New Jersey’s greatest contribution to American rock ’n’ roll, Bruce Springsteen, was nearly relegated to obscurity by a marijuana bust involving his bandmates. Rock legend has it that one of The Boss’ early bands, the Castilles, was forced to break up when some of its members were caught with cannabis in Freehold in 1967. While it would have been unthinkable back then, New Jersey is now on the precipice of marijuana legalization. Gov. Phil Murphy’s campaign platform included a commitment to legalizing recreational use, and three cannabis-related bills have passed through New Jersey Senate and Assembly committees and await the legislature’s final vote, which could happen this month. Legalization would transform New Jersey’s economy, and may also be a litmus test for nearby New York. Looking ahead, business owners, entrepreneurs and investors who are contemplating entry into the cannabis space, when and if legalization occurs, would do well to educate themselves about the potential insurability of various exposures facing the industry.
Before a court can resolve a dispute, it often needs to determine what law applies to that dispute. In certain insurance cases, that question will appear to have an easy answer. Some policies include explicit choice-of-law provisions indicating that they should be interpreted and applied according to the laws of a particular state, and such provisions are generally enforceable. But a case currently before the California Supreme Court highlights an important exception to this general rule and—should the policyholder prevail—would offer potential relief from the impact of stringent policy requirements.
A little over a month ago, a judge in Franklin County, Ohio, held that Bitcoin—a popular form of cryptocurrency—constitutes covered “property” under the terms of a traditional homeowner’s policy.
In Kimmelman v. Wayne Insurance Group, an insured, James Kimmelman, sought coverage from his personal insurer for a loss of $16,000 in Bitcoin that was purportedly stolen from Kimmelman’s online account. Kimmelman argued that the Bitcoin constituted covered property under his homeowner’s policy. The insurer argued that Kimmelman was only entitled to recover $200 under a policy sublimit for monetary losses.
Insurance coverage litigation can be lengthy and is usually complex, and these characteristics are only exacerbated by the need to comply with often arcane state law rules of procedure. New Jersey, long a hotbed of insurance litigation, has too often exemplified this reality. Until now.
Imagine your organization has suffered significant property damage and interruption to your business as a result. The cause could be anything—a natural disaster, severe mechanical breakdown or a cyberattack. You notify your property insurance carrier and adjust the claim, submitting calculations of your losses based on the policy’s coverages and other terms. But in response, your carrier only agrees to pay a fraction of the losses, claiming that otherwise your organization would be better off than before the damage—“unjustly enriched”—and that insurance is not meant for gain, but only to put the insured in the position it would have been without the damage.
Last week, the Ohio Supreme Court unfortunately narrowed the scope of coverage for a subcontractor’s faulty workmanship. The court held in Ohio Northern University v. Charles Construction Services, Inc. that faulty workmanship in a construction defect case is not an “occurrence” under standard-form CGL policies in Ohio. The circumstances will sound familiar to anyone involved in the construction industry: Ohio Northern University retained Charles Construction to build a hotel and conference center on campus. The contract required Charles to maintain a CGL policy with Products-Completed Operations-Hazard coverage. Charles obtained a policy from Cincinnati Insurance Company with the required coverage.
Imagine that your company has finally released its new flagship product, which is slated to be the new lifeblood of the company. You’re elated when early sales far exceed expectations. But soon you are hit with a demand letter from a competitor alleging that the product infringes its patents, and threatening suit. Remembering that your company purchased comprehensive coverage under its commercial general liability (CGL) policy, you feel some initial relief—but soon your insurer tells you that the general policy does not provide patent coverage, or even expressly excludes such claims. Suddenly, you’re left wondering how your company will weather a costly patent lawsuit while continuing to roll out its new product.
Like Bob Dylan, marijuana has gone from symbol of 1960s counter-culture to mainstream appeal. It is telling that Lloyd’s of London (which reportedly insures Mr. Dylan’s vocal chords) has also recently announced that that it will underwrite cannabis-related insurance in Canada, issuing policies to businesses who legally produce, distribute and sell marijuana. In the United States, an increasing number of states have legalized marijuana for medicinal and recreational uses, and others will be voting on the issue in the near future (as Michigan will this November). Federal illegality—whose days may be numbered—has become less and less of an obstacle to obtaining coverage “from seed to sale” for businesses in the legal cannabis space. This is demonstrated by two recent developments since our previous blog post on insurance for the marijuana industry.
Claim analysis and pre-trial preparation can sometimes become so focused on determining what the law is that lawyers lose sight of our ability to change that law. In some cases, that means discovering and arguing new legal issues. In others, it means persuading the courts to take your side of a question that has not been decided before or has produced conflicting decisions, or even to overturn a binding ruling that stands in your way. To create these opportunities, you have to look beyond the most direct paths available—supplementing your likely trial arguments with an awareness of how the decisions you make before and at trial affect your ability to shape the law on appeal. This is as true in insurance litigation as in any other area of law.
A federal court in Michigan just breathed new life into a long-running legal saga—while at the same time issuing a warning shot across the bows of insurers—by declining to dismiss an insured’s bad faith cause of action alleging its insurer wrongly decided to pay one claim before another, to the insured’s detriment.