By Shauna Blackburn of Cannabis Connect Insurance Services
It is important to know that every cannabis business in the chain of custody (cultivation, processing, manufacturing, distributing, wholesalers and retailers alike) is responsible for tracking and protecting against product tampering.
Below are some policy forms, exclusions, or endorsements often found on a general liability insurance policy that should be avoided for cannabis businesses:
• Smoking Exclusion: Smoking exclusions in regards to cannabis and hemp use is a “no brainer” for dispensaries, but since the grower, processors and others in the chain of custody do not always know where the flower or oil will end up, this endorsement would leave everyone in the chain of custody exposed. This form excludes smoking of any “herbal” substance, which is not defined and leaves the business exposed due to the ambiguous nature of the verbiage. To that end, these forms specifically exclude vape equipment and its components entirely.
• Conditions That Relate to Cannabis: It is important that this form be read through carefully, as many times there are exclusions/conditions that relate to your business that are specifically excluded, or coverage is severely reduced/limited, regarding cannabis and hemp.
• Ingredient Exclusions: Be very careful to read this endorsement thoroughly! All cannabis/hemp insurance carriers that offer products coverage will apply this endorsement to their policy; however, not all Ingredient Exclusions are made the same.
• Vaporizing Equipment and Components Exclusion: For manufacturers, distributors, wholesalers and retailers, this form can be a massive risk to your operations. If this is applied to your policy, then there is no coverage for any claim arising out of the use, handling or ownership of vaporizing equipment, or any part of the accessories attached or used with vaporizing equipment, including pens, cartridges, mouth pieces, batteries, chargers, coils and any miscellaneous products used with, or attached to, vaporizing equipment. Considering the wrongful death lawsuits and bodily injury lawsuits emerging recently, it is important to negotiate this form off your policy if possible.
• Designated Premises Limitation: These policy terms are used on many policies issued for cannabis/hemp policies. They are not necessarily harmful, unless you have operations that extend away from your initial location, such as a special event or delivery services.
• Class Limitation: This endorsement can be very tricky for cannabiz owners as the classification is limited to operations specifically listed on the application AND agreed to on the hazards portion of the general liability policy (which unless you’re a broker, you may easily look right past this page!). The danger in this form is that if you’re in a state that was or is medicinal only, and your state approves regulated adult use and your business moves in this direction, there will be no coverage for your operations unless you report this to your insurance company and they agree to add it. In states that have regulated adult use, this is the majority of the sales since medicinal use charges a doctor fee to renew a license once a year, and many patrons would rather just pay the adult-use taxes on their products than hassle with a license. Another reason this form can be problematic is because if your insurance broker, underwriting firm, or carrier class this policy incorrectly, you could be wrapped up in a time-consuming lawsuit to pay a claim that was applied for due to an administrative error.
• Total Cannabis Exclusion: Unfortunately, this endorsement still lives in the cannabis insurance marketplace. By way of this form, the policy charges for coverage, but then removes most claims because it completely excludes any claim relating to cannabis. Simply put, the only kind of claims that may be covered would be slip and fall (in the parking lot, since a dispensary would be a cannabis operation) and all cannabis products coverage that is charged for would be excluded. The coverage would only apply to accessories that are not related to cannabis, such as a t-shirt or hat. For this reason, this is a very dangerous exclusion.
• Assault and Battery Exclusion: By way of this exclusion, if you, your employees or one of your security guards remove any “unwanted” patrons from your facility, even if to protect others or property, there is absolutely no coverage for bodily injury or property damage, and likewise there is no defense for a lawsuit. This would affect everyone in the cannabis/hemp industry due to needed security measures.
• Health Hazards, Tobacco & Cannabis Business Exclusion: This exclusion excludes vaporizers and its components and contents from bodily injury claims. It goes on to specify that any contraction, development, aggravation or exacerbation of cancer, pre cancer, heart disease, other diseases of the organ (and it does not specify which organ, such as lungs) that are impaired are excluded. This form specifically excludes claims for depression and mental disorders, and class actions are also almost entirely excluded. A very small amount of bodily injuries would actually fall outside of the categories listed. For this reason, this endorsement cuts the protection of product liability severely and leaves the insured almost entirely uninsured.
Keeping an eye out for these common exclusions and tailoring your policy for your cannabis business is important, and will save you from future liability costs.