Message to Cannabis Insurance Carriers:  “That is racketeering activity under 18 U.S.C. § 1961(1)(D).”

A lawsuit filed in Massachusetts on September 7, 2017 demonstrates just how far attorneys will go to seek recovery for damages from other businesses when filing lawsuits against cannabis licensees.

is about neighbors who weren’t happy to have a store selling pot and decided to file a lawsuit. 

Their choice of legal action is tied to a federal statute originally used for organized crime known as Racketeer Influenced and Corrupt Organization Act or “RICO” as their means to seek legal justice.  

Marijuana businesses attract undesirable individuals according the the lawsuit

The legal documents harshly describe those who visit Healthy Pharms  as being less than desirable.  “Marijuana businesses make bad neighbors, which include and without limitation, emitting pungent odors, attracting undesirable individuals, increasing criminal activity, driving down property values, and limiting the rental of premises.”       

Plaintiff’s lawyers cast a wide net to include insurance “providers”

The list of those being sued or named as defendants include the City of Cambridge, Massachusetts Department of Health, Century Bank and Trust Company and a list of “John Doe’s.”  Attorneys will use a fictitious name like John Doe when parties to a lawsuit are unknown at the time of filing the lawsuit, but would like the option to add those parties as the case develops.

In this circumstance, John Doe 2 and John Doe 3 are both providers of Insurance to the various cannabis related companies. John Doe 2 is the insurance provider of general liability insurance to Healthy Pharms, 3 Brothers, or Red Line for a marijuana cultivation facility.  John Doe 3 is the provider of property insurance to Healthy Pharms, Timbuktu, or Red Line for the medical marijuana dispensary.

The entry point to include insurance providers references the insurance obligations from the lease agreement between Healthy Pharms and Timbuktu that require meeting liability limits of $1,000,000 per occurrence and $2,000,000 per aggregate.   By meeting those limits of liability through a insurance contract, the insurance carriers have further the RICO activity the lawsuit alleges.

Upon information and belief, John Does 1, 2, 3, and 4 issued insurance policies with the intent to further Healthy Pharms, Timbuktu, 3 Brothers, Red Line, and their respective
officers, directors, managers, investors, assigns, nominees, and/or affiliated persons to commit crimes under the CSA in violation of 21. U.S.C. § 846.

That is racketeering activity under 18 U.S.C. § 1961(1)(D).

The plaintiff lawyers did not specify if insurance provider is broader term to include the insurance broker or retail agent who sold the policy, underwriters and surplus lines brokers involved in underwriting, and inspection companies who may have been involved in some manner. 

If it means all of the above, this lawsuit is a strong message to the Cannabis Insurance industry that plaintiff’s lawyers are seeking deeper pockets to pay for these lawsuits.

Has Healthy Pharms Et al. tendered defense to their cannabis insurance carrier?

If they haven’t, it would be prudent to notify their insurance broker and carrier of the legal circumstances as required by most insurance policies under Duties in the Event of Loss or Damages.  The failure to notify the insurance carrier within a reasonable time frame may result in the claim being denied.  

The insurance carrier wallet is now wide open

Plantiff’s lawyers will appreciate the National Cannabis Industry Association insurance committee white paper released on the subject to indicate RICO is a claim that would be covered on the commercial liability insurance.  This  acknowledgement is likely to lead to further litigation in every state with medical or recreational marijuana laws.         

The cannabis insurance carriers will have a negative attitude on the subject as they evaluate how they could have foreseen this type of legal action, while thanking the insurance committee for identifying the exposure.

Resource: 

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MASSACHUSETTS Case 1:17-cv-11696-ADB

CRIMSON GALERIA LIMITED PARTNERSHIP, RAJ & RAJ, LLC, HARVARD SQUARE HOLDINGS LLC, and CHARLES RIVER HOLDINGS LLC Plaintiffs,

v.

HEALTHY PHARMS, INC.;TIMBUKTU REAL ESTATE, LLC; PAUL OVERGAAG, an individual; NATHANIEL AVERILL, an individual; 4FRONT ADVISORS, LLC; 4FRONT HOLDINGS LLC; KRISTOPHER T. KRANE, an individual; 3 BROTHERS REAL ESTATE, LLC; RED LINE MANAGEMENT, LLC; JOHN DOES 1 THROUGH 4; TOMOLLY, INC.; CITY OF CAMBRIDGE, a body politic; TOWN OF GEORGETOWN, a body politic; MASSACHUSETTS DEPARTMENT OF PUBLIC HEALTH; CENTURY BANK AND TRUST COMPANY; MAURA T. HEALEY, in her official capacity as Attorney General of the Commonwealth of Massachusetts
Defendants