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24 TortSource 14 (2021-2022)
Cannabis Coverage Issues

handle is hein.journals/tortso24 and id is 54 raw text is: TortSource: Spring 2022 Cannabis Coverage Issues By Lisa L. Pittman Lisa L. Pittman is Chair of TIPS Cannabis Law & Policy Committee and a Founder at Pittman Legal in Austin, Texas. Believe it or not, cannabis companies have been embroiled in insurance coverage cases for 20 years now. Sometimes the federal illegality of the business is the issue, despite the insurance company taking premiums for the activities, and other times it is the run-of-the-mill application of exclusions and endorsements that negate coverage. This article summarizes the issues with a survey of notable cases to date. Both hemp and policy nerds can rejoice in this case. In Bogard v. Cty. Mut. Ins. Co., No. 1:19-CV-00705- AA, 2021 WL 4269991, at *5 (D. Or. Sept. 20, 2021), a fire occurred in the home of the insured while he was manufacturing a hemp salve in Oregon in 2017. The insurer denied the claim based on the controlled substances exclusion because the total THC of one of the harvests was .381% and therefore marijuana. The court was faced with squaring Oregon hemp law before the 2018 Farm Bill with federal law, which had not yet distinguished between hemp and marijuana, with two different standards for measuring total THC in a substance involving two harvests. At issue was whether THCA should be included in the calculation. Testing from the 2017 harvest showed compliant levels of delta-9 THC, but .435% THCA using the Oregon regulation, and when multiplied by .877 and added to the calculation, the total THC became .381%. The 2018 Harvest delta-9 THC was .0365%, the THCA was .254%, resulting in a total THC of .259%. No lawyer likes to do math, so the court held that because the insurance policy did not reference Oregon's standards for total THC calculation, the simple, later-adopted U.S. Farm Bill definition of hemp as containing less than .3% THC by dry weight applied, and therefore the substance was hemp and not a controlled substance: The federal regulatory standards did not yet exist at the time of the loss or when Defendant denied Plaintiffs' claim and are not referenced or incorporated into the Policy. Rather, the Policy references only 21 U.S.C. SS 811 and 812, and those statutes, by further reference to 7 U.S.C. S 16390(1), define hemp as cannabis containing 0.3% or less delta-9 tetrahydrocannabinol by dry weight. By the strictest reading of the statutes' plain terms, this might exclude THCA from consideration entirely. At best, it is ambiguous about whether THCA should be considered. And if THCA is to be considered, the statutes themselves provide no standard for converting THCA to delta-9 THC by decarboxylation. Id. at *5. In Am. Farn. Mut. Ins. Co., S.I. v. Big Bush Farms LLC, the court evaluated whether there was a duty to defend an insured in a lawsuit alleging breach of contract, conversion, and unjust enrichment resulting from a failed business deal involving faulty seeds which caused a lower yield of industrial hemp. See No. 6:19-CV-1725-MK, 2020 WL 6038048, at *1 (D. Or. Apr. 7, 2020). The insurer refused to defend, citing the exclusion to the definition of property damage for physical injury to marijuana or cannabis plants ... even if legal in your state. The insurer argued that hemp is cannabis and therefore excluded. The insured cleverly pointed out that no physical damage to cannabis plants was alleged, rather due to the low yield from the bad seeds, the plaintiff was deprived of the possession of the hemp and the resultant Published in TortSource: Volume 24, Number 3, ©2022 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association. 14 TIPS

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