Insuring the Crops, Opportunity on the Vine

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By: Talley H-S Kovacs, Esquire  and Greg Murphy
Insurance coverage can be the difference between a natural disaster causing the closing of a business or merely a temporary shutdown. In October 2017, wildfires blazed across eight counties in Northern California causing billions of dollars in insured losses. 19,000 residential, commercial, and auto claims were filed by the end of October, with payouts of over $3.3 billion according to the California Department of Insurance. The wildfires are expected to collectively amount to the costliest wildfire loss in U.S. history.

Despite disheartening news that the fires were ravaging California’s wine country, most of the wineries in Sonoma and Napa counties were not directly affected. According to a press release from Visit California, a marketing agency for the state’s tourism industry, of the more than 1,200 wineries in the region, fewer than 10 were heavily damaged. Regardless, many tourists canceled trips to the region in late October and early November, even after most businesses had reopened. That has impacted not only the wineries, but those businesses heavily dependent on the winery industry such as hotels, restaurants, shops and tour group operators.

Most of the businesses affected by the wine country wildfires will be able to rely on insurance proceeds to keep their business afloat. However, the same cannot be said for the burgeoning marijuana industry of Northern California.

Medical marijuana has been legal in California since 1996, and recreational marijuana use was legalized by ballot initiative in 2016 taking effect January 1, 2018 (the Adult Use of Marijuana Act). Many entrepreneurs launched or expanded marijuana farms in California as a result of the new law, and many farms in Sonoma County and Mendocino County were damaged or destroyed by the same wildfires that have impacted California’s wine country. Most of these farms were not insured; due not to the growers’ lack of desire to insure their crops, but to the precarious situation they are in with regard to accessing insurance markets for their particular business and business risks.

“Since hemp is classified as a prohibited substance under federal law, it is not eligible for federal crop insurance,” Heather Manzano, acting administrator of the Risk Management Agency, the federal agency under the USDA that oversees government insurance for farmers, said in a statement. Insurance companies have yet to embrace the market on a large scale due to the pseudo-legal status, as well as the uncertainty of the risk.

California Insurance Commissioner, Doug Jones, wants to change this circumstance for California businesses. To that end, his agency initially proposed a regulation to require marijuana businesses to carry at least $1,000,000 of liability insurance from a licensed insurer in order to be eligible for state licensure. That regulation was later withdrawn due largely to the fact there were no licensed insurance carriers willing to offer such coverage in the state. Coverage was only available through surplus line carriers that were approved by the state but not licensed, and these policies are more restrictive and more expensive than policies that are offered by licensed insurers. Commissioner Jones continued to advocate for licensed insurers to enter the market and, in early November, Golden Bear Insurance Company was approved as California’s first commercial insurer for licensed marijuana businesses offering general, professional and products liability, and property coverage, including coverage for buildings, contents and tenant improvements. More carriers are poised to follow Golden Bear into this market with the hope that not only growers but all those who are dependent on them such as distributors, cultivators, manufacturers, dispensaries, doctors and laboratories will be able to obtain general liability, property, fire, theft, product liability, commercial property, manufacturing, business interruption and professional liability insurance.

With more states legalizing or decriminalizing marijuana usage, it is worth watching how efforts to insure marijuana businesses in California play out. Political pressures and the lack of aggressive and influential advocates may make insurance offerings more scant in other states that do not have the same history of regulating marijuana as California. Insurance companies who are willing to put in the effort to accurately analyze the risk and provide the needed coverage will be the ones to stake out robust market positions for this burgeoning industry.

Ms. Kovacs is an attorney in PK Law’s General Litigation Group representing clients in state and federal litigation in disputes relating to insurance coverage, real estate, and business-to-business contracts. She has represented national insurance carriers in property and casualty coverage disputes, claims handling, fraud, and extra-contractual litigation; insurance agents in errors & omissions claims and regulatory matters; and entrepreneurs seeking to procure insurance to minimize liability risks. She has also represented clients in matters involving easements, condemnation, construction claims and real estate agents in enforcing sales contracts, buy/sell

Ms. Kovacs received her undergraduate degree from St. John’s College in Annapolis, Maryland, law degree from the University of Maryland Francis King Carey School of Law, and an MBA from the University of Baltimore Merrick School of Business. Ms. Kovacs clerked for the Honorable Clayton Greene, Jr. on the Maryland Court of Appeals prior to entering private practice with PK Law. Before entering the legal profession, Ms. Kovacs worked in marketing, public policy relating to public health and environmental regulation, venture capital, and in the culinary industry completing a culinary apprenticeship in the Gascony region of France.

Ms. Kovacs can be reached at 410-339-5798 or