What do you get when state legislators impose insurance requirements without first consulting the industry? A state of disarray, that’s what —and potential problems for many of the state’s cannabis businesses. That’s the current situation in Michigan, where Senate Bill 461 and Public Act 55 have both recently taken effect and blindsided many insurers and insureds.
Senate Bill 461 mandates that every licensed cannabis business carry product liability insurance coverage for bodily injury resulting from the manufacture, distribution, transportation or sale of adulterated cannabis or cannabis products. “Adulterated’ is defined as a product sold as cannabis that contains any other substance or chemical that causes an adverse reaction after ingestion or consumption. The policy must be issued by an insurance company licensed and admitted in Michigan, and it cannot have any limitation that relieves the insurer from liability for the payment of any claim.
Public Act 23 requires Michigan cannabis retailers and microbusiness licensees to maintain insurance coverage also by an insurance company licensed and admitted in Michigan (while also prohibiting licensees from selling cannabis to minors or visibly intoxicated adults.)
The main problem, of course, is that these limitations leave surplus lines carriers — the mainstays of cannabis insurance solutions — out in the cold. With cannabis such a unique area of risk management, and with the experience surplus lines carriers can bring to the table, it’s difficult to understand why the Michigan legislature overlooked this situation. Cannabis product liability is as non-standard a product risk as there ever was, and is yet to be embraced by the highly-regulated, data-driven admitted market.
In addition, the legislation prohibits any insurance carrier offering product liability coverage from moderating its own risk for product adulteration claims. The language in S.B. 461 is so broad that it appears there are no circumstances where an insurer can limit or deny a claim — even in a totally unfounded situation. Without the ability to write exclusions into policies under this current law, it’s a certainty many carriers will decline to offer coverage. Yet without coverage that meets the Michigan Marijuana Regulatory Authority (MRA) standards, cannabis businesses can face suspension or lose their licenses altogether.
So unless the legislature fine-tunes its initial position, Michigan cannabis companies can expect to have a difficult time finding proper liability insurance — and when they do they’ll have to pay through the nose for coverage that likely provides less protection than they desire.