Last year we provided comment to the ever evolving issue of “cannabis and insurance”. Now, a year later, it’s a good time to take another look at where things lie.
From a risk standpoint as well as politically, this remains a hot issue across the country. Insuring the professional risk of attorneys serving the cannabis industry remains pertinent as more and more states move to legalize consumption on some level. A fifth of the country’s population is living somewhere with some form of legalized access. As momentum for legalization on the state level continues, uncertainty of federal status is ratcheting up as well. A viable insurance marketplace to assume risk requires 2 things: data and stability. Right now, we don’t have either.
The conflict between state and federal law is…scary.
AG Sessions is the process of walking back the feds position (which could best be described as “turning a blind eye”. Most recently, the AG rescinded the Cole memo, which urged federal prosecutors NOT to use department resources to prosecute people and businesses that were compliant with their own state marijuana laws.
Keep in mind that insurers are heavily regulated and must comply with BOTH state and federal laws. When the relationship between the two isn’t clear, or when those paths split, it puts insurers in a tough spot.
State Ethics Rules (or lack thereof).
Few state bars have issued ethics opinions as to whether attorneys can represent clients in the cannabis industry. Where opinions do exist, the extent of the allowable representation (if any) often varies widely from state to state. Again, it adds to the confusion and uncertainty. Insurers are unwilling to operate from a position of insecurity. Even Lloyd’s, famous as underwriters of basically everything, are steering well clear of anything that smells of marijuana.
Real World Consequences for Insurers.
Insurers concerns go beyond the risk of claims generated through policies they might issue. Stepping up to this particular plate puts the insurance company itself at risk for being a participant in an illegal enterprise.
Federal RICO and Anti-Money Laundering (AML) statutes are two immediate threats to insurers who choose to become risk partners with lawyers providing legal service to the cannabis industry. Attorneys accepting money for their services from an enterprise that is illegal under federal law could be violating federal anti-money laundering laws. That means attorneys could be exposing themselves criminally. AML laws have long arms. Giving business advice, negotiating leases, or setting up trusts for owners of cannabis operations could all be considered complicit behavior.
Let’s take that one step further: Insurers accepting money for premiums from attorneys who were paid with proceeds from cannabis operations could arguably have helped launder the cannabis money – that would be a MAJOR problem for an insurer!
Similar concerns arise with regards to Racketeer Influenced and Corrupt Organizations (“RICO”) Laws. Again, broad reach means insurers could be pulled in right alongside lawyers and their clients. Would the federal government go so far as to freeze the assets of insurers ensnared in AML or RICO investigations? Probably not, but who would want to be the test case for that?
As of now, the law is just too unsettled to give most insurers and underwriters any comfort, and the risk/reward factors don’t add up.
Hopefully, that provides you with a better understanding of why most insurers have elected not to provide malpractice insurance to attorneys providing legal services to the cannabis industry.
BUT NOT ALL INSURERS!
We still have the ability to place insurance for those lawyers with a few excellent insurance companies. These companies are taking a contrarian view of the risk and providing professional insurance at a reasonable price. Contact us for more details.