Cannabis health concerns raise product liability risk

Recent research linking cannabis consumption to a range of health risks may increase product liability exposures for the expanding industry.

Insurance coverage for the cannabis sector, which has grown significantly over the past several years as more states legalized the drug, is expanding, experts say.

But policyholders should check their contract language to ensure that potential exposures linked to health concerns are covered, they say.

Some medical studies are showing a correlation between cannabis use and increased risk of cardiovascular disease.

A study by researchers affiliated with Stanford University concluded that frequent, but not occasional, cannabis use was associated with an increased risk of coronary artery disease.

“Compared to never-users, daily cannabis users had an increased odds of developing CAD,” according to an abstract of the study presented at the American College of Cardiology’s Annual Scientific Session held in conjunction with the World Congress of Cardiology.  

“A key concern is whether cannabis can trigger a major cardiac or vascular event such as a severe cardiac arrhythmia, heart attack or stroke,” said Ian Stewart, chair of the national cannabis and hemp law practice at Wilson Elser Moskowitz Edelman & Dicker LLP in Los Angeles.

Further research may be needed before the true extent of any exposures is known in greater detail, he said.

Most studies on the cardiovascular risk of cannabis use have been short-term, observational and retrospective, Mr. Stewart said. Long-term, prospective studies that are controlled with product and dose standardization would be more reliable, he said.

The liability insurance market for the cannabis sector is limited in large part due to concerns about insuring an industry that produces a product that is illegal under federal law. The insurance market, though, is expanding and the demand for coverage is increasing.

Managing general underwriter CannGen Insurance Services LLC has seen an uptick in coverage applications from operators such as edibles makers as manufactured products continue to garner additional market share in the cannabis business, said Charles Pyfrom, Livermore, California-based chief marketing officer.

The MGU offers limits up to $5 million for general liability and $10 million for product liability on a separate form, he said.

Coverage language is also changing to reflect newer methods of consumption.

“In the product liability space, we’re seeing people take higher limits of insurance,” as high as $15 million, said Los Angeles-based Brad Rutt, senior vice president and national cannabis practice leader at Hub International Ltd.

Claims are also rising, he said.

“We’re starting to see an uptick in product liability claims. I’ve seen more product liability claims in the past 18 months” than in the previous five years, Mr. Rutt said. 

Product liability coverage for cannabis companies varies substantially in terms of contract language and often contains exclusions for conditions that develop over time, such as cancer or cardiovascular disease, he said.

The scope of coverage, wordings and definitions vary among policy forms for cannabis product liability coverage, said Pittsburgh-based Michael H. Sampson, a partner with Leech Tishman Fuscaldo & Lampl LLC, who leads the law firm’s insurance coverage group.

A policyholder should ascertain whether a policy includes a health hazard exclusion, for example, even if it is being called by a different name, he said.

“If you’re not careful, you think you’re getting a policy without a health hazard exclusion, but, as it turns out, it’s just under another name in the policy,” Mr. Sampson said. Policyholders “must understand what they’re getting and what they’re not getting.”

Larger, sophisticated operators in the cannabis sector buy product liability insurance alongside other standard coverages, including property, auto liability and workers compensation, he said. An operator’s annual revenue, the number of states in which it operates and the number of facilities to be covered will all factor into determining limits, he said.


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