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The Stoney MooseAs more states vote for legalizing marijuana, we see more attorney malpractice application submissions that have cannabis law shown on the application and/or the law firm’s website.  There are very few insurers that will knowingly write a law firm that is practicing cannabis law.  But there are no attorney malpractice applications that specifically ask if a firm does practice cannabis law.  Most malpractice underwriters will not ask if a firm is practicing cannabis law if the website does not come out and state that it is part of their practice.   The reality is that the agent does not want to know, the underwriter does not want to know and the insurer does not want to know that a law firm practices cannabis law.

There is currently no specific exclusion in most lawyer’s professional liability insurance policies for a ‘marijuana practice’.  So the short answer is that if the law firm fills out the malpractice insurance application honestly, but does not volunteer information about a cannabis law practice then there is likely coverage for the firm’s marijuana practice.  And that cannabis law firm will likely get a competitive insurance rate.  But….

The longer answer gets hazier. 

The attorney malpractice insurance policy objective is providing errors and omissions coverage when an attorney is accused of attorney malpractice.  With many states making the growing, sale, manufacture and use of cannabis products legal there is an increasing need for legal advice.  Easy part of that answer is if the attorney is providing criminal defense for a client accused of marijuana related crimes there should be malpractice coverage.

The more hazy part comes from the attorney providing legal advice to set up any part of cannabis related businesses.  The fact is marijuana growing, sale, manufacture and use under federal law remains an illegal activity under the Federal Controlled Substances Act (CSA).   Almost every violation of CSA qualifies for RICO.  In light of this, certain state supreme courts, like Ohio, have stated that an attorney that assists cannabis businesses in providing legal advice commits an ethics violation.

And further down the rabbit hole, for the attorney accepting cash payments for services from the cannabis industry, much of this money will go into the attorney’s IOLTA account or Trust account.  Although the federal cases that have been brought against attorneys for these issues to date have been extreme examples, attorneys do open themselves up to money laundering charges and RICO violations under federal law.  The feds may try to seize the attorney’s trust account.  And when the attorney is accused of a crime, attorney malpractice policies may not answer. 

Excerpts from a typical lawyer’s professional liability policy show coverage issues get murky. The current Professional Solutions policy is a good example.

First the policy carves out much of the cannabis coverage in the definition of damages:

Damages do not include:

 

c Civil or criminal fines, sanctions, penalties or forfeitures, whether or not related to, or as a result of local, state, or federal regulations, statutes, ordinance, law, rules of civil or criminal procedure, and any such judgments,”

 

Next the policy reinforces that the insurance will not cover criminal acts in the Exclusion section:

“2.   Dishonest, fraudulent, criminal, deliberate, intentionally wrongful, or malicious acts or omissions committed by or at the direction of, with the knowledge of, or ratified by any Insured.”

 

Even if cannabis is legal in the state it is still a crime under federal law.

Most attorney malpractice policies have similar prohibitions of coverage.  So even if insurer does write attorney malpractice coverage for the cannabis attorney, the insurer’s claims department may decline to even defend the attorney.

Attorney General Jeff Sessions has reiterated his opposition to legal weed.  So if Jeff Sessions decides to send the feds knocking on an attorney’s door there is likely little to no malpractice insurance coverage.  Although no insurance coverage may be the least of the attorney’s worries. 

But currently for most law firms seeking coverage the ‘Don’t Ask Don’t Tell Policy’ will get them a competitive insurance rate with competitive coverage.  The law firm that ‘volunteers’ this information will likely have a much harder time finding insurance coverage and a competitive rate.   Guess what, the issues with legal malpractice insurance also extend to Business Owners Insurance and Workers Compensation Insurance.

 Where is Elliot Ness anyway?

 

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