Oregon Recreational Cannabis Law and Home Insurance

Mark StraussHome Insurance, Individual | Personal Insurance

Beginning July 1, 2015 Oregon Recreational Cannabis Law Measure 91 takes effect and ushers in the end to cannabis prohibition in Oregon. With this the state law has usurped the Food & Drug Administration’s classification of cannabis as a “Schedule 1” status although in its wake it opens the door to complexity for individuals, businesses, state and federal authorities on how the law will be implemented and interpreted.

Part of of this complexity involves insurance, before I address the convergence of marijuana and insurance here is a recap of what Oregon Recreational Cannabis Law Measure 91 affords individuals above the age of 21:

  • Adults 21 and older can possess up to eight ounces of marijuana and grow no more than four marijuana plants in a household. Those amounts are total limits for the household. Plants and cannabis may not be visible from public property.
  • Each adult can possess up to an ounce in public.
  • Individuals 21 and older may also gift — but not sell:
    • up to an ounce of marijuana;
    • 16 ounces of marijuana products in solid form, or;
    • 72 ounces of marijuana products in liquid form to other adults
    • The purchase limit will be one ounce, or the amount set by the liquor commission, whichever is lower.
  • You may not produce marijuana extracts or obtain them from anyone other than a retailer.
  • Marijuana must not be consumed in public or while driving. (Of note the OLCC is tasked with making recommendations to the legislature about possible revisions to driving under the influence laws. In addition, property owners may not allow anyone under the age of 21 to consume cannabis on their property. If they are aware of that happening, they must make the person leave.)

The big question is will your home insurance policy provide reimbursement for cannabis that is lost in a covered peril on the home insurance policy?

Insurance is complex and of course with an insurance policy it is not what is covered but what isn’t. Here are a few limitations within a home insurance policy that would limit an insurance company’s responsibility to cover a loss related to marijuana.

  1. A home insurance policy has a limitation for business personal property and depending on your insurance carrier you might have protection for $1,500 off premises and $5,000 on premises for protection. This of course would apply if you were engaged with growing marijuana for payment or profit.
  2. A home insurance policy also contains a limitation for “Trees, Shrubs, and Other Plants” and states the following:

We cover trees, shrubs, plants or lawn, on the “residence premises,” for loss caused by the following Perils Insured Against:

  • Fire or Lightning;
  • Explosion;
  • Riot or Civil Commotion;
  • Aircraft;
  • Vehicles not owned or operated by a resident of the “residence premises”;
  • Vandalism or Malicious Mischief; or
  • Theft

We will pay up to 5% of the limit of liability that applies to the dwelling for all trees, shrubs, plants or lawns. No more than $500 of this limit will be paid for any one tree, shrub, or plant.

We do not cover property grown for “business” purposes.

A policy will define “Residence premises” as:

  1. The one family dwelling where you reside;
  2. The two, three or four family dwelling where you reside in at least one of the family units or;
  3. That part of any building where you reside; and which is shown as the “residence premises” in the Declarations.

“Residence Premises” also includes other structures and grounds at that location.

An interesting case that has been tested in court, is a 2012 case of Barbara Tracy vs. USAA Insurance.  The plaintiff maintained that 12 marijuana plants (nine of which were fully matured) were “lawfully possessed, grown, nurtured and cultivated according to state medical marijuana law.” The insurer paid $8,800 on the claim, although the insured filed a suit claiming the cannabis plants should be valued at $46,600.The insured sued in court and lost on the ground that federal law, which classifies marijuana as an illegal Schedule 1 substance, preempted state law. This invalidated her insurance coverage.

Once marijuana is harvested the insurance policy has no limitation on whether or not the buds would be covered property. The challenge that will present itself is if harvested marijuana is stolen will the policy provide protection and how is the value determined.

Another question that insurance carriers have been presented with is how will a claim be addressed if an accidental fire is caused from using marijuana whether that be medically or recreationally. This happened in Michigan when an individual in a residence became a licensed medical marijuana patient and caregiver and spent a lot of money purchasing equipment to grow marijuana in the basement of the house. One thing led to another for this individual and they started practicing a process called butane extraction, which draws liquid out of marijuana leaves to produce a THC-rich “honey oil.”

On the date of loss, this individual was multitasking, performing butane extraction and smoking honey oil when the butane ignited and the house and their belongings burned to the ground. The insurance carrier excluded coverage for intentional acts of the insured and acts that occur when a hazard was increased by means within the control of an insured. You can read about the case here. Here is a local story that replicates a similar scenario where a man in Eagle Creek was extracting hash oil from cannabis.

Be aware that insurance carriers have recently incorporated exclusions into home insurance policy forms. One carrier I work with added an exclusion for “Illegal Manufacturing, Processing or Operations” to address the trend of illegal drug manufacturing and growing operations conducted in Homeowners and Dwelling Fire exposures as related to the Oregonian article. Another carrier has included a special limit of liability for Personal Property, where they advise they will only provide reimbursement up to $1,000 for legally owned marijuana.

For additional information about the new recreational marijuana law The Oregonian has published a wonderful Q&A titled Everything you need to know about legal marijuana in Oregon, check it out.

This article is intended for informational purposes only and is not insurance advice or a substitute for consultation with a licensed insurance broker to address your particular risk or circumstance.