Author: Chris Boggs
Insurance Services Office (ISO) introduced five cannabis (not just marijuana) exclusions for use with the businessowners' policy (BOP), all with a 09/19 edition date. Two are property exclusions and three are liability coverage part exclusions. The new exclusionary endorsements are:
- BP 15 30 09 19 – Cannabis Property Exclusion
- BP 15 31 09 19 – Cannabis Property Exclusion With Hemp Exception
- BP 15 32 09 19 – Cannabis Liability Exclusion
- BP 15 33 09 19 – Cannabis Liability Exclusion With Hemp Exception
- BP 15 34 09 19 – Cannabis Liability Exclusion With Hemp And Lessors Risk Exceptions
Note that although all five endorsements exclude cannabis, three have a hemp exception. But the hemp exception applies only when industrial hemp production is allowed by state law.
Before exploring these endorsements, certain facts must be understood:
- The broad and consistent definition of “cannabis" among the five endorsements; and
- Each state's governance or allowance of industrial hemp production.
All five endorsement apply the same definition of “cannabis," but the applicable paragraph and/or subparagraph references may differ. Following is the definition found in all five endorsements, however, the paragraph references have been changed since they differ in each endorsement.
Any good or product that consists of or contains any amount of Tetrahydrocannabinol (THC) or any other cannabinoid, regardless of whether any such THC or cannabinoid is natural or synthetic.
2. Paragraph (X.#.) above includes, but is not limited to, any of the following containing such THC or cannabinoid:
a. Any plant of the genus Cannabis L., or any part thereof, such as seeds, stems, flowers, stalks and roots; or
b. Any compound, byproduct, extract, derivative, mixture or combination, such as:
(1) Resin, oil or wax;
(2) Hash or hemp; or
(3) Infused liquid or edible cannabis;
whether or not derived from any plant or part of any plant set forth in Paragraph (X.#.y).
Note the breadth of this definition regarding what qualifies as cannabis. It states, “ANY good or product…" and “…ANY amount…" of THC is considered cannabis. Further, the definition makes no distinction between natural or synthetic cannabinoids. The definition also states that any byproduct of cannabis is “cannabis;" this specifically includes hemp. So, cannabis and hemp are equal for purposes of these endorsements.
Governance of Industrial Hemp
Is production of industrial hemp products allowed in the state? If not, the hemp exception in the three endorsements with the exception does not apply. When the exception does not apply, any hemp byproduct is excluded as part of the definition of “cannabis."
The National Conference of State Legislatures (NCSL) tracks industrial hemp statutes; as of August 2019, 47 states have enacted legislation allowing industrial hemp cultivation or production programs. Click here for a state-by-state review.
Full (“Absolute") Cannabis Exclusion
Two endorsements fully exclude “cannabis" as defined previously. The BP 15 30 and the BP 15 32 are “absolute" cannabis exclusions.
BP 15 30 09 19 – Cannabis Property Exclusion
As the name suggests, this endorsement excludes property-related “cannabis" losses. The exclusion is accomplished simply by adding “cannabis" to the list of property not covered. Direct damage to “cannabis" and business income/extra expense losses (expenses) arising from direct damage to “cannabis" are specifically excluded.
BP 15 32 09 19 – Cannabis Liability Exclusion
Like the BP 15 30 this is an “absolute" cannabis exclusion. However, this endorsement applies to the BOP's liability coverage section excluding bodily injury, property damage and personal and advertising injury arising out of “cannabis." It also excludes “property damage" to “cannabis" owned by a third party.
There are two broad exceptions in this exclusion, so this is truly NOT an “absolute" exclusion (akin to the “absolute" pollution exclusion). These exceptions are:
- “Bodily injury" or “property damage" attributable to and caused by an insured or a person adversely affected by the ingestion or absorption of cannabis for whom the named insured (the you) is legally responsible. Basically, if an insured or a person for whom the named insured (the you) is legally responsible is “high" and causes “bodily injury" or “property damage" to a third party, that BI or PD is covered. But there is, of course, an exception to this exception (creating an exclusion). If the “cannabis" that made the person high is the insured's product, there is no coverage. So, if the employee smokes the store's weed and causes injury or damage, there is no coverage.
