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EXCLUDED is the Ultimate Buzz Kill for Product Liability
A review of typical commercial general liability insurance policy in the cannabis industry will most likely reveal product liability is not covered by the insurance carrier. You might be thinking I thought I was covered if someone sued me after smoking my weed. Most likely not on your commercial general liability insurance you bought when signing that lease agreement.
This information can be found by reviewing a declaration page that reflects the coverages on the policy. Look for the term”Products and Completed Operations” and if there is an amount of coverage indicated such as a $2,000,000 or the term EXCLUDED.
The latter indicates the insurance carrier is not offering protection for liability related to your cannabis and its derivatives for that policy.
Why doesn’t my existing marijuana commercial insurance include this coverage on my policy?
It boils down to risk. This is not unusual as most general liability insurance policies for the cannabis industry have excluded this coverage from the beginning. The insurance industry gurus decided to carve out the product liability coverage to avoid claims by third parties that could be unpredictable for an industry still growing.
In our experience, the number of lawsuits or claims as result of product negligence in the cannabis industry has been negligible. The first cannabis product liability lawsuit filed was dismissed for failing to prove damages as the plaintiffs consumed the product without harm despite claims of pesticides used during cultivation.
But as the cannabis industry continues to grow, the likelihood for claims related to negligence or product issues will become more frequent and severe.
What is the availability of marijuana product liability insurance?
Difficult and limited. There is a small number of insurance carriers offering this type of coverage and they dictate the rules.
What are reasons to buy or not buy product liability insurance?
The reasons are going to be unique to your circumstances. If you’re paranoid about lawsuits, then it may be a reason to consider the insurance. Other reasons might include concerns from investors, state requirements, relationship with others, or being risk adverse. In our experience, the state requirements and relationships with other cannabis companies will predict your desire to buy product liability insurance.
However, the choice not to buy product liability insurance has been expressed through multiple clients as not trusting the insurance carriers to pay on legitimate claims. Lets face it–many people hate insurance companies. Others cannabis owners have indicated the evidence required to prove negligence would be too difficult and expensive to prove.
How difficult is the underwriting process for product liability insurance?
Applying for product liability is like having a root canal without anesthesia particularly with a limited number of insurance carriers offering coverage. Plus, nasty exclusions that must be carefully analyzed.
Most recently, a leading marijuana underwriting group through their application process will not offer product liability insurance if suppliers and growers are not insured for product liability coverage.
The image on the left depicts a retail store buying cannabis and other products from suppliers. The retailer would be denied their own product liability coverage from that carrier if their suppliers/growers are not product liability insured.
Essentially, the insurance carrier is changing the dynamics and behavior of the cannabis industry by underwriting the applicants to perform in a certain manner. In addition, this could be another way to sell for that carrier to sell more insurance.
What are key factors I need to consider about product liability insurance?
- Be truthful when completing the insurance application.
- Pay careful attention to the exclusions on the policy.
- Realize a product liability policy is separate and structured differently then your commercial liability policy.
- Pay close attention prior periods of time if changing insurance companies.
- Engage a professional and experienced insurance broker
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