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Insurance Coverage for Marijuana Exists and Is Legal

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Marijuana is legal to produce and possess in a number of states, and that number is likely to expand in the coming years. Which leads to the question: Can marijuana be insured to protect against theft, damage or other losses?

The answer is yes, it can.

This may seem surprising at first, especially given the number of problems the marijuana industry is having with the banking industry. However, banking is regulated under federal law, and the clash between federal and state laws about marijuana is the source of much strife.

The insurance industry, however, is regulated under state law. When state law allows for legal marijuana possession, cultivation and related commerce, insurance companies cannot use marijuana’s illegality to deny coverage.

There are, however, a number of complexities and complications involved. The most important one concerns the limits state law places on the amount of marijuana legally allowed for personal possession and cultivation.

The insurance industry is beginning to come to terms, literally and figuratively, with the risks and opportunities of legal marijuana at the state level.

The issue of insurance coverage for dispensaries and commercial grow operations has received a lot of attention. But another obvious and important issue concerns health insurance and the medical use of cannabis. (See it addressed in this article.)

But what about individuals growing marijuana for personal use? These issues were recently discussed by Robert S. May, an Oregon attorney working with the insurance industry, in a cover story in Claims Magazine.

State-level marijuana laws are now including provisions expressly stating that marijuana is an insurable interest up to the amount established by law, and that related contracts are not unenforceable due to federal marijuana laws. This is a crucial point, as unenforceable contracts cannot be insured for loss. Given this legal environment, May discussed various issues created by legal marijuana use and cultivation

For example, the value of personal property is often insured, subject to specified limits. According to May, “most policies cover trees, shrubs and other plants for loss caused by fire, theft and vandalism, typically limited to $500 per plant.”

There are two problems here, though, the first one is that this typical language doesn’t address the value of the fruit of the plant, and secondly—and more important—the $500 limit doesn’t cover the value of a single marijuana plant in many cases. Under state laws a homeowner could grow marijuana with a value of thousands of dollars.

Other problems for the industry to grapple with involve the risks associated with growing marijuana indoors. There are property risks due to the amount of electricity used and the threat of unsafe wiring, as well as “property damage caused by fire, mold/mildew, theft, water damage and pollution.”

These potential losses multiply when considering commercial operations, which also produce an additional problem because the smell of marijuana may be considered a nuisance by neighbors.

May observes that growing legal marijuana produces an increased risk of loss for insurance carriers not anticipated under many standard insurance policies. This creates a new set of questions that insurers will have to address.

Should homeowners be required to disclose they plan to grow marijuana? Should policies have special limits for loss or damages to marijuana—for example, a limit of $2,500? Should such losses be excluded from property and liability coverage?

These concerns focus on how marijuana cultivation would be covered by standard insurance policies. But they also highlight the new market of specialized policies customized for both personal use and commercial marijuana cultivators.

This new market is being aggressively pursued in states with legalized marijuana. Just because a firm may specialize in or have marijuana-related policies doesn’t mean it is the right firm or the right policy for an individual consumer. Like any other marketplace, consumers interested in marijuana-related insurance need to learn about the market and shop around.

Personal use and commercial marijuana cultivators in states where marijuana is now legal should research the market and discuss these issues with their insurance agents.

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