Insurance Services Organization Revises Policy Forms to Address Cannabis
The ISO businessowner policy is a package policy that provides a number of property and liability coverages for businessowners. Historically, property loss of cannabis-related businesses was not “covered property” under the Property Not Covered provision of the form, which provides that covered property does not include “contraband, or property in the course of illegal transportation or trade.” For decades under federal law, cannabis was effectively “contraband” for insurance purposes by statutes such as the 1937 Marihuana Tax Act and the 1970 Controlled Substances Act. The 2018 Farm Bill, however, changed the legal status of hemp, cannabis with a concentration of no more than .3 percent Tetrahydrocannabinol (THC). Specifically, the Farm Bill amended the Controlled Substances Act and the Agricultural Marketing Act to remove hemp from regulation as a controlled substance.
With an increasing number of states legalizing marijuana for medical or adult use and the 2018 Farm Bill legalizing hemp (in certain circumstances), ISO recognized that cannabis-related property may no longer constitute “contraband” under the businessowners policy. Thus, ISO released five Cannabis Endorsements, which were approved for use in a majority of states in September 2019.
The Property Exclusion Endorsements (BP 15 30 and BP 15 31) clearly exclude coverage for cannabis by adding the term “cannabis” to the Property Not Covered provision of the businessowner property form. The Liability Exclusion Endorsements (BP 15 32, BP 15 33, and BP 15 34) add a specific exclusion to the liability portion of the businessowner policy form that broadly excludes from coverage any bodily injury, property damage or personal and advertising injury arising out of a laundry list of cannabis-related activities.
The most important part of these endorsements is the broad definition of the term cannabis. Each of the Cannabis Endorsements defines “cannabis” as “any good or product that consists of or contains any amount of Tetrahydrocannabinol (THC) or any other cannabinoid, regardless of whether or not any such THC or cannabinoid is natural or synthetic.” The Cannabis Endorsements each specify that the term “cannabis” includes “[a]ny plant of the genus Cannabis L. or any part thereof, such as seeds, stems, flowers, stalks, and roots, or [a]ny 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.” For purposes of the Cannabis Endorsements, hemp, including CBD derived from hemp, is cannabis and is excluded from coverage – unless there is an exception to that exclusion.
As noted by their titles, three of the five Cannabis Endorsements contain a Hemp Exception. Form BP15 31- Cannabis Property Exclusion with Hemp Exception adds “cannabis” to the Property Not Covered provision of the businessowner form, but then provides that this exclusion does not apply to goods or products containing or derived from hemp, including (but not limited to) the following: seeds, food, clothing, lotions, oils or extracts, building materials, or paper. Similarly, the hemp-exception liability endorsements provide that the cannabis exclusion will not apply to liability for bodily injury, property damage, or personal and advertising injury arising out of goods or products containing, or derived from, hemp.
Businessowners operating hemp-related businesses should be cautious in reviewing their insurance policies to ensure that if their policies have been endorsed with any of these new ISO Cannabis Endorsements, each endorsement includes the Hemp Exception. Otherwise, under the broad definition of “cannabis,” an ISO cannabis endorsement without a hemp exception would exclude coverage for any hemp-related products.
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