residues or other permissible substances under the MMFLA, like certain microbials, myotoxins, and/or heavy metals, in cannabis products may trigger application of pollution exclusions, because such exclusions contain no similar limitations regarding intent or governmental approval of any given substance. Thus, to the extent that any substance, chemical, or biological matter – unintended or otherwise – contained within a product sold as cannabis constitutes a “pollutant,” the pollution exclusion may preclude coverage for associated bodily injury claims.

• Asbestos, lead, silica, mold, fungus, and/or bacteria exclusions may preclude coverage for claims arising from the presence of these substances, in any amount and from any source, in a cannabis product.

• Communicable disease exclusions may preclude coverage for bodily injury stemming from adulteration of cannabis due to things like disease agents within soil used for growing cannabis plants, or foodborne viruses transmitted to lawful users, even accidentally, through a cannabis product.

• Specified product/substances exclusions may preclude coverage for bodily injury allegedly resulting from the ingestion of a cannabis product that contains any enumerated substance, regardless of whether the substance is specifically permitted or prohibited under the MMFLA with respect to the cultivating or processing of cannabis products.

• Criminal acts/willful violations exclusions may operate to preclude all coverage for claims against a MMFLA applicant/licensee, despite compliance with Michigan cannabis laws, because of the federal Controlled Substances Act’s criminalization of cannabis operations.

The purpose of the Attestation J form is to confirm that the listed insurance policy has been issued, not to alter the coverage: the insurance policy itself defines the coverage. And a policy’s nonconformity with the Section 408 mandates does not void the insurance contract.

Rather, the provisions will likely be enforced as written when supported by the facts of any given claim. As such, MMFLA applicant/licensee insureds faced with a claim alleging “bodily injury” caused by “adulterated marihuana” to which one or more of the above exclusions apply may be left without coverage.

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