Seeing Through the Haze – What Insurers Need to Consider About Bill C-4522-May-18
By: Sarah Levine
We have written previously about Alberta’s new legislative framework for legalized recreational cannabis and how it will affect businesses and the economy on a provincial level, here and here, (but how will the legalization of cannabis in Canada affect the insurance industry?
The Federal Government’s Bill C-45, An Act respecting cannabis and to amend the Controlled Drugs and Substances Act, the Criminal Code and other Acts (the “Cannabis Act”) sets out the regulatory framework for the legalization of recreational cannabis in Canada. The official date for legalization is set for July 1, 2018, although it is widely thought that retailers will not actually be allowed to sell product until the early fall of this year. Bill C-45 is accompanied by Bill C-46, An Act to amend the Criminal Code (offences relating to conveyances) and to make consequential amendments to other Acts, which sets out three new drug-impaired driving offences as follows:
- Having a THC level between 2 and 5 ng, punishable by a fine of up to $1,000;
- Having a level above 5 ng, punishable by a fine of $1,000 for a first offence and escalating penalties for repeat offenders;
- Having a blood alcohol concentration of 50 milligrams per 100 mL of blood in addition to a THC level superior to 2.5 ng, with the same penalties as the previous offence.
Bill C-46 would amend section 253 of the Criminal Code by adding the above-blood drug concentration limits.While perhaps its most obvious potential impact is on motor vehicle claims, the legalization of recreational marijuana has the potential to also affect life and health insurance, commercial general liability insurance (for Licensed Producers), and property insurance. As such, insurers will need to assess the adequacy of their exclusion and coverage clauses in policies for property insurance and commercial general liability in light of cannabis legalization.
Cannabis and Homeowners’ Policies
With the Cannabis Act allowing individuals to grow up to four cannabis plants in their home, insurers will need to consider how to treat theft or damage claims with respect to marijuana plants.
There is already some commentary from the Courts with respect to the treatment of marijuana and homeowners’ policies in the context of medical marijuana. The Ontario Divisional Court in Stewart v TD General Insurance Co held that a loss due to the theft of 11 marijuana plants from the Plaintiffs’ home was excluded under their homeowners’ insurance policy. In that case, one of the Plaintiffs had Health Canada authorization to possess and cultivate marijuana for his personal medical use, and did so in his backyard. He took the position that the plants should be construed as personal property for the purposes of his policy. The insurer argued that the plants were not considered personal property under the coverage clause, but conceded that limited liability could be afforded to the Plaintiffs under their “extended coverage” clause for “landscaping”. While the Court agreed that the marijuana plants in the backyard could be considered personal property, it found the requirement in the coverage clause, that the personal property must be “usual to the ownership or maintenance of a dwelling,” operated to exclude the marijuana plants from coverage as they could not be considered usual to the ownership and maintenance of a dwelling. The court did not decide whether the marijuana plants fell under the extended landscaping coverage as the insureds had already been paid the limits of coverage available to them for landscaping.
While this case is a helpful precedent for insurers looking to limit coverage for cannabis-related claims under homeowners’ policies, insurers must be cognizant of the fact that the same judicial interpretation of that clause in the Plaintiffs’ policy may have been quite different in an environment of legalized cannabis. With Canada’s new legalized cannabis framework, the presence of marijuana plants in a household may very well be considered “usual to the ownership of a dwelling”, or such other analogous wording that can be found in homeowners’ policies. Insurers should therefore turn their minds to any necessary amendments or further qualifiers they need to make to their policies in order to properly capture, or exclude, the risks they wish to insure.
Recently in British Columbia, the Court in Bahniwal v. The Mutual Fire Insurance Company of British Columbia  held that the insurer improperly determined that the Plaintiffs’ fire policy was voided due to their alleged misrepresentation about the presence of a marijuana grow-op on their premises. This case involved a fire loss claim by the Plaintiff owners of a garden supply business who had a fire completely destroy their storage facility and its contents before the fire department was able to suppress the fire. There was also fire damage that extended into an attached residential suite, effectively rendering it a total loss. The cause of the fire was never determined.
