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With cannabis becoming legalized for medical and recreational purposes in more and more states, insurance needs to address the issue. ISO has just released several endorsements excluding cannabis for agricultural capital assets output policies, commercial auto, commercial property, commercial inland marine and capital assets output policies.

There are two basic exclusions tailored to the respective policies, one excluding cannabis as a whole, and the other excluding cannabis but with an exception to the exclusion for hemp. The endorsements are very similar in many ways, so one endorsement will be explained and the remaining sections will highlight any differences particular to that line of business. The endorsements are effective December 2019.

Topics:

AG 99 07 12 19 Agricultural Capital

AG 99 08 12 19 Agricultural Capital Hemp

CA 27 12 12 19 Commercial Auto

CA 27 13 12 19 Commercial Auto Hemp

CP 99 03 12 19 Commercial Property

CP 99 04 12 19 Commercial Property Hemp

CM 99 05 12 19 Inland Marine

CM 99 06 12 19 Inland Marine Hemp

OP 99 07 12 19 Capital Assets

OP 99 08 12 19 Capital Assets Hemp

Agricultural Capital Assets Cannabis Exclusion AG 99 07 12 19

  1. Property Not Covered is amended as follows:

“Cannabis” is added to Property Not Covered.

  1. For the purpose of this endorsement, the following applies to Business Income And Extra Expense/Dwelling Loss Of Use:

Coverage under this Policy does not apply to that part of Business Income loss, Extra Expense/Dwelling Loss Of Use incurred, due to a “suspension” of your “operations”, which is attributable to the design, cultivation, manufacture, storage, processing, packaging, handling, testing, distribution, sale, serving, furnishing, possession or disposal of “cannabis”.

Analysis

The Agricultural Capital Assets exclusion endorsement is straightforward and states that “cannabis” is property not covered. Not only is “cannabis” not considered covered property, but any business income or extra expense loss as a result of any “cannabis” operations is not covered as well. Any activity that can be attached to “cannabis” operations, such as  growing, manufacturing, storing, processing, packaging, testing, selling, serving, furnishing, possessing or other activities where interruption of the activities could lead to a business interruption or extra expense loss negates coverage for those business interruption or extra expense losses.

  1. For the purpose of this endorsement, the following definition is added:

“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.

  1. Paragraph C.1. above includes, but is not limited to, any of the following containing such THC or cannabinoid:
  2. Any plant of the genus Cannabis L., or any part thereof, such as seeds, stems, flowers, stalks and roots; or
  3. 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.

Analysis

The form then defines “cannabis” as any product containing any amount of Tetrahydrocannabinol (THC) or other cannabinoid, whether synthetic or natural in nature. THC is the active ingredient providing users with the “high” experience, and is also purported to have medical benefits. This also includes but is not limited to any plant of the Cannabis L. genus or parts of the plant, including flowers, stalks, roots, seeds and stems. Compounds, by-products, extracts, derivatives, mixtures or combinations are also considered to be cannabis, and this includes resins, oils, waxes, hemp, hash, infused liquid or edible cannabis, whether or not derived from any part of a plant of the genus Cannabis L.

The distinction is important; there are different varieties of the cannabis plant. Plants use the same scientific hierarchy as do animals, kingdom, phylum, class, order, family, genus, and species. Cannabis L. is actually Cannabis sativa L., the plant known as hemp, and it is a subspecies of Cannabis sativa, marijuana. Hemp contains far less cannabidiol (CBD) than marijuana. Hemp can contain no more than 0.3 percent THC by dry weight, while marijuana can contain 0.30 percent. Therefore, the definition is not only excluding cannabis in the form of marijuana, but hemp as well.

Agricultural Capital Assets Cannabis Exclusion Hemp Exception AG 99 08 12 19

  1. Property Not Covered is amended as follows:
  2. “Cannabis” is added to Property Not Covered.
  3. Paragraph A.1. of this endorsement 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.

However, this Paragraph A.2. does not apply to the extent any such goods or products are prohibited under an applicable state or local statute, regulation or ordinance in the state where such goods or products are located.

  1. For the purpose of this endorsement, the following applies to Business Income And Extra Expense/Dwelling Loss Of Use:
  2. Coverage under this Policy does not apply to that part of Business Income loss, Extra Expense/Dwelling Loss Of Use incurred, due to a “suspension” of your “operations”, which is attributable to the design, cultivation, manufacture, storage, processing, packaging, handling, testing, distribution, sale, serving, furnishing, possession or disposal of “cannabis”.
  3. Paragraph B.1. of this endorsement does not apply to Business Income loss, Extra Expense/Dwelling Loss Of Use incurred which is attributable to goods or products containing or derived from hemp, including, but not limited to:
  4. Seeds;
  5. Food;
  6. Clothing;
  7. Lotions, oils or extracts;
  8. Building materials; or
  9. Paper.