- The “personal and advertising injury" exclusion does not apply to false arrest, detention or imprisonment; or the wrongful eviction from, wrongful entry into, or invasion of the right or private occupancy of a room, dwelling or premises that a person occupies, committed by or on behalf of its owner, landlord or lessor. Essentially, if the insured manufactures cannabis or cannabis-related products, that fact does not preclude coverage for these actions.
If the carrier wants to fully exclude cannabis-related losses from the BOP, the BP 15 30 and BP 15 32 are attached.
Hemp Exception Endorsements
Two of the three remaining exclusionary endorsements mirror the BP 15 30 and BP 15 32 with one exception, both contain a hemp exception.
BP 15 31 09 19 – Cannabis Property Exclusion With Hemp Exception
There are only two differences between this BP 15 31 and the BP 15 30 (the “absolute" cannabis property exclusion) discussed previously:
- Hemp products are removed (excepted) from the definition of “cannabis;" and
- If industrial hemp production is allowed by law in the state, the exclusion does not apply.
The endorsement specifically states that the definition of “cannabis" (and the ultimate exclusion) does not apply to goods or products containing or derived from hemp, including, but not limited to:
- Lotions, oils or extracts;
- Building materials; or
And, as stated previously, if industrial hemp production or cultivation is allowed by the state, direct loss to and business income/extra expenses losses arising from direct damage to hemp-related property are covered by the BOP.
BP 15 33 09 19 – Cannabis Liability Exclusion With Hemp Exception
Other than the exception for hemp-related products, this exclusion mirrors “absolute" exclusion found in the BP 15 32. “Bodily injury," “property damage" and “personal and advertising injury" is excluded if the injury or damage arises out of “cannabis." But a new exception is added to the two previously discussed exceptions; the exclusion does not apply to industrial hemp products when the production or cultivation of industrial hemp is allowed by the state.
Beginning to sound familiar? It should! The exception wording in this endorsement looks a lot like the exception on the property side. The additional exception in the BP 15 33 reads:
B. The exclusion in Paragraph A. does not apply to:
1. "Bodily injury", "property damage" or "personal and advertising injury" arising out of goods or products containing or derived from hemp, including, but not limited to:
d. Lotions, oils or extracts;
e. Building materials; or
2. "Property damage" to goods or products described in Paragraph B.1. above.
From there the wording goes on the remind us that the state must allow hemp production or cultivation for the exception to apply.
Hemp and Lessors Risk Exception
BP 15 34 09 19 – Cannabis Liability Exclusion With Hemp And Lessors Risk Exceptions is the last cannabis-related BOP endorsement. Compare the BP 15 34 to the BP 15 33 and there is only one difference, the addition of the lessor's risk exception which reads:
B. The exclusion in Paragraph A. does not apply to:
3. "Bodily injury", "property damage" or "personal and advertising injury" arising out of the ownership, maintenance or use of a premises leased to others by you;
Attachment of this endorsement allows a lessor to have liability protection for any liability assigned to the lessor resulting from cannabis-related activities of its tenant.
Note that the lessor's risk exception is not limited to tenants involved in hemp-related activities - even though the title addresses only hemp in addition to the lessor's risk. The exception is total, coverage is granted when the premises is leased to others. So, even if the tenant is involved with other cannabis-related activities not part of the exception, the lessor still has coverage.
- Property and liability exposures related to “cannabis" are excluded when any of these endorsements is attached;
- All five endorsements apply the same definition of “cannabis;"
- Hemp and hemp-related products are initially included within the definition of “cannabis;"
- Hemp can be excepted from the “cannabis" exclusion when one of the three hemp-exception endorsements is attached;
- The hemp exception applies only if industrial hemp production or cultivation is allowed in the state; and
- The lessor's risk exception is not limited to tenants involved with hemp products.
Last Updated: November 8, 2019