Entrants into Pennsylvania's medical marijuana industry will want—and, in many cases, need—to obtain various types of insurance coverage. What happens, though, when one of those businesses is sued or suffers a loss and turns to its insurer for coverage? Will the insurer provide coverage? Or, will the insurer disclaim coverage because it remains illegal under federal law to manufacture, distribute or dispense marijuana? If the insurer attempts to avoid coverage on the basis of public policy or an illegal-acts exclusion, will courts in Pennsylvania allow the insurer to do so, or will they protect the policyholder's right to coverage?

Not surprisingly—given the infancy of Pennsylvania's medical marijuana laws, regulations and industry—no federal or state court in Pennsylvania has considered these questions. When—not, if—a Pennsylvania court does confront these issues, it should—on the strength of the better-reasoned federal-court precedent, Pennsylvania's temporary medical marijuana regulations, and principles of insurance policy construction—reject any attempt by an insurer to avoid coverage on the grounds of federal law.

Federal law

Under the federal Controlled Substances Act, marijuana is listed as a Schedule I “controlled substance.” Therefore, pursuant to 21 U.S.C. Section 841(a), it is “unlawful for any person knowingly or intentionally … to manufacture, distribute, or dispense, or possess with intent to manufacture, distribute, or dispense” marijuana.

However, in 2013, Deputy Attorney General James M. Cole authored a memorandum—the “Cole Memorandum”—de-emphasizing federal prosecution of marijuana-related offenses. The Cole Memorandum identifies “certain enforcement priorities that are particularly important to the federal government,” including, for example, “preventing the distribution of marijuana to minors” and “preventing the diversion of marijuana from states whether it is legal under state law in some form to other states.”