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Ms. Eagle represents policyholders in complex insurance coverage disputes. She has experience handling claims under a variety of insurance policies, including general liability, errors and omissions, employment practice liability, homeowners, and directors’ and officers’ policies. Ms. Eagle has substantial coverage litigation experience in state and federal courts.

I recently moderated a Bar Association of San Francisco Insurance Section program co-sponsored with the Cannabis Law Section. The program highlighted recent changes to local insurance requirements and market availability of coverage for cannabis businesses.

Local insurance requirements vary greatly by city and county, and it is important to take this into account—especially if you will be doing business throughout California. While certain coverages are still unavailable (i.e., true outdoor crop insurance) or prohibitively expensive (i.e., quality D&O insurance), one point of optimism is that the insurance market is actually adapting quickly and well to the demand for insurance for this industry. As a result, the panel recommended reviewing and updating your insurance portfolio often with the assistance of a broker who is well versed in the cannabis space.
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Insurers often claim “economic damages” are not covered under a standard commercial general liability (CGL) policy. The Fourth District Court of Appeal’s decision in Thee Sombrero, Inc. v. Scottsdale Ins. Co., 28 Cal. App. 5th 729, 736 (2018) review and request to depublish denied (Jan. 30, 2019), demonstrates that “loss of use” can be measured by “economic damages”—i.e., loss in profit or diminution in value—so long as they are tied to a property interest.

In Thee Sombrero, Inc., the insured’s negligent security services resulted in the revocation of Thee Sombrero’s permit to use its property as a night club after a patron was allowed to enter without passing through the metal detector, resulting in a fatal shooting. Thee Sombrero sued the security company, and obtained a default judgment. Thee Sombrero then pursued Scottsdale to satisfy the judgment. The trial court found in favor of Scottsdale, but the Court of Appeal reversed, finding that “the loss of the ability to use the property as a nightclub is, by definition, a ‘loss of use’ of ‘tangible property.’ It defies common sense to argue otherwise.” Id.
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A 6th Circuit case decided earlier this year demonstrates how positions taken by insureds in prior litigation can impact or foreclose coverage in subsequent disputes with insurers. See K.V.G. Properties, Inc. v. Westfield Ins. Co., 900 F.3d 818 (6th Cir. 2018).

In K.V.G. Properties, Inc., K.V.G., was unaware that its tenant was operating a cannabis growing operation. Although Michigan allowed for limited legal marijuana cultivation, there was no evidence the tenant was in compliance with local law. After a DEA investigation resulted in a search warrant, K.V.G. had the tenant evicted from the property. K.V.G. then sought recovery from Westfield under its property policy for extensive damage done to the property by the tenant, including torn out walls, and damage to the HVAC, duct work, and roofing.
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