The insurer sought to void the insurance policy pursuant to Statutory Conditions 1 and 4, which dealt with misrepresentation and material change of risk. Their position was that there was evidence that at some point prior to the fire a marijuana grow-op had been undertaken in the attached suite without the insurer’s knowledge or approval. They treated this as a misrepresentation or material change of risk or both, contrary to Statutory Conditions 1 and 4 and took the position that if they had known of it they would not have renewed the policy. The Plaintiffs maintained that if there was a marijuana grow-op in the suite, they had no knowledge of it. The Court concluded that there was no misrepresentation or failure to disclose a material change in the risk with respect to a fire damage claim and ordered that the Plaintiffs were entitled to indemnity under the policy on the basis of replacement cost value. The Plaintiffs’ claim for punitive damages against the insurer was denied.
As was noted above with respect to the Stewart case, given that the Cannabis Act allows marijuana plants to be grown in the home, insurers will need to consider amendments to their homeowners’ policies so as to ensure that their exclusion clauses accurately reflect the risks they are willing to accept and those that they are not.
Cannabis Impairment and Automobile Insurance
One of the main concerns about the impact of legalizing cannabis on motor vehicle accidents and motor vehicle accident claims is that a definitive, uniform method of testing cannabis impairment has not yet been developed. Driving while impaired by drugs is treated the same as driving while impaired by alcohol, for criminal law purposes and insurance purposes, but the effect that drivers impaired by cannabis will have on the frequency of accident claims, or how they are handled, remains unclear. While this article is focused on the legalization of recreational cannabis, it is noteworthy that individuals authorized by Health Canada to use medical marijuana do not have a duty to inform their insurer that they are using it, as it is treated the same as other prescribed medication. As stated above, Bill C-46’s creation of three separate offences dealing with varying amounts of drugs, or drugs and alcohol, in a person’s system that are to be added to section 253 of the Criminal Code will presumably also trigger an exclusion under Section C of the Standard Automobile Policy.
In the British Columbia Supreme Court case Venkataya v Insurance Corporation of British Columbia, the Plaintiff brought an action for the recovery of the value of his vehicle that was written off in a single-vehicle accident. The Plaintiff’s policy had optional collision/own damage coverage, which included replacement-cost coverage. The insurer denied coverage on the basis that the Plaintiff’s loss was excluded because he was driving while impaired and that he falsely represented that he had not taken any drugs or alcohol in the 12 hour period prior to the accident.
The Plaintiff, a Canadian who immigrated from Fiji, had been drinking Kava on the night of the accident. Kava is a culturally significant beverage – the national drink of Fiji. It is a tea-like drink derived from the Kava plant, which is known for its anxiety-reducing, and – possibly - psychoactive effects. The insurer argued that the Plaintiff breached a condition of his insurance policy by operating a vehicle while under the influence of an intoxicating substance such that he was incapable of proper control of his vehicle. The Court dismissed the insurer’s expert evidence that Kava is a psychoactive drug on the basis that the expert’s report relied on various non-scientific, internet sources, like Wikipedia, and therefore did not meet the burden of satisfying the Court that the Plaintiff was incapable of operating a motor vehicle. The Court also held the insurer was not able to treat the Plaintiff’s claim as forfeited and ordered judgment for the Plaintiff in the amount of the replacement cost of his vehicle. This case is illustrative of the difficulties Courts and insurers will have in determining intoxication or impairment in the absence of the sort of definitive impairment testing we currently have for alcohol.
The New Landscape of Legalized Cannabis
The uncertainty illustrated in the cases highlighted above demonstrates that insurers will need to reassess and perhaps revisit the coverage and exclusion clauses of their policies that may be impacted by the legalization of recreational cannabis. It is likely that there will be an increase in litigation over coverage issues when it comes to how legal marijuana is to be handled across the many different insurance sectors. However, while the new legislative framework setting out the legalization of cannabis is sure to present some challenges to the insurance industry, there are also positive economic opportunities for insurers who can benefit from developing novel types of coverage in this emerging sector.