Are Insurance Carriers Violating the Constitutional Rights of the Cannabis Industry?

Cannabis Insurance Application

Questionable Questions Asked by Insurance Carriers

Applying for business Insurance through the use of applications produced by the insurance company is a normal business practice regardless of the industry.  What isn’t normal and seemingly unique with the insurance industry are questions to cannabis applicants if they are operating illegally and conducting criminal activity.

Below are the exact questions currently used by a major insurance carrier we’ll keep anonymous at this time. 

  • Do you distribute your cannabis product to minors? 

Answering yes would potentially mean the applicant is violating state and federal law for selling cannabis to a minor.  One exception could be if the applicant is a medical marijuana licensee whose patient has a prescription from an MD who happens to be a minor. 

  • Do you transport or distribute your product across state lines? 

Answering would be an admission the applicant is distributing cannabis across state lines would be a violation of state and federal law.

  • Do you either grow marijuana on public lands or purchase any marijuana grown on public lands? 

Once again, a potential violation of federal and state law by answering in the affirmative and self incrimination. 

These questions became part of a supplemental application for business property. This is insurance coverage for buildings, equipment, tenant improvements, and loss of income.  As if the insurance process isn’t lengthy enough, the supplemental application is four pages totaling 31 questions with a sub-set of approximately 40 more questions.   

Apparently, the insurance industry has forgotten certain provisions within the US Constitution affording citizens of rights.  More specifically, the Fifth and Sixth Amendment protects the rights of individuals from self incrimination and allows due process to be performed before an individual is denied their freedom.

Amendment V

No person shall be held to answer for a capital, or otherwise infamous crime, unless on a presentment or indictment of a grand jury, except in cases arising in the land or naval forces, or in the militia, when in actual service in time of war or public danger; nor shall any person be subject for the same offense to be twice put in jeopardy of life or limb; nor shall be compelled in any criminal case to be a witness against himself, nor be deprived of life, liberty, or property, without due process of law; nor shall private property be taken for public use, without just compensation.

Source: Cornell Law School

Amendment VI

In all criminal prosecutions, the accused shall enjoy the right to a speedy and public trial, by an impartial jury of the state and district wherein the crime shall have been committed, which district shall have been previously ascertained by law, and to be informed of the nature and cause of the accusation; to be confronted with the witnesses against him; to have compulsory process for obtaining witnesses in his favor, and to have the assistance of counsel for his defense.

Source: Cornell Law School

Most people have heard to plead the fifth or being given their Miranda rights.  The sixth amendment gives everyone the opportunity have their day in court. 

What about other industries?  Are similar questions being asked in the Pharmaceutical and Liquor Industry?

NoNot even remotely close. 

We reviewed other insurance applications used for the Pharmaceutical Industry offered through CNA Insurance and Kinsale Insurance Company to determine the scope of their questions.   Neither of these two applications asked questions that would place a person(s) in legal jeopardy.

How about the liquor industry? 

Those Insurance applications don’t question an applicants ongoing criminal violations either.   One application asked if the insured had been convicted of a felony.  A conviction of a felony is different from conducting a felony.

Properly Underwrite Risk without Violating the Rights of Others 

Cannabis Insurance Police

Photo by Vincent Chan on Unsplash

Most insurance brokers and underwriters will  not object to the proper underwriting and evaluation of risk by the insurance industry before coverage is offered and purchased.  This would include being in compliance with all laws. 

However, it would not be appropriate and possibly illegal for insurance companies to continue with this line of questioning as a business practice.  If the applicant indicates yes to providing cannabis to minors would the insurance company deny the application and notify law enforcement? 

Insurance companies are not members of the law enforcement community and should leave it to the professionals.

Insurance Application Questions

10 Questions or Factors to Consider when Buying Marijuana Insurance

Different Scenarios to Contemplate when Purchasing Coverage for your Business

The typical process of buying insurance involve the following steps:Marijuana Store

  1. Contacting a retail insurance broker 
  2. Completing a insurance application
  3. Review the insurance quote, coverages, and policy forms
  4. Signing the application and paying for the insurance
  5. Receiving and reviewing the insurance binder
  6. Receiving and reviewing the insurance policy

Below are tips based on our experience for licensees contemplating their insurance, insurance coverages, and particular risks with their operation. 

This list may be altered depending on if your business is retail, cultivation, or a infused products manufacturer as each operation will have risks unique to them.

  1. Think about the risks you want to insure or not insure.  If you’re not going to insure those risks, then figure out if you can control or manage the risk.  A good example is not buying cannabis insurance protection because you have a steel vault.
  2. Your lease agreement or other contracts will determine if you have insurance obligations to meet.  Read those obligations carefully and discuss with your insurance agent. 
  3. Does your state or local jurisdiction require you to purchase a certain type of insurance coverage?  You’ll want to be certain you’re meeting those obligations because your license depends on it. 
  4. Workers compensation insurance is required by law throughout the United States.   If you have employees, you’ll need insurance to cover them if they become injured on the job.
  5. Think about what insurance products you need.  At a minimum, a commercial general liability insurance policy is required if you’ve leased space for the business.  Do you want or need product liability?  Do you want to cover your cannabis or crop?  The answers to these questions will depend on price, concern for risk, and other variables such as peace of mind.
  6. Your insurance needs will be different if you have construction.  Why?  The risk is different hen you’re under construction as opposed to being operational.  Depending on the amount of construction, the insurance carriers are likely to frown on issuing a insurance policy if they discover a substantial level of construction activity.  You will need different insurance policies to cover this type of risk.
  7. Don’t wait until the last minute to buy insurance.  Shop around among a variety of insurance brokers to make sure its the right fit with both parties. 
  8. Be certain the insurance broker sends you the entire quote and policy documents.  You want to be certain an exclusion of coverage wasn’t intentionally removed.
  9. Don’t sign the insurance application unless you’re certain the answers are correct.
  10. Determine how long the insurance broker and carrier has been serving the cannabis industry.  Many insurance companies enthusiastically enter and then exit the industry.  A inexperienced insurance broker can lead to problems during a claim and even litigation.   The truth is not all underwriters from surplus lines brokers are professional and honest with their business dealings and representations they make on behalf of their insurance carriers.