Yes, it’s true. On 17 October 2018, Canada will become the first G7 country to legalize the recreational use of cannabis nationwide[1]. That means that individuals[2] will be able to buy, possess, consume, grow and share cannabis under the federal governance of the Cannabis Act[3]. Provincial governments have introduced complementary legislation to regulate activity within their respective borders[4].

The primary objectives of legalization are health, safety and revenue: ensuring a safe and controlled supply while keeping it out of the hands of minors, eliminating the illegal market, reducing the burden on the criminal justice system, and increasing revenue (sales arising from the legal recreational market are expected to generate up to CDN$4.34 billion in 2019).

This new venture is nothing short of ground-breaking, and will significantly change the Canadian societal landscape as we know it. No doubt, the world will be watching, with bated breath, to monitor developments.

It doesn’t take an overly active imagination to appreciate that this New Frontier will have a significant impact on multiple areas of insurance such as property, health, disability/life, commercial/social host, employment (EPL), automobile, crime[5], and products liability. Furthermore, it will almost certainly raise cross-border[6] and immigration challenges.

This short article certainly does not cover every aspect of this looming seismic shift, but, hopefully, it will serve to raise sufficient awareness for insurers, so that they can adequately respond.

As an example, I have highlighted some key considerations that may arise in the context of the workplace to demonstrate what insurers could be facing.

Random Drug Testing in the Workplace

The primary goal of employers is to maintain health and safety in the workplace[7] while ensuring that they do not discriminate against workers[8].

Currently, it is permissible for an employer to test an individual employee, after the fact, if there are reasonable grounds to believe that he is impaired.

Courts have not yet granted employers the automatic right to randomly test for illicit drug or alcohol use[9]. A policy that would unilaterally impose random drug testing without reasonable cause, and where there is no broader problem of substance abuse, would likely be successfully challenged. Courts may permit random testing, however, if it is proved to be a proportionate response to legitimate safety concerns, taking into consideration the privacy of the workers. Generally, evidence of an enhanced safety risk (such as a pervasive problem with substance abuse, rather than an individual incident) in a dangerous, inherently dangerous, or highly safety-sensitive environment[10] would be required before a court orders random testing. Basically, a balancing exercise between the risk of danger and the right to privacy must be applied, on a case-by-case basis, before a right to randomly test would be granted[11].

There is no doubt that the consumption of cannabis can potentially result in impairment. The challenge for employers will be to prove impairment since some medicinal cannabis products, high in CBD (cannabidiol), do not produce the psychoactive effects that THC[12] does, so impairment may be less obvious. As well, cannabis is more complex, chemically, than alcohol: given the multiple number of strains available, testing may be a challenge. Furthermore, the issue of the combined effect of alcohol and drug consumption does not seem to have been addressed. All of these challenges would apply also in the automobile context.

Duty to Disclose / Duty to Accommodate

In terms of medically prescribed cannabis, there is no definitive rule or law that requires an employee to disclose her use. There is, however, a requirement for the worker to report to her employer or supervisor any contravention of the Occupational Health and Safety Act (“OHSA”), or any hazard of which she is aware: a worker does not have the right to be impaired in the workplace if it may endanger her own safety or the safety of others[13]. She must be fit for duty during work hours. Consequently, the worker is obligated to ask her health-care provider about the likely effects of her prescribed cannabis, and to disclose any concerns to her employer.

An employer would have a duty to accommodate[14] a worker who has been prescribed cannabis, as long as the employee has made full disclosure. The employer is typically relieved of its duty if it has not been made aware of the relevant circumstances.

In summary, there is no overall duty on a worker to disclose her use of medicinal cannabis, but this is subject to the obligation to disclose situations where impairment as a result of such use may endanger the worker’s own safety or the safety of others in the workplace. Furthermore, in order to be accommodated under human-rights legislation, the worker must disclose her use to her employer, and explicitly request accommodation[15].

Can an Employer Fire an Employee for being High?

Maybe. An employee who is found to be impaired in the workplace could be in breach of a term of his employment contract - to be fit to perform his assigned duties. He could also be in breach of certain provisions of the OHSA, as stated above. It will depend on the circumstances and the extremity of the incident, as well as the type of workplace.

There is no absolute right to use cannabis in the workplace, even when medically prescribed. It would be more challenging to terminate the worker, in the case of prescribed cannabis, because the employer would face a greater duty to accommodate pursuant to provincial human-rights legislation. Again, the issue would be determined on a case-by-case basis.

Even in cases where an employee has agreed to a zero-tolerance policy, or has agreed to pre-incident addiction disclosure, an employer will still have to demonstrate that it has properly discharged its duty to accommodate by having been flexible and fair. The greater the safety risk in the workplace, the less likely the impaired employee will be tolerated.

It is imperative, therefore, for employers to have clear, written policies in place, and that new employees acknowledge these policies, in writing, prior to the commencement of employment. This would provide the employer with greater leverage if a claim arises later, especially in the context of disability or illness. The employer would then be able to rely on the fact that the employee knew or ought to have known that she violated the rules and/or knew of her disclosure obligations under the employment contract.

So, what does the Legalization of Cannabis mean for Insurers?

A lot. There are multiple, diverse stakeholders involved in this significant cannabis initiative, each giving rise to a potential coverage exposure / opportunity.

Inevitably, insurers will face a higher volume of claims once the new legislation comes into force. This increase will likely be pervasive, involving multiple areas of coverage such as property / equipment break-down[16], commercial/social host, business interruption, directors’ and officers’, health[17], employment, cargo/transit, immigration, automobile, products liability, crime, consumer protection (e.g. quality, price and safety)[18], advertising, cybersecurity and product recall. For example, in the property context, indoor growing would likely give rise to a demand for additional heat, water and electricity, which could, in turn, create an increased fire risk. There will also be a requirement for coverage for the cannabis itself (i.e. the quality of the product). Online purchasing[19] and its related risks, including the protection of customers’ personal information, will require robust cybersecurity. Furthermore, it is likely that the use of recreational cannabis will give rise to increased commercial-host liability claims due to the proposed opening of public cannabis lounges.

While probably wanting to proceed with caution, it is critical for insurers to be proactive, anticipate future risk, and adapt and prepare for this significant change in the Canadian landscape. They are strongly encouraged to learn all there is to know about the applicable federal and provincial legislation, and keep up with the literature (it can be reasonably assumed that there will be many modifications to the regulatory regime, at all levels of government, and much discussion and debate on the subject especially during the early years).

Legalization of cannabis in Canada will certainly give rise to exciting new opportunities for insurers who do business in Canada, and are considering writing and designing new insurance products and customized insurance solutions in the cannabis field[20]. They may need to revisit their existing policy wording (e.g. expanding exclusions in the property context), and ensure that insureds who are involved in the cannabis industry are properly armed (increased security measures on property, sophisticated computer software etc.) to prevent resultant claims.

The time is now, to start to formulate solutions and get ahead of the game. Before proceeding, however, insurers are strongly advised to consult with their legal counsel for assistance in navigating this new, and rapidly moving, regime.