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In the Weeds

CLM’s newest committee puts focus on cannabis

June 26, 2019 Photo

CLM’s newly formed Cannabis Committee aims to promote education on claims and litigation management relative to all aspects of the cannabis industry, including current legal and regulatory compliance, claims handling, and litigation management best practices that are unique to this highly regulated and quickly expanding industry. We spoke with Ron Mazariegos, claims executive at Arrowpoint Capital; Kara Thorvaldsen, partner at Wilson Elser, and Ian Stewart, partner at Wilson Elser, to learn more about the work they hope to accomplish.

Why is now the right time to create this committee?

Ron Mazariegos: Cannabis is now a multibillion-dollar market that is touching a lot of aspects of insurance and the legal world, including employment law, product liability, D&O, E&O, transportation, medical malpractice, and workers compensation, to name a few. In workers compensation, we’re seeing it prescribed as an alternative to opioids and also to help injured workers wean off opioids and benzodiazepines. Because the law is still in the state of flux, a lot of carriers are really struggling with how to maneuver through this new emerging market. But it’s something that will eventually need to be dealt with as more and more doctors prescribe medical marijuana.

What sort of claims or litigation trends are you seeing related to cannabis?

Kara Thorvaldsen: I haven’t seen enough of any one type of claim to call it a trend, but we are starting to see employment claims relating to discrimination and the need to accommodate people who are prescribed and using medical marijuana, in particular. Additionally, there is a lot of concern about directors and officers liability because cannabis-related businesses are privately funded—they cannot get small business loans from FDIC-insured banks. So you have a lot of investors who are really worried about their investments, and they are going to be looking to hold directors and officers accountable if their investments go up in smoke, so to speak.

What difficulties are insurers having with Cannabis Claims?

Ian Stewart: Some say that the two most regulated products in the country are uranium and pot, and it’s probably not far from the truth. If anything goes wrong at any point along the chain of distribution, you can have insurance claims for those losses. However, there are big gaps in terms of what policies will cover. So insurers must try to figure out what happened along the distribution path to cause a loss, which could be anything from a state regulator saying, “Sorry, you can’t sell it,” to problems with the plants’ track-and-trace system, a recall, or a mislabeling issue. We’re also trying to figure out highly specific regulatory schemes in each state. So there are all sorts of problems right now that the industry is trying to work through, and they all invariably come back to some sort of insurance claim.

Ron Mazariegos: On the workers compensation side, there is a significant amount of litigation because the workers compensation boards in six different states have issued orders mandating that the insurance carrier cover the cost of medical marijuana. This has left insurance carriers in a conundrum because marijuana is still illegal under the Controlled Substances Act. That means when a carrier reimburses, it could technically be running afoul of federal law. That has led to a tremendous amount of litigation regarding state courts ordering carriers to reimburse for medical marijuana. Payors are looking for guidance on how to handle requests for medical marijuana and a uniform way to reimburse for it in the event a court orders that carriers must pay for medical marijuana.

About The Authors
Eric Gilkey

Eric Gilkey is vice president of content at the CLM, and serves as executive editor of CLM magazine, the flagship publication of the CLM.  eric.gilkey@theclm.org

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