Is there a liability coverage gap for the sale of THC-infused drinks, with or without the addition of a liquor liability form? Does the definition of “intoxication” apply to only alcohol or more broadly?
Q: An establishment with the ISO commercial general liability policy CG00 01 0413 sells THC-infused beverages. Is there a liability coverage gap for the sale of these beverages, with or without the addition of liquor liability form CG00 33 0413? Does the definition of “intoxication" apply to only alcohol or more broadly?
Response 1: I'm assuming that the THC-infused beverage does not also include alcohol and that none of the insured's operations involve making or selling products with alcohol.
The CGL's liquor liability exclusion would not apply. The policy states:
2. Exclusions
This insurance does not apply to:
c. Liquor Liability
“Bodily injury" or “property damage" for which any insured may be held liable by reason of:
- Causing or contributing to the intoxication of any person;
- The furnishing of alcoholic beverages to a person under the legal drinking age or under the influence of alcohol; or
- Any statute, ordinance or regulation relating to the sale, distribution or use of alcoholic beverages.
However, this exclusion applies only if you are in the business of manufacturing, distributing, selling, serving or furnishing alcoholic beverages. For the purposes of this exclusion, permitting a person to bring alcoholic beverages on your premises, for consumption on your premises, whether or not a fee is charged or a license is required for such activity, is not by itself considered the business of selling, serving or furnishing alcoholic beverages.
Although your question about intoxication is a good one, the exclusion applies only to those in the business of manufacturing, distributing, selling, serving or furnishing alcoholic beverages. If the products the insured makes or sells contain no alcohol, the exclusion does not apply. Absent any other exclusion, such as a cannabis exclusion, the CGL should cover the exposure for a manufacturer or seller.
However, the liquor liability form would not apply either. Its insuring agreement states:
We will pay those sums that the insured becomes legally obligated to pay as damages because of "injury" to which this insurance applies if liability for such "injury" is imposed on the insured by reason of the selling, serving or furnishing of any alcoholic beverage.
Response 2: Excellent question! If the client sells or manufactures THC-infused beverages that do not contain alcohol and is not in the “business of manufacturing, distributing, selling, serving or furnishing alcoholic beverages," then the CGL liquor liability exclusion does not apply and the question relating to “intoxication" is moot.
However, if the client sells or manufactures THC-infused beverages that do not contain alcohol and the client is in the business of manufacturing, distributing, selling, serving or furnishing alcoholic beverages with or without THC infusion, then the CGL liquor exclusion applies. The term “intoxication" is not defined in the CGL policy, which means that the common definition of “intoxication"—which includes intoxication as a result of drug, liquor or poison—applies.
In this second case, if an occurrence causes bodily injury or property damage and that occurrence arises out of intoxication caused by a THC-infused beverage with or without alcohol content, then I would expect that liquor liability exclusion would eliminate coverage under the CGL policy.
Also, that second case would not receive coverage from the liquor liability coverage form because the agreement does not make any reference to “intoxication" and the coverage afforded is strictly limited to “alcoholic beverage" related activities.
Response 3: I reached out to an expert cannabis wholesale broker with significant experience in this market. He explained that, for the most part, some carriers have carved out exceptions to exclusions for illegal activity with less than 0.3 THC—and most do exclude marijuana. The marijuana exclusion has an exception for industrial hemp below 0.3 THC. Impairment is not considered to be covered unless affirmative coverage is given. Some specialty carriers will cover impairment-related exposures.
Insurers are seeing THC-consumption opportunities expand across the cannabis ecosystem. THC drinks are now sold at bars, taverns, golf courses and liquor stores. Impairment exposure that didn't previously exist is now front and center with insurers.
It would pay to query your insureds who could be serving THC-infused drinks so that your underwriters know and can opine on coverage and you can obtain the appropriate coverages. I doubt that any underwriter would agree to write an ISO CGL with this exposure, as new as it is. That's why an insured's honesty in the application is so important.
Response 4: The liquor liability exclusion and the endorsement were designed to address risks related specifically to alcoholic beverages. Trying to apply THC to this situation is like pounding a square peg into a round hole.
In addition, many CGL policies include specific limitations and exclusions for cannabis products. In fact, ISO has published at least five different exclusions of this sort. So, even in the unlikely event that you convince an adjuster to grant coverage via the common definition of intoxication, the loss will probably still get denied by one of the various cannabis exclusions. And with standard carriers, the client also faces a risk of cancellation or non-renewal due to ineligible products or operations.
For a client like this, I would seek out a carrier who specializes in cannabis products.
Response 5: This is a great question, and one we routinely discuss in the cannabis space. First, the liquor liability coverage form will not cover THC-infused drinks because the form mentions "alcohol."
Next, the CGL excludes "liquor liability." "Liquor" is not defined, but the commonly accepted dictionary definition is an "alcoholic drink, especially distilled spirits." The CGL policy goes on to discuss "intoxication," then "alcoholic beverages."
THC-infused drinks are not alcohol, but they do cause "intoxication." The principal of noscitur a sociis, which means “it is known from its associates" is helpful here. Since the only mention of intoxication is under liquor liability and liquor means “alcoholic beverages," some argue that THC-infused drinks are covered. I agree with them.
This question was originally submitted by an agent through the Big “I" Virtual University's (VU) 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.
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