Reed Smith Client Alerts

Insurance Services Office, Inc. (ISO) recently released five new cannabis-related endorsements, each of which, when included as part of a business owner’s policy (BOP), would exclude coverage for either “cannabis property” or “cannabis liabilities.” Three of the five endorsements include what purports to be a carve-out to the exclusion that ostensibly affords coverage for losses or claims involving “hemp” – a term that the endorsements do not define. Despite an explicit promise in those three endorsements that the exclusions do not apply to “goods or products containing or derived from hemp,” be warned: all five of the endorsements, as written, may still be read to exclude coverage for hemp.

Authors: Michael H. Sampson George L. Stewart

In each of the endorsements, “[c]annabis” is defined to mean “[a]ny 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.” Notably, “cannabis” is further defined to include “[a]ny compound, byproduct, extract, derivative, mixture or combination, such as … [h]ash or hemp” that contains “THC or any other cannabinoid ….” Paradoxically, “hemp” is not defined in any of the endorsements. This omission, coupled with the sweeping definition of “cannabis,” renders the endorsements unclear, if not internally inconsistent and/or misleading. As such, the scope and effect of the exclusions and the exceptions are far from clear. This lack of clarity could be exploited to negate much of the effect and import of these critical exceptions.

Background

The five new cannabis-related BOP endorsements that ISO recently rolled out can be split into two sets. The first set relates to property coverage and includes: (i) “Cannabis Property Exclusion,” BP 15 30 09 19; and (ii) “Cannabis Property Exclusion with Hemp Exception,” BP 15 31 09 19. The second set relates to liability coverage and includes (i) “Cannabis Liability Exclusion,” BP 15 32 09 19; (ii) “Cannabis Liability Exclusion with Hemp Exception,” BP 15 33 09 19; and (iii) “Cannabis Liability Exclusion with Hemp and Lessors Risk Exceptions,” BP 15 34 09 19.