Insurance carrier sues major marijuana MSO to dodge class-action payout
- A major cannabis multistate operator (MSO), Cresco Labs, is facing federal class-action lawsuits accusing it of deceptive marketing practices related to cannabis products.
- Palomar Excess & Surplus Insurance, Cresco’s liability insurer, is suing Cresco to avoid paying a potential multimillion-dollar penalty, arguing that its insurance policies do not cover the claims made in these lawsuits.
- The lawsuits allege that Cresco and other MSOs knowingly made false and misleading statements to consumers and failed to warn about the risks of cannabis use, but Palomar claims these do not constitute "covered occurrences" under their insurance policy.
- The legal actions resemble past lawsuits against tobacco companies, though the recognition of medical cannabis as a medicine by the Justice Department may influence the outcomes, and a motion to dismiss the class-action suits is currently pending.
A major marijuana multistate operator named in still-pending federal class-action lawsuits alleging deceptive marketing is being sued by its liability insurance carrier in a bid to avoid paying out a potential multimillion-dollar penalty.
La Jolla, California-based Palomar Excess & Surplus Insurance’s commercial general and product liability policies don’t cover Chicago-based cannabis MSO Cresco Labs in two lawsuits filed by several dozen cannabis consumers, the insurer claimed in a complaint filed in U.S. District Court in the Northern District of Illinois.
A spokesperson for Cresco did not immediately respond to a request for comment from MJBizDaily. The lawsuit was first reported by Bloomberg Law.
At issue is “a multimillion dollar demand” that Cresco “contends that Palomar has an obligation to defend and indemnify it against,” Palomar’s suit claims.
In a pair of class-action suits, several dozen cannabis consumers – whom Palomar also named as defendants in its suit against Cresco – claim that the MSO and several of its publicly traded competitors “knowingly and intentionally made and disseminated untrue, false, deceptive and misleading statements to consumers that were not supported by credible scientific or medical evidence.”
The MSOs also “failed to warn Plaintiffs and class members about the alleged risks of cannabis use,” the lawsuits alleged.
The other Chicago-based MSOs named in a suit filed in May include:
According to Palomar, its insurance policies with Cresco cover only for “occurrences” that result in “bodily injury,” “property damage” or “personal and advertising injury.”
According to the suit, the latter is defined as losses caused by:
Because the class action claims do not allege “injury” stemming from a specific occurrence – and instead allege that the MSOs knowingly spread false information to grow the market for cannabis products – they are “outside the scope of coverage” provided by Palomar, the suit claims.
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A motion filed by attorneys for the MSOs to dismiss the class action lawsuit is pending, records show.
The suits, one of which was filed by an Illinois attorney with a longstanding grudge against licensed cannabis operators, appears modeled after the legal actions taken against tobacco companies that resulted in billions of dollars paid out to states to cover healthcare costs associated with smoking tobacco.
It’s unclear how the official recognition of medical cannabis as a medicine by the Justice Department, a status never extended to tobacco, will affect the cases.