Can liability waivers protect cannabis consumption lounges?

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As cannabis-consumption lounges become more common in states where marijuana is regulated, owners of such spots face a unique challenge: balancing a social, relaxed atmosphere with the legal and regulatory responsibilities that come with serving marijuana.

One measure that some business owners adopt is having patrons sign a waiver of liability.

While a waiver can help limit the lounge owner’s liability in case patrons experience injury or harm, it doesn’t offer full protection – particularly regarding third-party claims.

Liability waivers have limitations, and it’s important to mitigate potential liabilities through preparation and insurance coverage.

Cannabis liability waivers

Liability waivers often are used in high-risk businesses such as gyms, amusement parks and recreational sporting venues to reduce an owner’s liability if patrons are injured.

By signing a waiver, patrons typically acknowledge the risks associated with the activity and agree not to hold the business liable for harm that might result from inherent risks.

In the context of cannabis consumption lounges, a waiver might cover risks related to overconsumption, adverse reactions or accidents that occur on-site because of impairment.

However, liability waivers have limitations.

While they might reduce a business’ liability regarding a patron’s direct claims, they generally do not eliminate all liability – especially concerning third-party claims.

For example, if an impaired patron leaves the lounge and causes harm to another person, the lounge owner could still be held partially liable.

Therefore, while waivers can provide some degree of legal protection, they are not comprehensive shields, and business owners should be cautious about placing too much confidence in them.

Limitations of liability waivers

One of the key challenges with liability waivers in cannabis lounges is their limited scope of protection.

Here are some specific limitations cannabis consumption-lounge owners should consider:

1. Waivers do not protect against third-party claims

A waiver of liability primarily addresses the relationship between business owner and patron.

It doesn’t protect against claims made by third parties who might be affected by the patron’s actions after leaving the lounge.

For instance, if an impaired customer causes a traffic accident after leaving the lounge, injured third parties potentially could sue both the driver and the lounge owner, arguing that the business failed to prevent overconsumption or did not adequately monitor the patron’s behavior.

2. Enforceability of waivers

Not all waivers are enforceable.

Courts can scrutinize the language of a waiver to ensure it is clear, unambiguous and specific about the risks patrons are waiving.

Moreover, some states might be more hesitant to uphold waivers related to cannabis consumption, given the federal illegality of the substance and potential concerns about public health and safety.

Courts are more likely to enforce waivers when they are transparent, fairly worded and administered in a way that ensures patrons understand what they’re signing.

3. Duty of care obligations

Even with a waiver in place, cannabis-lounge owners still have a duty of care to ensure the safety of their patrons and others.

This includes monitoring patron consumption and taking reasonable steps to prevent intoxicated individuals from leaving the premises and posing a risk to others.

A waiver cannot eliminate the owner’s duty to act responsibly, nor can it protect against claims of negligence if the lounge fails to meet this duty.

Importance of insurance in limiting liability

Given these limitations, it is crucial for cannabis-lounge owners to go beyond waivers and consider a robust insurance strategy.

Consulting with an experienced insurance agent can help business owners identify specific risks associated with cannabis consumption and explore policies that can offer better protection.

Here are some types of insurance coverage that could be valuable for cannabis lounges:

1. General liability insurance

This type of insurance covers claims arising from bodily injury or property damage that occur on the business’ premises.

While it won’t cover third-party incidents outside the lounge, it can help protect the business if a patron is injured on-site.

Many general liability policies exclude all activity related to a licensed consumption lounge; as a result, carriers might exclude bodily injury and property damage from the general liability policy.

2. Liquor liability and product liability insurance

In the alcohol industry, many bars and lounges carry liquor liability insurance to protect against claims stemming from alcohol-related incidents.

Similarly, cannabis lounges could benefit from insurance tailored to cover marijuana-related risks.

Product liability insurance also can protect against claims related to adverse reactions or unexpected effects from cannabis products.

Lounge owners should collect certificates of insurance from producers of third-party products sold on-site.

3. Dram shop insurance

Some states require establishments that serve alcohol to carry dram shop insurance – aka liquor liability insurance – to cover third-party claims arising from the actions of impaired patrons.

As the marijuana industry grows, similar insurance products are emerging for cannabis businesses.

Cannabis-specific dram shop insurance could provide essential protection for lounges by covering claims made by third parties who are harmed by impaired patrons.

It’s expected that such dram shop insurance products will develop in the next five years; currently, only a couple of carriers offer the coverage in some capacity.

Until we see a dram shop claim go through a full claim cycle, we’ll likely continue to see product and liability limit restrictions.

4. Professional liability or E&O insurance

While more common in professional services, errors and omissions (E&O) insurance – aka professional liability insurance – might be relevant if a cannabis lounge provides guidance or advice about product usage.

This insurance could protect the business if patrons claim that incorrect or misleading advice led to adverse effects.

Consumption-lounge liability

While liability waivers offer a first layer of protection for cannabis consumption lounges, they are by no means a complete solution.

Waivers cannot shield business owners from third-party liability, nor can they eliminate the need for proactive risk management.

Consulting with an insurance agent to build a comprehensive insurance plan is essential for limiting potential liabilities.

In the current consumption-lounge landscape, business owners should understand there is not a clear-cut insurance solution.

However, by combining liability waivers with available and appropriate insurance coverage, cannabis-lounge owners can better protect their businesses and contribute to a safer, more responsible industry.

Alex Leonowicz is an attorney at Michigan-headquartered Howard & Howard who advises clients on litigation matters and disputes. You can reach him at aleonowicz@howardandhoward.com.

Quintin Meek is a senior risk adviser in Michigan for Florida-based AssuredPartners and was a co-founder at Cannabis 360. You can reach him at quintin.meek@assuredpartners.com.