Marijuana and personal lines coverage: What clients should know

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Marijuana and personal lines coverage: What clients should know

There are several ways cannabis use and cultivation can affect the costs of home and auto insurance coverage.

Here’s what home and auto insurance clients should understand about the possible impact of cannabis on their insurance policies.

With cannabis finding a legal home in an increasing number of states across the nation, some people are beginning to worry whether their personal marijuana use may end up having repercussions on their insurance policies.

From homeowners to auto coverage to health and life insurance, cannabis use may not have automatic repercussions, but there certainly are areas where pot can sneak in to affect personal lines clients’ premiums.

Impact on homeowners insurance

From a homeowner’s perspective, the biggest issue with cannabis is if the homeowner is using their home to grow their own plants.

If they don’t have proper ventilation, large indoor grow operations can cause mold or mildew issues. And if they are rigging elaborate high voltage grow lights, any wiring mistakes can lead to a fire hazard.

How those losses are handled depends on a few things. The key questions to ask are: Is cannabis growing legal in the state? Was the damage accidental, deliberate, or due to willful neglect? And was the grow operation for personal use or for sale in any way?

Homeowners insurance is meant to protect from personal risks, so if a homeowner is growing a supply to sell, it will become a commercial operation and may no longer be covered.

If they are growing an illegal plant, their policy may exclude any losses because it happened in the commission of a crime. And if they intentionally set a fire, no policy will cover that.

But, presuming the loss was accidental, the grow was for personal use and was otherwise legal in the state, the insurance should have the homeowner’s back.

If the grow operation was outdoors and then the plants got damaged or stolen, again presuming it was legal in the state, then the plants would likely be covered in the same way any other landscaping would be — with specific limits on liability that are typically set at 5% of the value of the home, and even then it might only be covered if it was lost during a covered peril.

The case law is a bit split right now, with some courts awarding damages for people whose marijuana plants were destroyed or stolen, while others declining to cover them because they are still illegal at a federal level.

To be extra safe, if a client is growing more than a single potted plant, encourage them to discuss their grow operation with an insurance agent to ensure they will be properly covered if something goes wrong.

Another thing to keep in mind is the liability involved. If the client is in a state with server liability laws, they should keep in mind that if they have people over and serve cannabis and they later get into a car accident, in some states, the client can be held accountable for that accident. So, again, make sure you and your client know the laws of the state.

Cannabis and auto insurance issues

The biggest issue with cannabis and auto insurance is if a driver is arrested for driving under the influence. From an insurance perspective, a DUI is going to destroy the driver’s auto premiums regardless of whether it was alcohol, cannabis, or even prescription medication.

So, the big first thing to keep in mind is if you indulge, don’t drive.

The challenging part of cannabis and DUI is that there isn’t a reliable roadside intoxication test to see if a driver is high.

Bloodwork isn’t even a good solution because, unlike alcohol, cannabis stays in your blood for a long time after your intoxication wears off. So, the mere presence of THC in your blood does not necessarily mean you were driving under the influence.

Plenty of companies are rushing to find effective roadside toxicology solutions, but for now, most officers are relying on so-called field sobriety tests to judge impairment.

Another way cannabis can bite into auto premium is if a driver works in the cannabis industry. In many states, a driver’s industry of employment is a valid criterion to use to rate risk as a driver. So if an insurance company sees that an insured works for a cannabis company, they could conceivably use that to charge higher rates.

Life and health coverage

The two issues with life and health insurance are prescription coverage and how smoking will weigh into the insured’s overall risk profile.

Because there haven’t been many long-term studies, it is unclear how smoking cannabis will affect someone’s long-term health. Smoking cigarettes certainly hurts these premiums, but the effect of marijuana on the costs for life and health coverage is all over the place for now.

One thing that is relatively certain, though, is that medical marijuana is not covered by prescription plans, even if it is legal in the state.

Looking ahead

For now, it is unclear how many ways cannabis will ultimately cause higher premiums, which will only become clear as loss data from several years comes back across several lines of insurance, and the actuaries are able to factor those losses in.

It seems to be too soon to tell for now, but for their part, the National Association of Insurance Commissioners has a cannabis working group trying to come up with nationwide best practices. But for now, the details will likely vary greatly by which state an insured lives in and which company underwrites their insurance policies.

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