In California, a property claim for loss of marijuana involves a controlled substance that is allowed by state law for recreational use (under the recently-passed Proposition 64), but that remains banned by federal law. Is the property uninsurable “contraband,” or is it an item lawfully in the policyholder’s possession such that a claim of lost or damaged marijuana should be covered?
In Gonzales v. Raich, 545 U.S. 1 (2005), the U.S. Supreme Court held that the federal Controlled Substances Act (CSA) supersedes any state law permitting the medical use of marijuana. In Gonzales, California residents who used medical marijuana under California’s Compassionate Use Act sought to bar enforcement of the CSA to the extent it prevented them from possessing, obtaining, or manufacturing marijuana for their personal use. The Supreme Court ruled against the plaintiffs, finding that intrastate, non-commercial cultivation, possession, and use of marijuana was still subject to the CSA and was therefore illegal, stating: “The Supremacy Clause unambiguously provides that if there is any conflict between federal and state law, federal law shall prevail.” This is an example of federal laws that criminalize possession of marijuana pre-empting state medical or recreational marijuana laws.
Since Gonzales, 9th Circuit courts have reiterated that marijuana is unlawful contraband under federal law, even in the face of state statutes like the Compassionate Use Act. (See e.g. United States v. Stacy, 2010 WL 4117276 (S.D.Cal. 2010); Tracy v. USAA Cas. Ins. Co., 2012 WL 928186 (D.Hi. 2012).) In fact, the Tracy court upheld an insurer’s refusal to pay for the insured’s loss of marijuana, where the marijuana was grown legally under Hawaii law for medical purposes. According to the court, to hold otherwise would “enforce a contract that is illegal or contrary to public policy. In the context of the Department of Justice’s current position on state marijuana laws, Tracy shows there may not be coverage for a marijuana loss, even in pot-friendly California.