43 Insurance Enforcement Actions Charged against Washington Licensees

Gumwall in Seattle

The Gum Wall in Seattle Washington

State of Washington is Serious about Enforcement of  Cannabis Insurance Laws

Enforcement of cannabis insurance laws was something we wanted to know was actually being performed in Washington.  Sure enough, the State of Washington Liquor and Cannabis Control Board (“LCCB”) mandates by law cannabis licensees must procure insurance under statute cited in §WAC 314-55-082 Insurance Requirements.  The State of Washington is one of the few states to include insurance as a condition of being a licensee.  The regulations essentially states the purpose, guidelines, and meeting certain coverage limits to include naming the LCCB as a additional insured, etc….. 

As a result, we were curious to know if any actions had been taken against licensees for failing to buy cannabis insurance by contacting the LCCB who promptly responded. 

Since 2015, there have been 43 enforcement actions charged against various licensees for violating §WAC 314-55-082.  Based on the report, it would appear most licensees are receiving a verbal warning.  However, a certain number of licensees were given multiple warnings including written, suspension, and eventually fined. 

There have been a total of 4r licensees who have been fined for failing to buy insurance in Washington. In 2015, there were a total of 18 insurance violations.  The lowest number of citations was in 2017 with just 1.

Is the LCCB enforcing the purchase of product liability insurance?

Unknown.

This information was requested, but the report only indicates the licensee had violated §WAC 314-55-082. 

This information would have been important to know if the LCCB was enforcing their interpretation of the statute to buy product liability coverage as it was reported here some confusion had previously existed on the interpretation of this statute.

Less than 1% chance of being cited, but not worth the risk

In our opinion, the State of Washington continues to demonstrate they have the most active and stringent cannabis laws of any state.  The chance of being cited for operating without the proper insurance is low.  With approximately 1,500 licenses, that chance is less than 1%. 

However, the enforcement actions do indicate the LCCB will continue to punish those who operate without insurance.

This is a risk most licensees will want to avoid. 

Enforcement Actions

State of Washington Insurance Citations and Enforcement actions

Source: Washington Liquor and Cannabis Control Board

 

 

Washington LCCB Appears Now to Require Product Liability Insurance for Cannabis Licensees

The Washington State Liquor and Cannabis Control Board (“LCCB”) seems to be reversing their initial opinion on whether product liability insurance was a requirement by statute (WAC 314-55-085) for its licensees.  Internal communication by the department seems to indicate product liability insurance will be understood as a being part of the statute.

We have consulted with internal staff, and would like to take this opportunity to clarify that commercial general liability insurance is required for all licensees under WAC 314-55-082. This coverage would cover instances of product liability claims. More information is also available at the Office of Insurance Commissioner’s website, here: https://www.insurance.wa.gov/your-insurance/business-insurance/marijuana/. If you have questions about that, please reach out to OIC.

Source:  Washington State LCCB Amanda Smith, Forms and Records Analyst 07-17-2018

Need to cover instances of product liability claims

While not clearly stated in the statute (WAC 314-55-085), this additional communication “This coverage would cover instances of product liability claims” (emphasis added) does appear the direction the LCCB is taking when defining the type of insurance they mandate upon their licensees. 

WAC 314-55-085 does provide an indication of the intentions of those who wrote this section. 

The intent of the required insurance is to protect the consumer should there be any claims, suits, actions, costs, damages or expenses arising from any negligent or intentional act or omission of the marijuana licensees. 

However, the statute would have been less ambiguous by naming the coverage lines such as “products and completed operations” or “product liability.”  The statute could be further interpreted to include “professional liability” based on the broad nature of protecting the consumer from “any claims.” 

Another issue with this wording is “intentional acts” are typically not the types of claims covered by insurance.   If someone is acting with intent to harm the consumer, then most claims of this nature are likely to be considered outside the scope of insurance due it be intentional as opposed to accidental.  Intentional acts should be removed from the statute. 

