Pot Can Influence Your Insurance Policy Costs

While the legalization of cannabis is causing celebration for marijuana aficionados across the country, it is causing headaches for employers. As of press time, 23 states and the District of Columbia had legalized marijuana on some level, whether for medical use, recreational use, or both. Employers are now tasked with figuring out how to handle employees’ legal use of a substance once deemed illegal.

The legality of drug-free workplace programs and how to handle employees who use marijuana medicinally are currently being determined in the courts. Most questions about this topic should be referred to an HR professional or a qualified employment attorney.

While insurance companies do not usually require information about your company’s drug-free policies, employee drug use can affect your coverage. Here is how marijuana use on the job may affect your insurance policies and premiums.

If you wouldn’t allow an employee to perform his job duties under the influence of alcohol or while taking mind-altering prescription medications, then you won’t allow him to perform those duties while under the influence of marijuana, whether it was consumed recreationally or medicinally. Photo courtesy Hayes Insurance.

Can you get insured or bonded?

Liability insurers and bonding companies typically do not ask for evidence of drug-free employees before insuring a business for liability; however, an employer’s main concern should be providing a safe work environment that also allows for the completion of projects in a timely manner pursuant to contract. Bonding companies may nonrenew bonds or decline to insure contractors who habitually fail to perform their contractual obligations. Liability insurance companies may also nonrenew or decline to write policies for contractors that have large claims payments. Impaired employees can contribute to both of these situations, costing employers in increased premiums for years to come.

As the legalization of marijuana continues to expand across the country, it is believed that insurance companies may start asking about drug-free programs and marijuana use as part of the underwriting process. An iron-clad company policy will make these questions easier to answer.

Is Your Drug-Free Program Obsolete Now?

In most states, insurance companies offer two types of credits on workers’ compensation policies. The first is a safety credit that requires the implementation of a safety manual and regular safety meetings on a variety of topics related to safety in any given industry, including on-the-job impairment.

The second is a drug-free credit. Where allowed by law, this credit requires the implementation to post-offer, pre-employment drug testing, mandatory drug testing of a small percentage of employees and management annually, and for-cause drug testing, including reasonable post-injury testing. Check with a qualified labor attorney to find out what testing is allowed by law in your state and for any federal contracts you may have.

Workers’ compensation insurance carriers do not require employers to maintain a drug-free workplace. Some companies do offer credit for those companies that implement drug-free programs, and others may even surcharge employers who do not offer them.

Drug-free workplace programs are not designed to punish drug users. They are designed with the idea of maintaining a safe, healthy work environment for all employees. Work sites that require heavy machinery, other dangerous equipment or hazardous working environments should also require drug-free employees to help maintain the safety of the work site.

The legalization of marijuana changes the workplace far less than you might imagine. If you wouldn’t allow an employee to perform his job duties under the influence of alcohol or while taking mind-altering prescription medications, then you won’t allow him to perform those duties while under the influence of marijuana, whether it was consumed recreationally or medicinally.

Will Your Workers’ Compensation Coverage be Affected?

Workers’ compensation pays claims on a no-fault basis, so the policy will pay if an employee is injured on the job, even if that injury is due to impairment. After a major injury (or a series of minor ones), loss control consultants will be deployed to determine any safety hazards that contributed to the injuries and make recommendations for changes to make a safer workplace.

A private insurance company cannot refuse to insure an employer if the employer does not have a drug-free program, but the company can nonrenew a policyholder based on claims. Large claims or small, frequent claims related to drug use can lead to policy non renewal.

Once a policy is non renewed, finding other coverage in the private market may be impossible, leading the employer to seek coverage from the state insurance fund. This coverage is typically far more expensive than on the open market, sometimes 200 to 300 percent higher. In monopolistic states where the state insurance fund is the only workers’ compensation insurer, premiums may also be heavily surcharged.

Business Rights vs Employee Rights

There is a fine line between protecting the rights of the employer and the rights of the employee. Allowing impaired employees on the job can result in higher insurance premiums in the event of claims. Bodily injury and property damage caused by impaired employees can also result in fines from OSHA and MSHA and workplace shutdown, depending on severity.

An employer’s first obligation is to provide a safe work environment for all employees. The same guidelines an employer follows to handle employees suspected of drinking or taking mind-altering prescription medication should be followed for employees suspected of recreational or medicinal marijuana use. An HR professional or employment lawyer can review your current employee manual to specifically address marijuana use in the workplace.

Galen Hayes

Galen Hayes is president of Hayes Insurance, which is a full-service commercial insurance brokerage and risk management firm, serving clients across the country by providing access to over 200 insurance carriers.