Lloyd’s of London has stopped insuring marijuana industry firms of any kind due to conflicts between federal and state laws over their legality.
In a May 29 memo addressed “Dear Colleague,” obtained by Insurance Journal, Lloyd’s Director of Performance Management Tom Bolt wrote to U.S. Syndicates that the company has considered various requests with respect to insuring marijuana or marijuana related businesses, either medicinal or recreational in the United States, and has determined that it no longer will support insuring marijuana operations of any kind until the drug is formally recognized by the U.S. government as legal.
“Any policies of this type that are currently in force should not be renewed and no new business should be written. Existing quotes issued before today should be notified to your Syndicate Underwriting Performance account executive who will consider on a case by case basis whether the quote may be honoured,” Bolt wrote in the memo.
Lloyd’s confirmed the London insurer’s exit through the following statement to Insurance Journal, which contains similar language to the original memo:
“Currently, marijuana is listed as a Schedule 1 drug under U.S. federal law, which means that it is not legal for sale. In addition, cash generated from the sale of marijuana may implicate federal Anti-Money Laundering laws. Nevertheless, a number of states have passed laws that permit the sale of marijuana for medicinal purposes and additionally a smaller number allow its sale for recreational purposes.
Based upon a thorough review of all positions, unless and until the sale of either medicinal or recreational marijuana is formally recognized by the Federal government as legal (as opposed to subject to non-enforcement directives), Lloyd’s has asked that underwriters should not insure such operations in any form (including crop, property, or liability cover for those who grow, distribute or sell any form of marijuana or cover for the provision of banking or related services to these operations) in the United States.”
Lloyd’s said it will continue to monitor developments under U.S. law and will reconsider this position if and when the conflict of laws is resolved.
According to Mike Aberle, senior vice president of Next Wave Insurance Services, which worked with Lloyd’s as MMD Insurance Services from 2002 until February of this year when it began new relationships with three other carriers, the move by the highly-regarded London company that is known for insuring hard-to-place risks seems to have come out of nowhere.
“Did they take a bunch of losses? Nobody knows. That’s the really curious part right now – nobody really knows what’s going on except the guys in London,” he says.
Next Wave, which has offices in San Diego and in Rancho Cordova, California, was notified by one of its two former coverholders about the memo, but did not actually receive a notice from Lloyd’s itself.
One possible clue, Aberle speculated, could be related to the reference in the memo about cash generated from the sale of marijuana “invariably implicates federal Anti-Money Laundering laws.”
Federal law has made it difficult for banks to work with marijuana-based businesses and most have kept their distance as a result out of fear of being seen as participating in money laundering.
But just last year, the Obama Administration said it would not penalize financial institutions that provide banking services to legitimate medical marijuana businesses in states that have enacted medical marijuana laws. The Financial Crime Enforcement Network (FinCEN) also provided instructions to banks last year on how they can both accept marijuana business dollars and still comply with the law and the group has been meeting with bank executives to remind them about the marijuana directive, according to a Bloomberg report.
Aberle says that in light of the federal government’s hands-off position on the banking matter, it seems strange that this would suddenly be a concern of the insurer.
“I’ve never seen anything about banking issues when it comes to insurance and marijuana,” he said.
Bolt also acknowledges in the memo that these concerns are currently subject to non-enforcement policies by the current administration, which has also “adopted a policy of non-enforcement of federal law with respect to both medicinal and recreational marijuana where marijuana is legal in a state, while Congress recently indicated (as part of a temporary spending bill) its intention not to seek enforcement of the sale of medicinal marijuana.”
Meaning for Rest of the Industry?
Aberle says Next Wave’s decision to move its business to other carriers starting February 1 pre-dated the Lloyd’s decision to leave the market and the company “knew nothing about” Lloyd’s move ahead of time. He says his firm currently still has about 50 percent of its policies with Lloyd’s and the rest on the paper of its new carriers, which he said don’t want to be named. He said he has no reason to believe that Lloyd’s will not honor its remaining policies until they expire.
“I am not worried about the policyholders we have that are still on Lloyd’s paper. I think if we had any claims for policies issued before the memo, they would be handled with the utmost professionalism,” he said. “They don’t say that [in the memo] but I believe in Lloyd’s enough that they would honor that.”
Aberle thinks the move by Lloyd’s leaves those who insure marijuana entities a bit on edge while at the same time creating an opportunity for others to scoop up the Lloyd’s business.
“When you hear something like this it has to give you pause… It’s Lloyd’s of London making a decision to do something they have never done before. I am sure every carrier out there has taken pause,” he said. “And anything could still change. Lloyd’s could say why and that could throw the whole market off.”
Aberle says his business is growing and that underwriting by his new carriers is stronger than ever, in part because of Lloyd’s exit.
But he has concerns that the Lloyd’s episode might scare away other insurers at a time when the marijuana industry is poised for growth. “My concerns are that for an industry that is paranoid already and skeptical with offering insurance already, is this going to put a black mark on it?”