Regardless, this recent communication reverses and conflicts with a prior statutory opinion made on August 15, 2016, when the  LCCB clearly stated product liability was not required by statute as publicized in our article entitled Required or Not Required?  Washington Cannabis for Product Liability Insurance

Lack of pesticide testing is good reason to transfer this type of risk to the insurance industry

Cannabis Pesticide Caution Sign

In our opinion and clearly conjecture, the lack of any pesticide testing on cannabis products could be a strong reason the statutory opinion was astutely reversed to transfer any and all underlying risks to the insurance industry covering future product liability claims. 

If you’re the LCCB, then protecting the regulatory agency from pesticide lawsuits would be prudent.  These types of claims have not surfaced, but could be laying dormant for future insurance carriers to worry about.  Furthermore, the statutes require the LCCB is named as an additional insured, primary and non-contributory, and waiver of subrogration.   The LCCB will be protected by the insurance of their licensees.

In the future, the LCCB is likely to become vigilant with enforcing product liability insurance is not excluded, but a coverage line purchased by the licensee. 

Need to buy product liability insurance in Washington?

Product liability insurance is available in the marketplace by a small number of insurance carriers making it expensive for many licensees particularly those just starting up.  These are separate insurance policies from the primary commercial liability.  The price for this type of insurance is based on revenue along with other factors such as the type of operation and product mix. 

This additional expense is compounded by the fact the market price for cannabis is low in the State of Washington.  Many 502 producers are hanging by thread and additional insurance is not affordable. 

Colorado Flower and Trim Pesticide Testing Starts August 1st

Cultivators and Optional Premises Must Start Pesticide Testing

The Colorado marijuana industry is less than one month away from being required to pesticide test flower and trim starting on August 1, 2018.   Medical and retail concentrates are not required to pesticide test due proficiency limits not being established.

What licensees are required in Colorado to test?

  • Medical Marijuana Optional Premises Cultivation
  • Retail Marijuana Cultivation Facilities

Six Colorado Labs Currently Certified for Testing Pesticides

As of now, there are currently six labs certified for testing pesticides.

  1. AGRICOR LABORATORIES LLC
  2. GOBI ANALYTICAL INC
  3. NORDIC ANALYTICAL LABORATORIES LLC
  4. PHYTATECH CO LLC
  5. RM3 LABS COLORADO LLC
  6. TERRA HEALTH CARE LABS INC

According to the Colorado Marijuana Enforcement Division, the purpose of pesticide testing is a matter of public health and safety. 

Impact of Not Testing on your Product Liability Insurance Coverage

What does pesticide testing mean for companies with product liability insurance?

Be compliant and test for pesticides!  Cannabis insurance companies offering product liability coverage will be particularly interested their customers are following the rules.  A lawsuit by a cannabis consumer claiming damages for pesticides is most likely to result in a product liability insurance claim.  If a lawsuit was to occur, the insurance carrier will verify if pesticide testing was being performed by their insurance customer with the mutual understanding no banned pesticides were used during cultivation accordingly.

If pesticide testing was not being followed, the insurance carrier will have a stronger position to deny the claim based on exclusions such as this one used by Knight Specialty Insurance Company:

to any Claim arising out of any Named Insured’s Products manufactured, handled, sold, developed, designed, created, tested, leased, licensed, rented, marketed, disposed of or distributed in knowing or willful violation of any State law, statute, ordinance or regulation;

Colorado Pesticide Bulletin 18-07

MED Bulletin 18-07 Mandatory Pesticide Testing 06-29-2018
 

Colorado Prohibited Chemical List

CODE OF COLORADO REGULATIONS 1 CCR 212-2 Prohibited Chemicals as of 07-02-2018(1)

Colorado MED Bulletins on Licensees Making Recommendations for Pregnancy Related Morning Sickness

Colorado MED Bulletins for Packaging and Labeling

The Colorado Marijuana Enforcement Division has issued an updated bulletin to cannabis licensees Colorado Flagwho may be recommending cannabis to women who are pregnant.  The first bulletin was issued on May 24, 2018.  An updated bulletin was issued on June 4, 2018 reference language to be added to the warning label effective July 1, 2018.

Both of these bulletins essentially refer back to the original packaging and labeling bulletin issued on 02/16/2018.

