The Washington State Liquor and Cannabis Control Board (“LCCB”) seems to be reversing their initial opinion on whether product liability insurance was a requirement by statute (WAC 314-55-085) for its licensees. Internal communication by the department seems to indicate product liability insurance will be understood as a being part of the statute.
We have consulted with internal staff, and would like to take this opportunity to clarify that commercial general liability insurance is required for all licensees under WAC 314-55-082. This coverage would cover instances of product liability claims. More information is also available at the Office of Insurance Commissioner’s website, here: https://www.insurance.wa.gov/your-insurance/business-insurance/marijuana/. If you have questions about that, please reach out to OIC.
Source: Washington State LCCB Amanda Smith, Forms and Records Analyst 07-17-2018
Need to cover instances of product liability claims
While not clearly stated in the statute (WAC 314-55-085), this additional communication “This coverage would cover instances of product liability claims” (emphasis added) does appear the direction the LCCB is taking when defining the type of insurance they mandate upon their licensees.
WAC 314-55-085 does provide an indication of the intentions of those who wrote this section.
The intent of the required insurance is to protect the consumer should there be any claims, suits, actions, costs, damages or expenses arising from any negligent or intentional act or omission of the marijuana licensees.
However, the statute would have been less ambiguous by naming the coverage lines such as “products and completed operations” or “product liability.” The statute could be further interpreted to include “professional liability” based on the broad nature of protecting the consumer from “any claims.”
Another issue with this wording is “intentional acts” are typically not the types of claims covered by insurance. If someone is acting with intent to harm the consumer, then most claims of this nature are likely to be considered outside the scope of insurance due it be intentional as opposed to accidental. Intentional acts should be removed from the statute.
Regardless, this recent communication reverses and conflicts with a prior statutory opinion made on August 15, 2016, when the LCCB clearly stated product liability was not required by statute as publicized in our article entitled Required or Not Required? Washington Cannabis for Product Liability Insurance
Lack of pesticide testing is good reason to transfer this type of risk to the insurance industry
In our opinion and clearly conjecture, the lack of any pesticide testing on cannabis products could be a strong reason the statutory opinion was astutely reversed to transfer any and all underlying risks to the insurance industry covering future product liability claims.
If you’re the LCCB, then protecting the regulatory agency from pesticide lawsuits would be prudent. These types of claims have not surfaced, but could be laying dormant for future insurance carriers to worry about. Furthermore, the statutes require the LCCB is named as an additional insured, primary and non-contributory, and waiver of subrogration. The LCCB will be protected by the insurance of their licensees.
In the future, the LCCB is likely to become vigilant with enforcing product liability insurance is not excluded, but a coverage line purchased by the licensee.
Need to buy product liability insurance in Washington?
Product liability insurance is available in the marketplace by a small number of insurance carriers making it expensive for many licensees particularly those just starting up. These are separate insurance policies from the primary commercial liability. The price for this type of insurance is based on revenue along with other factors such as the type of operation and product mix.
This additional expense is compounded by the fact the market price for cannabis is low in the State of Washington. Many 502 producers are hanging by thread and additional insurance is not affordable.