Last week, Golden Bear Insurance Company became the first admitted insurer approved by the California Department of Insurance to provide insurance coverage for marijuana companies. Golden Bear will now begin offering first- and third-party insurance coverage specifically targeting marijuana companies in the state.
In November of last year, Californians passed Proposition 64, which legalizes both recreational and medicinal marijuana use for adults 21 and over. Since then, state lawmakers have been working to update California’s legal and regulatory framework to implement all necessary changes before January 1, 2018, when the state is required to open applications for licenses so businesses can begin legally selling marijuana for recreational use. One part of the regulatory process involves insurance.
For many years, the only insurance option for the cannabis industry was through “non-admitted” insurers. Coverage from non-admitted insurers, while providing the necessary pricing flexibility to fill a demand in California’s growing marijuana industry, poses certain risks because non-admitted insurers are not required to comply with state insurance laws. Last month, California’s insurance commissioner encouraged admitted insurers to write coverage for marijuana businesses in the state. With the recent regulatory approval, Golden Bear now has the ability to offer a range of coverage to marijuana businesses using approved rates and forms, which initially will include general liability, products liability, crime, and property coverages for cultivation, manufacturing, processing, and retail sales operations.
The regulatory approval is especially timely for California marijuana growers who may have been impacted by the recent string of wildfires and are looking to mitigate future fire risk through additional insurance coverage. Insurers often deny coverage for marijuana-related losses as contrary to law and public policy, since cultivation is prohibited under federal law. As recently as this week, for example, a federal court in Michigan denied coverage for vandalism damage to commercial properties housing a marijuana grow operation under an illegal and dishonest acts exclusion on the grounds that the operation violated federal law and the tenants surreptitiously altered the premises for unapproved marijuana cultivation.
California’s decriminalization of recreational marijuana use and regulatory approval of admitted insurance for marijuana companies, however, may signify a trend toward additional coverage being available in the future. We will continue to monitor coverage developments on these issues.