Beginning July 1, 2018 – “There may be long term physical or mental health risks from use of marijuana including additional risks for women who are or may become pregnant or are breast feeding. Use of marijuana may impair your ability to drive a car or operate machinery.”

Warning labels are not only important for public safety, but protect the cannabis licensee from additional liabilities.  If you’re concerned about additional protection, licensees may want to consider professional and product liability.

Updated Bulletin 18-06 Updated (06/04/2018)

180604 Updated Industry Bulletin 18-06 Reports of Licensees Making Recommendations(1)

Original Bulletin 18-06 (05/24/2018):

180524 Industry Bulletin 18-06 Reports of Licensees Making Recommendations

Packaging and Labeling Rules 18-03 (02/16/2018)

IB 18-03 New Packaging and Labeling Rules 02162018(11)

Colorado Bulletin on 420: Be Safe and Don’t Lose Your License

With 4-20 just around the corner, the Colorado Marijuana Enforcement Division issues a bulletin Colorado Flagreminding the industry of what you can and can’t do.  For licensees participating in any 4/20 events, please be safe and obey the law.  Losing your license just isn’t worth it. 

Below are considered unlawful acts:

  • Buying, selling, transferring, or acquiring medical or retail marijuana in a manner not
    permitted by the Colorado Medical Marijuana Code and Colorado Retail Marijuana
    Code;
  • Offering for sale or soliciting an order for medical or retail marijuana except within
    the Licensed Premises of the Medical Marijuana Business or Retail Marijuana
    Establishment specifically designated for such sales;
  • Consuming or allowing the consumption of medical or retail marijuana on a Licensed
    Premises;
  • Providing public premises for the purpose of consumption of medical or retail
    marijuana;
  • Displaying any signs that are inconsistent with local laws or regulations or using
    advertising material that is misleading, deceptive, or false, or that is designed to
    appeal to minors;
  • and Having on the licensed premises any medical or retail marijuana or marijuana
    paraphernalia evidencing the consumption or use of the marijuana.

IB-05 April Marijuana-Related Events 04062018

Massachusetts Recreational Insurance Requirements for Licensing

Commercial Liability and Product Liability Insurance LimitsWashington State Flag

The Massachusetts Cannabis Control Board is moving forward with the approval of 935 CMR 500.00 and includes commercial insurance.  Below are those important requirements:

Liability Insurance Coverage or Maintenance of Escrow (1) A Marijuana Establishment shall obtain and maintain general liability insurance coverage for no less than $1,000,000 per occurrence and $2,000,000 in aggregate, annually, and product liability insurance coverage for no less than $1,000,000 per occurrence and $2,000,000 in aggregate, annually, except as provided in 935 CMR 500.105(J)(2) or otherwise approved by the Commission. The deductible for each policy shall be no higher than $5,000 per occurrence.

This means procuring a commercial general liability policy with limits of $1,000,000 per occurrence and $2,000,000 per aggregate and product liability with limits of $1,000,000 per occurrence and $2,000,000 per aggregate.

What other insurance requirements exist in 935 CMR 500.00?

Licensees will need to purchase workers compensation insurance if they have employees.  The regulations does not indicate any other obligations such as naming the State of Massachusetts as an additional insured. 

What is the purpose of Commercial General Liability? 

This is a business insurance policy covering the premise or business location for liability, personal and advertising injury, and legal defense.  The State of Massachusetts has determined $1,000,000 per occurrence and $2,000,000 per aggregate will provide adequate protection from third party lawsuits. 

What is the purpose of Product Liability? 

Product liability is a type of insurance policy protecting a cannabis company from third party lawsuits.  An example would be a recreational marijuana customer becomes sick from a cannabis product bought at a store.  The customer files a lawsuit against the retail and possibly the manufacturer.  The State of Massachusetts has determined $1,000,000 per occurrence and $2,000,000 per aggregate will provide adequate protection from third party lawsuits. 

What does $1,000,000 per occurrence and $2,000,000 per aggregate mean? 

Per occurrence is the maximum amount paid primarily for bodily injury and property damage.  Per aggregate is the the maximum paid for multiple types of claims. 

How do I buy insurance to meet the requirements in Massachusetts? 

Please contact us.