A carrier learns that an insured grows marijuana for personal use, which is legal in their state. Is this a valid reason for non-renewal or initial denial of coverage?
An agent’s client has been insured under an HO-3 (4/91) for eight years. In a recent homeowners questionnaire, they report installing an outdoor wood boiler. In response, the carrier orders an inspection.
During the inspection, the carrier learns that the client installed the outdoor wood boiler in a detached structure where they are growing marijuana plants. The insured only grows six plants for personal use—no distribution—which is legal in this state.
Since this episode, the carrier added a new question about marijuana to its HO application. If a prospect answers affirmatively, the carrier will not write the property, regardless of the amount or usage parameters.
Q: Is this a valid reason for non-renewal or initial denial of coverage?
Response 1: Insurance carriers can use any reason they want to provide or deny coverage. Even if it’s legal in your state, marijuana is still illegal under federal law. No carrier is required to provide coverage forever, or provide coverage initially if they perceive an increased hazard.
Response 2: Increase in risk of loss is always reasonable grounds for cancellation or non-renewal.
Response 3: When the carrier perceives an increase in hazard, it’s within its rights to non-renew the policy.
Response 4: Yes, the carrier is within its rights to non-renew the policy based on the findings and report of the inspector. Regardless of what triggers an inspection, including an honest answer on a questionnaire, if a physical inspection of an insured property reveals an increase in risk in the opinion of the underwriter, it is the underwriter's prerogative to decline renewal.
Response 5: Insurers in most states, including yours, can non-renew HO coverage for any reason that's not illegal. For example, non-renewal may be prohibited when it discriminates against a protected class. At present, marijuana users and growers don’t qualify.
Response 6: In most states, carriers can non-renew for any reason they want unless that reason violates discrimination laws. Unless you have a law that prohibits non-renewal for marijuana cultivation, I doubt this action is illegal.
Response 7: The insurer's reasons seem justifiable as an underwriting concern.
Response 8: If you want to know what your state’s Department of Insurance thinks about this reasoning, ask them. It's easy enough for your insured to file a complaint with the Bureau. Your primary task now is to find another company that will write this risk after you disclose all the pertinent underwriting information you have.
Response 9: The carrier provided a valid reason for their actions. Unless your state has a state statute to the contrary, your client may have hit a dead end with this carrier. Check with your other markets before submitting the risk to avoid excess work and insurance scoring data for your client.
I would be interested in how insurers in other states are addressing this issue. This is no different than back in the 1980s, when carriers did not write cohabitation coverage for same-sex couples. The marketplace will find equilibrium as more states move forward through this market evolution.
Response 10: Underwriting standards include rejections for legal property insureds own. A wood boiler and marijuana plants are as good a reason to deny coverage as dogs or horses.
This question was originally submitted by an agent through the VU’s Ask an Expert Service, with responses curated from multiple VU faculty members. Answers to other coverage questions are available on the VU website. If you need help accessing the website, request login information.
