One area of particular concern is product liability coverage. Like other consumer goods businesses, any business that “touches the plant” may find itself subject to product liability allegations involving inadequate labeling or product defects. As an example, in a wrongful death case in Colorado federal court, a dispensary, which had been sued for failing to provide adequate warnings on edible products, in turn brought the edibles manufacturer into the lawsuit (which ultimately settled). An insurance coverage dispute ensued. See Kirk v. Nutritional Elements & Gaia’s Garden, No. 17-cv-1113 (D. Colo. filed May 4, 2017).
In New Jersey, an injured consumer can sue all parties in the chain of distribution, including the manufacturer, distributor and retailer. While this risk is by no means unique to the cannabis industry, several potential insurance coverage issues may be.
First, off-the-shelf “traditional” liability policies often contain exclusions for illegal conduct, which some insurers have sought to apply to cannabis business activity that is legal under state law, but illegal federally. At least one court has rejected this argument in the context of a first-party property damage claim involving a grow operation, see Green Earth Wellness v. Atain Specialty Ins. Co., 163 F. Supp. 3d 821 (D. Colo. 2016), but it remains to be seen whether such an argument will have traction in other jurisdictions and/or other contexts.