Cannabis: The implications for insurance
This article was initially published in the 2nd-quarter 2019 edition of Personal Finance magazine.
The legalisation of the private cultivation, possession and use of cannabis in South Africa, following a landmark judgment handed down on September 18, 2018 by the Constitutional Court, has had the effect of changing the law, which will undoubtedly require transformation in the insurance industry.
The Constitutional Court declared the provisions of sections 4(b) of the Drugs and Drug Trafficking Act read with Part III of Schedule 2 of that Act and the provisions of section 22A(9)(a)(i) of the Medicines and Related Substances Control Act read with its Schedule 7 inconsistent with the right to privacy, which is entrenched in section 14 of the Constitution and, therefore, invalid to the extent that they make the use or possession of cannabis in private by an adult person for his or her own consumption in private, a criminal offence.
The court considered the right to privacy, the use of cannabis for medical and religious reasons, and the fact that other countries, such as Canada, have recently adopted a similar approach. It was held that the right to privacy entitles an adult to cultivate, possess and use cannabis for personal consumption and that the provisions referred to above had the effect of limiting that right. Parliament was given 24 months to remedy the defects in the current laws and at least, until then, adults are free to use, possess or cultivate cannabis for private use.
There is little doubt that the legalisation of cannabis, to the extent that it has been confirmed by the Constitutional Court, is likely to see changes in the insurance industry. Below are some of the areas where the legalisation of cannabis should be considered.
Homeowners’ insurance in South Africa does not provide cover for claims which result from illegal activities even where a criminal act is committed without intent to cause the resulting damage. A claim for physical loss of or damage to cannabis is not currently covered under a homeowner’s insurance policy. Insurance companies may now be faced with claims for damage, loss and theft of a private supply of cannabis. It is therefore important for insurers to carefully review the current wording of homeowners’ insurance policies by taking into account the legalisation of the use, possession and cultivation of cannabis by adults for private use. Insurance companies will also have to consider whether cover will be provided on an all-perils basis or a named-peril basis, which categories of users and cultivators will be exempt from cover, and how the value of losses will be established. It may therefore be necessary for the legislature to place certain limitations when remedying the defects contained in the current legislation.
It is unclear how driving while under the influence of cannabis will be treated by insurance companies. Driving under the influence of cannabis is said to have similar effects to driving while under the influence of alcohol. An individual’s faculties are impaired at the time, which results in the individual being a hazard to himself or herself and to other road users. The National Road Traffic Act states that no person may drive a vehicle or occupy the driver’s seat of a motor vehicle of which the engine is running on a public road while under the influence of intoxicating liquor or an intoxicating drug which has a narcotic effect.
Insurance companies are largely dependent on the blood alcohol level test results of drivers when deciding whether to pay out a claim for driving a vehicle while under the influence of alcohol. Motor policies usually exclude liability if the driver is under the influence of intoxicating liquor or drugs. A person who is found to have traces of cannabis in their system while driving can be arrested and prosecuted.
It is not certain what means of testing the authorities can employ to determine whether a person is under the influence of cannabis other than performing an oral fluid or blood test. Tetrahydrocannabinol (THC), which is found in cannabis, can remain in the bloodstream for more than a month. This means that a person who tests positive for cannabis might not necessarily be under the influence at the time of driving. The reliability of this method of testing is also dependent on the frequency of the individual’s use of cannabis. The results of this method of testing might therefore be inconclusive.
Cannabis usage as a risk factor
The consumption of cannabis by an individual may affect the manner in which insurance premiums are determined. Insurance companies may wish to increase premiums for cannabis users due to the increased risks associated with driving or performing other activities while under the influence of cannabis.
According to medical evidence put before the Constitutional Court, the uncontrolled consumption of cannabis poses a risk of harm to the user. Medical evidence does, however, suggest that there is a level of consumption that is safe and that is unlikely to pose a risk of harm. However, it is unclear what level of consumption is safe.
Consumers of cannabis may be required by insurers to disclose their use of cannabis when entering into or renewing a contract of insurance. A contract of insurance is concluded as one of good faith. The policyholder is under a legal duty to disclose all facts that are material to the risk for which cover is sought. Disclosure may be requested regarding the use of cannabis, which might result in insurance companies increasing premiums for life cover and citing reasons such as lifestyle factors and the possibility of excessive cannabis consumption resulting in increased medical costs. Any failure on the part of the policyholder to disclose such requested information will result in claims being rejected or cancelled.
The Constitutional Court has stated that dealing in cannabis is strictly prohibited. However, the judgment makes provision for an individual to grow cannabis for private use. This then raises the question as to how individuals will go about growing cannabis without purchasing resources to enable them to grow cannabis. This question will open up a whole new platform for debate, which might result in the laws being reformed further to allow producers of cannabis to become licensed merchants, which is something the commercial insurance industry may wish to cater for.
Natasha Naidoo is an associate at Norton Rose Fulbright’s Johannesburg office. Her article first appeared in Norton Rose Fulbright’s international publication, Insurance Focus (December 2018). It is republished here with kind permission.