Oregon ordered carriers to clarify policy language
When the co-owners of Happy Harvesting Co., Eleanor Sauerborn and Jessica Thornhill, needed general liability and workers compensation insurance for their Bend-based bud-trimming business, they found it through Oregon Cannabis Insurance, a Medford-based company with offices in Portland and Bend.
“General liability is not too expensive, but we don’t have the equipment other businesses have,” Sauerborn said Wednesday. “As long as you talk to the right person, it’s not too hard to acquire.”
Nationally recognized insurance companies typically decline to underwrite policies to marijuana businesses because the federal government still classifies it as an illegal drug under Schedule 1 of the U.S. Controlled Substance Act. Some lesser-known insurance brokers and carriers are stepping in to serve the cannabis sector, from crop insurance to product liability.
Although licensed and regulated by the Oregon Liquor Control Commission, cannabis businesses are considered high risk, not only because of federal strictures but because the industry is new and not yet tested in court, insurance brokers said.
“Not everybody wants to be associated with it or offer coverage,” said Charles Earp, an insurance broker with Peoples Insurance, a small firm in Bend. “Some people still just see it as the stoner culture. Incredibly smart and wealthy business people see an opportunity.”
So-called surplus carriers fill the void, insurance companies that serve a niche clientele and charge higher premiums. That draws brokers looking for an opportunity.
“For an insurance broker, regardless of how risky a business might seem, risk is an indicator of premium. More risk is more premium,” said Eli Clark, co-founder of Oregon Cannabis Insurance, an offshoot of Focus 1 Insurance. “That is something to chase.”
He said a cannabis dispensary typically pays about $5,000 per year for insurance, but he’s starting to see bigger premiums as larger, more complicated business arrangements arise around cannabis, with millions of dollars invested.
“I’ve been in this business 17 years, and it took 16 years to quote a six-figure premium,” he said. “And now we’ve got several accounts like that.”
Surplus carriers typically use policy documents written to fit their clients, as opposed to boilerplate policies employed by larger firms, Clark said. Boilerplate policies included vague language that didn’t quite fit the marijuana business or could deny claims arising from illegal activity, he said.
“There are exclusions for liability or property if one is in the business of a Schedule 1 drug,” Clark said.
The Oregon Department of Consumer and Business Services in a June 29 bulletin instructed insurance carriers doing business in the state to clear up ambiguities in their policies as they apply to marijuana. Property and casualty policies “should explicitly state” whether cannabis-related activities are covered or excluded and whether the policy considers cannabis-related activities illegal.
Clark, who served on the Recreational Marijuana Advisory Committee, which helped create the framework for marijuana regulation in Oregon, said the move was overdue.
“It took a year to put together that bulletin,” he said.
Department spokesman Jake Sunderland, in an email Tuesday, stated the bulletin came about after a review of insurance contracts and not from any specific case of a denied claim or coverage.
“We’re trying to be proactive,” he stated. “Our team that examines insurance contracts continue to encounter exclusions for general ‘illegal activity.’ We decided that we should clarify that those general exclusions could not cover cannabis any longer and that carriers need to be more explicit.”