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Product Liability Insurance for the Cannabis Industry
A cannabis retail sells flower, edibles, and concentrates or cannabis manufacturer processes the plant material into concentrates to be used in baked goods. Both of these business operations either sell a product or manufacture a product to be sold for profit. Product liability is a type of coverage for the risk associated with cannabis and its derivatives entering the stream of commerce and causes harm or damage. As an example, a customer or patient suffers harm after smoking your product and incurs medical bills and unable to work. They decide to hire a lawyer in order to recover their loss of income and medical bills.
Essentially, they are making your cannabis operation responsible for their damages.
Unbeknownst to many cannabis operations, most commercial general liability policies exclude what is known as products and completed operations. Essentially this means you have no coverage for your product liability. Below is a sample declaration page indicating the coverage is excluded:
What important factors to consider when buying cannabis product liability insurance?
In order to protect your company from a product liability lawsuit using insurance, the purchase of a separate policy is typically required. The following are important factors to consider when purchasing this type of coverage:
- Product liability insurance is typically a separate policy. Historically, there have been a limited number of carriers that did combine this coverage with the premise liability.
- Product liability provides liability protection for your cannabis product. This should not be confused with insuring your actual product for theft or fire. The limits of liability typically begin at $1,000,000 of protection. For example, I’m filing a lawsuit seeking damages of $500,000 from your policy that has $1,000,000 of coverage protection.
- Product liability is most likely offered on what is known as a claims made contract. This means an active policy must be in force that recognizes a particular time period should a claim arise. Important for the cannabis business to understand what is a claims made policy.
- Exclusions remove coverage in the insurance policy. This continues to be an ever evolving area for the cannabis insurance companies. We have noted insurance companies removing coverage for the equipment or accessories that are manufactured, assembled or used regarding any vaporizer and or vape pen. Or, excluding coverage for cannabis oils used in pens. The cannabis owners must read through the policy and pay closer attention to the exclusions.
- Determine if legal defense costs are included within the limits of liability. For example, if you have a $1,000,000 limit of liability and legal expense to defend your lawsuit was $100,000. Does the $1,000,000 become reduced by the $100,000 or is it separate and distinct?
How much does cannabis product liability insurance cost?
This is a difficult question to answer as there are many factors involved such as the type of operation, annual revenue, coverages, and product sold or manufactured. The premium range can be from a couple of thousands per year and up.
Below is a sample product liability comparison from three different insurance carriers. The price is impacted for a variety of reasons. However, worth noting is certain exclusions and deductibles that could have consequences with your company. For example, if you’re a cannabis infused products manufacturer that produces oils and extracts, you may be less likely to choose Carrier B based on the Oils/Extracts for vaporizing.
What do I need to know about completing a product liability insurance application?
The majority of product liability insurance carriers include the application as part of the policy. This can mean the carrier is attempting to use the completed application for not only policy issuance, but coverage determination should a claim arise. Carefully read through the application to be certain you have a good understanding of the questions be asked from you.
If the insurance broker completed the application on your behalf, it’s important for you to be certain the answers are correct and truthful before signing the document.