Vermont has been hit by a lot of flooding, which caused substantial property loss.
The story was about a woman who owned a commercial building in Vermont. She rented the use of the property to a cannabis seller. The sale of cannabis was legal in Vermont at the time (and still is).
The building was damaged by floodwater in 2023. The woman was then told that her insurance company would not pay any claim because a federal law, enacted in 2021, said that insurance policies were invalid for any property used to sell cannabis. The woman says she was unaware of this law and thought her insurance policy was valid.
Questions:
Is this factual?
Can the federal government enact laws which prohibit insuring a property conducting a legal business? Could the federal government, for example, forbid insuring any business which sells high fructose corn syrup? Or any business that sells fire arms?
When this law was passed, did the insurance company have any legal obligation to inform the property owner that their policy is not valid and they cannot make any claims based on it? Or can they just stay silent and collect the money, knowing that they will never have to pay any claims?
Is this law a good idea? If the federal government thinks a business shouldn’t exist, I feel it should enact a law making the business illegal. Not enact a law making the operation of the business difficult.
These two articles, from 2023, indicate that while, generally, such businesses can get insurance, it is often expensive, as it requires specialized policies, laws vary by state, and many insurers are still hesitant to offer policies to the industry.
Neither article (the second one is from the American Bar Association) mention any federal law which prohibits such insurance.
If you’re engaged in interstate commerce, you bet your ass you don’t want any of it to be illegal. Many financial institutions have determined that they aren’t going to do business with businesses that are illegal under federal law.
I know my employer will not rent space on a shopping center to a dispensary even if cannabis is legal in that state. Though some of the reasoning at least, is reputational not legal.
I know it’s been pointed out already, but the fact of the matter is that marijuana isn’t fully legal anywhere in the United States. And this hodgepodge of laws between various states and the federal government is what leads to problems like how to get insurance or even how to do any banking. You can’t just take your marijuana proceeds to a regular bank like every other business does.
Insurance companies (among others) have been concerned about insuring cannabis businesses for because it is a violation of federal law to engage in a “monetary transaction in criminally derived property.” I’m not sure there has been any prosecutions of companies that have provided insurance to criminal enterprises, but that’s the professed concern. That law was enacted in the 1980s, I think.
There was a bill proposed (but not enacted) in 2021 (the CLAIM Act) that would have provided a safe harbor for companies providing insurance to cannabis businesses. It wasn’t acted on.
They did. I guess it’s not common knowledge. It’s called the “Anti-Drug Abuse Act of 1986” which, among other things, makes it a crime to “knowingly open or maintain any place for the purpose of manufacturing, distributing, or using any controlled substance” unless otherwise authorized by federal law. It builds on another little known federal law called the Comprehensive Drug Abuse Prevention and Control Act of 1970 (a/k/a the Controlled Substances Act).
I thought at some point the federal government had revoked its law against marijuana and made it a state issue. Apparently I was wrong.
So add that to my list. If the federal government thinks marijuana is illegal, it should be enforcing its law. If it doesn’t think the law is worth enforcing, it should be rescinded.
Yes. While insurance can be problematic, the Feds do not out and out prohibit such insurance. In 2021 there was a proposed law but it never was passed.
According to the Federal government cannabis is still illegal and still a Schedule I drug like heroin.
Sure, it’s OK with the Vermont government, but for interstate commerce (and almost all insurance is interstate commerce) the Feds trump the states.
Insurance companies often send out “summaries” of policies, but those are exactly that - summaries. They do not contain all the details. It is the responsibility of the party insured to fully comply with the entire policy. Usually you have to request a full copy but you can get it. You are then expected to read the entire thing. Most people do not bother to do that. I think if more of them did they would make different decisions.
Most likely the full policy clearly had a clause regarding this sort of situation. Heck, it might have even been in a summary. But most people don’t understand that insurance companies stay in business by only paying out when they have absolutely no choice and will try to wiggle out of payment any way they can.
In most places a cannibis business cannot operate within the banking industry. Banks will not handle the money, even in legal states. Some are starting to handle Visa/Matercard transactions under vague product descriptions giving no indication of what is being bought. But pot shops tend to be a cash only business, and the criminals are well aware that they have lot of money on hand. Makes them a prime target for crime.
So no insurance. Too much risk. Once the banking money flow thing is solved the problem will ease up.
But, again, what you’re describing is a business decision by insurance companies, in the same way that an insurance company could refuse to insure a property that has an old roof, has a large tree hanging over it, etc. – they deem that the risk of a large claim is too great. It’s an actuarial decision, and not a function of a law that declares insurance policies as “invalid for any property used to sell cannabis,” which is what someone had described to the OP, and what the OP was asking about.
I’ve never had a business policy, but even my homeowners insurance doesn’t cover me for losses resulting from my own criminal actions. I assume business policies have a similar provision.
Under federal law selling marijuana is illegal. So that any losses in your pot dispensary is a result of your criminal actions.
If you truthfully declare on your insurance application that you are operating a pot dispensary, anyone taking money from you that is engaged in interstate commerce is receiving the proceeds of “specified unlawful activities” and opening themselves up to massive criminal liability.
The bill was originally drafted exclusively with banking institutions within its scope. However, the National Association of Professional Insurance Agents and other lobbying organizations achieved the addition of language from the “Clarifying Law Around Insurance of Marijuana” (CLAIM) Act, which existed in similar versions in both the House and the Senate. The added language rules out criminal and civil prosecution for both the entities and their employees or officers for the business of insuring cannabis-related industry when such industry is located in states which have legalized such activity.
I can’t find evidence of any Federal law on the matter enacted in 2021, but it does look like the insurance industry is assuming it has the same responsibilities and needs the same protections as banks.
You are wrong. The same laws make it fraught to insure the cannabis industry. The insurance industry would LOVE to insure this enormous new market. They understand all the issues. They insure crops, transport, pharmaceuticals, and liquor liability. There’s nothing new and scary to the insurance industry (unlike cyber, which was very new and scary for quite a while.) But federal law means risking having the feds take any money that touched cannabis. It’s a bad federal law and should be changed. Ideally by legalizing cannabis at the federal level.
I feel like a broken record, but please look back at the OP, who was told that there was a specific 2021 law that “said that insurance policies were invalid for any property used to sell cannabis.” Does such a law, with that specific provision, exist? Or, is it a misunderstanding based on a different (presumably older) law? (And, yes, I know that possession and distribution of cannabis is still illegal at the federal level.)
Certainly the Federal regs make things for cannabis industry difficult. But they is no specific Federal law that says insurers cant handle the industry. The 2021 law hoped to clear the way, but it never passed. I agree, thoise laws need to change, but not as long as the GOP controls the House.
There was a 2021 law proposed to make things easier for the industry. Maybe that was what they were talking about.