There’s “still a really strong need” for specialty insurance to cover cannabis businesses as well as medical professionals prescribing cannabis, according to an attorney who specializes in the sector.
Ian Stewart, a partner in Wilson Elser and chair of the law firm’s cannabis law practice team, estimates there are nearly 30 surplus lines carriers and a few admitted carriers serving the cannabis industry across the U.S. While it has become easier for companies to find coverage, he believes that the industry is still underserved when it comes to insurance.
Stewart has defended complex litigation in state and federal courts for more than 20 years with a focus on product liability, complex general casualty, cannabis law, transportation and marine claims, data privacy and security and intellectual property litigation. He was a speaker at the Professional Liability Underwriting Society (PLUS) conference in San Diego, Calif., in November on “Navigating Cannabis Professional Liability Risks and Insurance.” He discussed insurance carriers’ obligation to follow federal cannabis-related guidelines, underwriting best practices and mitigating professional liability risks. He also talked about opportunities carriers and brokers in the growing cannabis industry.
He sees a potential wave of consumer class action lawsuits over cannabis as well as increasing risks for doctors.
Stewart spoke with Insurance Journal about the cannabis business and what insurance professionals should know about it.
This has been edited for brevity and clarity.
Insurance Journal: How would insurance agents go about getting into the cannabis business as a specialty?
Stewart: Well, so for a broker, education is really important. I think it’s hard for brokers just to enter this space without some baseline knowledge because it changes so quickly. Carriers leave, carriers enter, they change their coverage type.
You know, I think that joining associations is important. There are a couple cannabis business associations that do a good job connecting brokers with other professionals in the industry to educate. For example, there’s what’s called the NCIA, the National Cannabis Industry Association. There’s a California version, the CCIA, California Cannabis Industry Association. Those are both good organizations for all sorts of professionals – lawyers, accountants, other consultants, brokers – to join and really educate themselves about what’s happening at the ground level with licensed operators.
IJ: What sort of unique or interesting claims do you think that we’re seeing, expect to see, or are we seeing from these cannabis coverages?
Stewart: A couple years ago, the expectation, and it still could be true, is that product liability is the cat risk of the industry. We haven’t seen a wave of product claims that have come in, certainly in California over the last year as it’s been fully legal. But there are a few. I think that those claims are probably going to increase as public awareness happens, as the market expands, as there’s more retailers and more access.
This whole sort of cohort of new adult use consumers are, you know, turning towards cannabis. And the plaintiffs’ lawyers are now becoming more interested because of large companies that are forming that have assets and as insurance is becoming more available.
However, I think that the sort of unspoken danger that a lot of certainly the licensed operators don’t appreciate is the risk of consumer class actions. You know, basically there are cases where a consumer will come in and they’ll by a product that is technically adulterated or mislabeled or contaminated in some way, maybe they’re violating some state regulation, and the state cannabis regulations are really onerous. It’s really hard for operators to be fully compliant.
So, the trick is these lawyers will find a product that is in some way violating a state regulation and then file consumer class action under state consumer protection laws. Frequently those are uninsured or under-insured claims, and they’re dangerous because they have fee shifting where the attorneys can get their attorney’s fees, there’s statutory damages, disbursement of profits. They’re pretty dangerous, and we’re starting to see those get filed now in California and elsewhere.
IJ: You mentioned something in your talk (at PLUS) about doctors looking for coverage for prescribing marijuana and that you expect that to pick up. How do you see that picking up? Where do you see these doctors going to find coverage, and what sort of coverages are they going be looking for?
Stewart: I think if you were to ask, you know, just an emergency room physician, for example, five years ago whether or not he or she needed separate coverage for cannabis-related wrongful acts or risks, the answer would be probably not. But I think these days, certainly in California, physicians who are not in the practice of making recommendations for medical cannabis nevertheless are seeing more and more patients who are using cannabis medicinally, either through a doctor’s recommendation or perhaps self-treating, maybe they’re now adult use consumers who are just going out and finding cannabis on their own.
We’re seeing more and more issues of interactions, you know, overlay where in the past it may have been a patient who just has a drug history of marijuana and cocaine. But now that patient may be adding CBD or marijuana to their panel of medications, and maybe there’s overlay with mental health issues or substance abuse. So, it can be really difficult for physicians now to tread those waters, get informed consent, adequately advise their patients, and in some cases even offer CBD or marijuana instead of opiates, for example.
And then there are other issues that are coming out for doctors. For example, there’s a syndrome called “cannabis hyperemesis syndrome.” This is a syndrome that we’re seeing more and more now, and a lot of physicians aren’t educated on it. Basically, it’s heavy, heavy pot users tend to have high levels and concentrations of cannabinoids in the system, and it can actually make them ill. It can make them nauseated. So, the patient comes in and, you know, the report is, “Well, I’ve been nauseated. I feel bad.” And the doctors say, “Okay, what did you do about it?” “Well, I smoked a lot of pot because I thought it would help with my nausea.” You know, it’s a vicious cycle. Some physicians are not aware of that problem, but we’re seeing a number of those reported cases now in California.
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