If enacted, landmark legislation recently introduced in both houses of the U.S. Congress would allow insurers “engaging in the business of insurance” in a state, local jurisdiction, or Indian nation where “the cultivation, production, manufacture, sale, transportation, display, dispensing, distribution, or purchase of cannabis” is legal to cover cannabis-related businesses without fear of federal criminal penalty or federal interference.
[A]n insurer that engages in the business of insurance with a cannabis-related business or service provider or who otherwise engages with a person in a transaction permissible under State law related to cannabis, and the officers, directors, and employees of that insurer may not be held liable pursuant to any Federal law (including regulations) (1) solely for engaging in the business of insurance; or (2) for further investing any income derived from such business of insurance,” the legislation provides. It also aims to prohibit federal interference with “the business of insurance in connection with … (A) a cannabis-related business; or (B) a State, political subdivision of a State, or Indian tribe that exercises jurisdiction over cannabis-related businesses.”
Logically, one would expect that, if this legislation – which is intended to “create a safe harbor for insurers” – becomes law, more insurers would be willing to write insurance for American cannabis-related businesses. That would be good news for, among others, the U.S. cannabis industry. Policyholders, of course, would benefit from a more robust insurance market, which should mean more options, increased competition, higher limits, and lower premiums.
Overview
On July 25, 2019, U.S. Rep. Nydia Velazquez (D-NY) and U.S. Rep. Steve Stivers (R-OH) introduced H.R. 4074, the Clarifying Law Around Insurance of Marijuana Act, also known as the "CLAIM Act." The stated purpose of this legislation is to "create a safe harbor for insurers engaging in the business of insurance in connection with a cannabis-related business." A virtually identical bill with the same stated purpose, S. 2201, was introduced on July 22, 2019 by U.S. Sen. Robert Menendez (D-NJ), U.S. Sen. Rand Paul (R-KY), U.S. Sen. Jeff Merkley (D-OR), and U.S. Sen. Kevin Cramer (R-ND). H.R. 4074 was referred to the House Committee on Financial Services, and S.2201 was referred to the Senate Committee on Banking, Housing, and Urban Affairs. No further action on the legislation has occurred in either the House or the Senate, as Congress does not return from its summer recess until September 9.
The CLAIM ACT
The CLAIM Act seeks to protect insurers that do business with the state-compliant cannabis industry in the United States. Most notably, the Act provides:
With respect to engaging in the business of insurance within a State, political subdivision of a State, or Indian country that allows the cultivation, production, manufacture, sale, transportation, display, dispensing, distribution, or purchase of cannabis pursuant to a law (including regulations) of such State, political subdivision, or Indian Tribe that has jurisdiction over the Indian country, as applicable, an insurer that engages in the business of insurance with a cannabis-related business or service provider or who otherwise engages with a person in a transaction permissible under State law related to cannabis, and the officers, directors, and employees of that insurer may not be held liable pursuant to any Federal law (including regulations) –
(1) solely for engaging in the business of insurance; or
(2) for further investing any income derived from such business of insurance.
The Act also limits federal interference with cannabis-related insurance transactions, stating that "[a] Federal agency may not –
(1) prohibit, penalize, or otherwise discourage an insurer from engaging in the business of insurance in connection with –
(A) a cannabis-related business; or
(B) a State, political subdivision of a State, or Indian tribe that exercises jurisdiction over cannabis-related businesses;
(2) terminate, cancel, or otherwise limit the policies of an insurer solely because the insurer has engaged in the business of insurance in connection with a cannabis-related business;
(3) recommend, incentivize, or encourage an insurer not to engage in the business of insurance in connection with a policyholder, or downgrade or cancel the insurance and insurance services offered to a policyholder solely because –
(A) the policyholder is –
(i) a manufacturer or producer; or
(ii) the owner, operator, or employee of a cannabis-related business;
(B) the policyholder later becomes an employee, owner, or operator of a cannabis-related business; or
(C) the insurer was not aware that the policyholder is an employee, owner, or operator of a cannabis-related business; or
(4) take any adverse or corrective supervisory action on a policy to –
(A) a cannabis-related business, solely because the owner or operator owns or operates a cannabis-related business;
(B) an employee, owner, or operator of a cannabis-related legitimate business or service provider, solely because the employee, owner, or operator is employed by, owns, or operates a cannabis-related business, as applicable;
(C) an owner or operator of real estate or equipment that is leased to a cannabis-related business, solely because the owner or operator of the real estate or equipment leased the equipment or real estate to a cannabis-related business, as applicable."
Further still, the Act defines a number of pivotal terms, such as "cannabis-related business" and "federal agency."