However, this Paragraph B.2. does not apply to the extent any such goods or products are prohibited under an applicable state or local statute, regulation or ordinance in the state where such goods or products are located.

Analysis

The Agricultural Cannabis Exclusion with Hemp Exception is similar to the cannabis exclusion except that it provides an exception for a wide variety of goods or products containing or derived from hemp, including but not limited to seeds, food, clothing, lotion, oils, extracts, building materials or paper. There is a caveat that the exception does not apply if there are any state or local statutes, regulations or ordinances prohibiting such products in the state where the goods are located.

Like the first exclusion, coverage does not apply for business income loss or extra expense arising out of suspension of operations related to any operations dealing with “cannabis”. Again, an exception is made for those products derived from hemp as listed above with the same caveat that the exception does not apply in states with statutes prohibiting such goods.

  1. For the purpose of this endorsement, the following definition is added:

“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.

  1. Paragraph C.1. above includes, but is not limited to, any of the following containing such THC or cannabinoid:
  2. Any plant of the genus Cannabis L., or any part thereof, such as seeds, stems, flowers, stalks and roots; or
  3. 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.

Analysis

The Agricultural Capital Assets Exclusion with Hemp Exception uses the identical definition of cannabis that the Agricultural Capital Assets Exclusion uses. The difference between the two forms is the exception for hemp products, as long as there are no state prohibitions against the hemp products.

Cannabis Exclusion for Auto Dealers General Liability Coverages CA 27 12 12 19

With respect to coverage provided by this endorsement, the provisions of the Coverage  Form apply unless modified by the endorsement.

  1. 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:
  2. The design, cultivation, manufacture, storage, processing, packaging, handling, testing, distribution, sale, serving, furnishing, possession or disposal of “cannabis”; or
  3. The actual, alleged, threatened or suspected inhalation, ingestion, absorption or consumption of, contact with, exposure to, existence of, or presence of “cannabis”; or
  4. “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.

However, Paragraph A.1.b. does not apply to “bodily injury” or “property damage” arising out of the actual, alleged, threatened or suspected inhalation, ingestion, absorption or consumption of, or contact with, “cannabis” by:

(1) An “insured”; or

(2) Any other person for whom you are legally responsible;

but only if the “bodily injury” or “property damage” does not arise out of your selling, serving or furnishing of “cannabis” to any person described above.

  1. The exclusion in Paragraph A. does not apply to “personal and advertising injury” arising out of the following offenses:
  2. False arrest, detention or imprisonment; or
  3. 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.

Analysis

This is an exclusion for the Auto Dealers coverage form. It excludes bodily injury, property damage, or personal and advertising injury that arise out of the design, cultivation, manufactures, storage, processing, packaging, handling,  testing, distribution, sale, serving, furnishing, possession or disposal of “cannabis”, as well as any alleged, threatened, or suspected use of “cannabis” by inhalation, ingestion, absorption or consumption. Also exposure to, presence of or property damage to “cannabis” is also excluded. The exclusion applies even if the claims allege negligence or other wrongdoing in the hiring, employment, supervision, training or monitoring of others by the insured if the accident that caused the injury, damage or personal and advertising injury involved any “cannabis” as described in A.1 and A.2.

An exception exists for injury or damage arising out of the actual, alleged, threatened or suspected inhalation, ingestion or other use or contact with “cannabis” as long as it is by an insured or other person for whom the insured is legally responsible. The exception applies only if the injury or damage does not arise out of the selling, serving or furnishing “cannabis” to anyone described. For example, if an insured eats a cannabis brownie at lunch and then has an accident causing damage to another’s auto, there is coverage. However, if the insured provides cannabis brownies at the dealership for customers and employees, and an employee eats a brownie and then damages a customers vehicle that is excluded.

This exclusion does not apply to “personal and advertising injury” arising out of false arrest, detention, imprisonment, wrongful eviction from or entry into a room, dwelling or premises that a person occupies, and the intrusion is committed by or on behalf of the owner, landlord or lessor of the property.

  1. Additional Definition

As used in this endorsement:

“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.

This endorsement is identical to the CA 27 12 except that it includes the exception for hemp, which is very similar to that which appears in the AG 99 08.

  1. The exclusion in Paragraph A. does not apply to:
  2. “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:
  3. Seeds;
  4. Food;
  5. Clothing;
  6. Lotions, oils or extracts;
  7. Building materials; or
  8. Paper.
  9. “Property damage” to goods or products described in Paragraph B.1. above.

