So You Thought You Were Covered: The Effect of I-502 on Insurance In Washington


When you think of the legalizing of marijuana and Initiative 502, do you think of insurance? Probably not, but maybe you should. Here’s the issue: While marijuana might be legal under the laws of Washington, it is indisputably illegal under federal law. So what does that mean for your insurance?

Most insurance policies are written on standardized forms issued by the Insurance Services Office—often referred to as the ISO. While these ISO forms were not generated with I-502 in mind, the language in these forms can create real problems where I-502 businesses are concerned. The reason is that under many of these forms, property coverage and liability coverage can be denied in the event of a loss or occurrence that involves “illegal” or “criminal” activity. And again, while I-502 operations are not “illegal” or “criminal” under Washington law, they are both “illegal” and “criminal” under federal law. As a result, unless your policy expressly limits the scope of its exclusions to Washington law, you could be left holding the bag in the event something goes awry.

Even more alarming, this gap in coverage not only affects I-502 businesses themselves, but also those that rent or lease their property to I-502 businesses. I have recently dealt with numerous national carriers that who have stated outright that they do not believe their policies provide any coverage for landlords leasing properties to I-502 businesses, and that from an underwriting standpoint such leases are not risks they want to take on. This can be a real problem.

What should you do? First, get your policies reviewed. The initial step is identifying if there is really a gap in coverage. While many policies are written on standardized “forms,” that is not always the case. An experienced insurance coverage attorney can quickly identify whether there is a gap in coverage and what your potential exposure is. Second, work with your broker. In most cases, there are insurers who are willing to cover the risk on I-502. It is a matter of finding those carriers and making sure you and your team are comfortable with the coverage being provided. The best way to avoid problems with your insurer is to make sure both parties are on the exact same page regarding the coverage being purchased.

The effects of I-502 have proven wide reaching, and may have significant implications on what insurance coverage you have in the event of a problem. Get out in front of the story and find out what your insurance covers and what it doesn’t. And if you have a gap in coverage, deal with that gap before it’s too late.

Zak McIsaac is a Partner in Ashbaugh Beal’s Insurance Recovery Group. He can be reached at or 206.386.5900.