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

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. 

Required or Not-Required? Washington Cannabis Law for Product Liability Insurance

Required or Not-Required? Washington Cannabis Law for Product Liability Insurance

Cannabis licensees in the State of Washington continue to question if they must by law purchase product liability insurance to be considered compliant.   Let’s be honest, the process of reading and understanding marijuana laws can be complicated and arduous process.   Just like reading an insurance policy.

It is important to know the majority of cannabis oriented commercial general liability insurance policies exclude what is known as Products and Completed Operations.  Or, basically product liability coverage for your cannabis product.  To be more accurate, the coverage basically provides liability coverage for your work or your product occurring away from your premise.  As an example, if you’re a cannabis licensee selling flower to a retail store who then sells to a consumer, the original product is no longer located at the original licensee.  The products and completed operations is likely to provide coverage should a claim arise because of the product.

The Washington law is codified under WAC 314-5-082 Insurance Requirements.

WAC 314-55-082
Insurance requirements.
Marijuana licensees shall provide insurance coverage as set out in 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. Marijuana licensees shall furnish evidence in the form of a certificate of insurance satisfactory to the WSLCB that insurance, in the following kinds and minimum amounts, has been secured. Failure to provide proof of insurance, as required, may result in license cancellation.

(1) Commercial general liability insurance: The licensee shall at all times carry and maintain commercial general liability insurance and if necessary, commercial umbrella insurance for bodily injury and property damage arising out of licensed activities. This insurance shall cover such claims as may be caused by any act, omission, or negligence of the licensee or its officers, agents, representatives, assigns, or servants. The insurance shall also cover bodily injury, including disease, illness and death, and property damage arising out of the licensee’s premises/operations, products, and personal injury. The limits of liability insurance shall not be less than one million dollars.

(2) Insurance carrier rating: The insurance required in subsection (1) of this section shall be issued by an insurance company authorized to do business within the state of Washington. Insurance is to be placed with a carrier that has a rating of A – Class VII or better in the most recently published edition of Best’s Reports. If an insurer is not admitted, all insurance policies and procedures for issuing the insurance policies must comply with chapters 48.15 RCW and 284-15 WAC.

(3) Additional insured. The state and its employees, agents, and volunteers shall be named as an additional insured on all general liability, umbrella, and excess insurance policies. All policies shall be primary over any other valid and collectable insurance.

While it is clear, the statute states commercial general liability insurance or commercial umbrella insurance, it fails to express product liability insurance must be procured.  I wonder if the writers of this law recognized “products and completed operations” is excluded and must be purchased separately.  Probably not.  Most interestingly, the law does imply through Section 1 “bodily injury, including disease, illness and death…. arising out of the licensee’s premises, operations, products, and personal injury.”   The keywords “arising out of” and “products” would lead some to believe product liability insurance would be required.

As a result of the lack of clarity, we contacted the Washington Cannabis and Liquor Control Board seeking a statutory interpretation through email of WAC 314-5-082.   Below is the screen shot from the email response we received on August 15, 2016:

Washington Product Liability Insurance The Washington State Liquor and Cannabis Control Board indicated “The statutes do not require a marijuana business to have product liability insurance.”