However, Paragraphs B.1. and B.2. above do not apply to the extent any such goods or products are prohibited under an applicable state or local statute, regulation or ordinance in the state wherein:

(1) The “bodily injury” or “property damage” occurs;

(2) The “accident” which caused the “bodily injury” or “property damage” takes place; or

(3) The offense which caused the “personal and advertising injury” was committed;

Analysis

The difference in this hemp exemption is that it applies to “bodily injury”, “property damage”, and “personal and advertising injury” instead of business income and extra expense, and the difference is due to the forms that the endorsements apply to. The exemption is for the same products; seeds, food, clothing, lotions, oil, extracts, building materials or paper or property damage to such goods. The caveat that the exception does not apply when there are state statutes prohibiting such products applies here as well. Otherwise, this endorsement is the same as the CA 27 12.

Cannabis Exclusion Commercial Property CP 99 03 12 19

This exclusion applies to the commercial property and standard property coverage parts. It uses the same definition of “cannabis” as the other endorsements have; that is consistent throughout.

  1. When this endorsement is attached to the Standard Property Policy, the terms Coverage Part and Coverage Form in this endorsement are replaced by the term Policy.
  1. Property Not Covered is amended as follows:

“Cannabis” is added to Property Not Covered.

  1. For the purpose of this endorsement, when Business Income (And Extra Expense) Coverage Form CP 00 30, Business Income (Without Extra Expense) Coverage Form CP 00 32 and/or Extra Expense Coverage Form CP 00 50 are indicated in the Declarations as being provided under this Policy, coverage under this Policy does not apply to that part of Business Income loss and/or Extra Expense incurred, due to a “suspension” of your “operations”, which is attributable to the design, cultivation, manufacture, storage, processing, packaging, handling, testing, distribution, sale, serving, furnishing, possession or disposal of “cannabis”.

Analysis

This endorsement modifies the wording of the standard property policy slightly when the endorsement is attached, replacing the terms Coverage Part and Coverage Form with policy. “Cannabis” is excluded from the coverage, and when business income or extra expense coverage is added by endorsement those forms are modified as well to exclude suspension of operations caused by a number of operations related to “cannabis” such as manufacture, processing, testing, selling, furnishing, and others.

 Cannabis Exclusion Commercial Property with Hemp Exception CP 99 04 12 19

As with the above endorsement, this form applies to the commercial property coverage part and the standard property policy, and excludes “cannabis” as property not covered. It also excludes business income and extra expense coverage when the suspension of operations is due to conduct related to “cannabis”. The hemp exception to the exclusion is in this endorsement, and the exception is the same as the exceptions in previous forms. An exception is made for business income loss or extra expense costs when the loss is attributable to products or goods related to hemp as listed, such as seeds, food, clothing, lotions, building materials, paper and others. Again, the exception will not apply if the goods are prohibited by state statute or regulation. The definition of “cannabis” is the same as in the other forms.

Cannabis Exclusion Inland Marine CM 99 05 12 19

The CM 99 05 attaches to the inland marine form and the exclusion is straightforward. It lists “cannabis” as property not covered and uses the standard “cannabis” definition that has been used in the other endorsements.

Cannabis Exclusion Inland Marine with Hemp Exception CM 99 06 12 19

Like the CM 99 05, the CM 99 06 attaches to the inland marine form and the exclusion is straightforward. It lists “cannabis” as property not covered and uses the standard “cannabis” definition that has been used in the other endorsements. It also includes the standard hemp exception seen earlier.

Cannabis Exclusion Capital Assets Program OP 99 07 12 19

Similar to the Agricultural Capital Assets Cannabis Exclusion the OP 99 07 applies to the Capital Assets coverage part and excludes business income loss and extra expense coverage resulting from a number of operations related to “cannabis” such as manufacture, processing, testing, selling, furnishing, and others as shown in the earlier endorsement.  The form excludes “cannabis” as property not covered and uses the standard “cannabis” definition that has been used in the other endorsements.

Cannabis Exclusion with Hemp Exception Capital Assets Program OP 99 07 12 19

Similar to the Agricultural Capital Assets Cannabis Exclusion with Hemp Exception the OP 99 08 applies to the Capital Assets coverage part and excludes business income loss and extra expense coverage resulting from a number of operations related to “cannabis” such as manufacture, processing, testing, selling, furnishing, and others as shown in the earlier endorsement.  The form excludes “cannabis” as property not covered and uses the standard “cannabis” definition that has been used in the other endorsements. It also includes the standard exception for hemp products.