Cannabinoid Hyperemesis Syndrome Illness Leaves Industry Wondering about Insurance Protection

Cannabis Customers Experience Abdominal Pain and Vomitting

We investigate the world of insurance to determine if product liability insurance would protect cannabis stores, growers, and manufacturers from Cannabinoid Hyperemesis Syndrome (“CHS”).   In case you’re unfamiliar with CHS, it apparently affects certain cannabis users causing nausea, repeated vomiting, abdominal pain, decreased appetite, and fluid loss. 

The people effected by this illness can end up in the hospital emergency room due to the vomiting. Does not sound like a fun illness to have especially if the person ends up with medical bills, out of work, and in rare cases seizures have apparently been reported.

Cannabis companies question if they have a potential liability 

We don’t have access to every insurance company offering product liability protection to the cannabis industry.  That is our disclaimer.  Therefore, we limit our review to insurance carriers typically represented by our office for these types of transactions. 

If you’re a cannabis licensee, the first task is to look at your current insurance policies to determine if you even have product liability. 

Why is this important? 

The insurance companies rely heavily on the policies they’ve produced when determining if a claim is covered. The adjusters in the majority of cannabis insurance claims will review the wording in the policy language to determine if coverage is available or not.

Most cannabis business insurance policies will exclude or remove coverage for “Products and Completed Operations.”  If you see this term excluded, then it means you have no coverage on that policy.   It might be prudent to determine if other policies exists because it may have been purchased separately.

 

Product Liability Exclusions on a PolicyThe insuring agreement is standard in every insurance policy. Its the insurance carrier’s acknowledgement of their agreement with an insured.  In this example, the insurance carriers are using standardized industry forms or policy language:

 

 

1. Insuring Agreement
a. We will pay those sums that the insured becomes legally obligated to pay as damages because of “bodily injury” or “property damage” included within the “products-completed operations hazard” to which this insurance applies.

The insured is the cannabis store, grower, or manufacturing company. 

The bodily injury in quotes means it has been defined or a specific definition exists within the policy.  For example:

2. “Bodily injury” means bodily injury, sickness or disease sustained by a person, including death resulting from any of these at any time.

It would be difficult for an insurance carrier to argue CHS is not a sickness.

Lastly we reviewed if the insurance policy excludes or removes coverage for CHS.  The word exclusion is a commonly used insurance industry term.  Many insurance claims are denied because of exclusions meaning no coverage.  Insurance companies will commonly specify their intention to exclude by creating a separate page from the main body of the insurance policy to indicate the level of importance.

Can I Expect Insurance Companies to Pay for CHS Claims?

Depending on the circumstances such as the claim and type of policy, CHS is likely to be covered on most product liability insurance policies.  The reason for our opinion is based on the insuring agreement, definition of bodily injury, and lack of any exclusions in the policies we reviewed. 

 

How Risky is Using a Rice Cooker to Infuse THC?

Cannabis Insurance Requirements when using a rice cooker

Cannabis Insurance requirements when using a rice cooker

Buying Cannabis Insurance is like Entering into a Black Hole

This article was prompted by a client who uses a rice cooker to infuse THC.  I began to sweat imagining what list of conditions and requirements would the insurance carrier force upon us just to buy insurance.  Think about it…its a rice cooker using low heat that can be plugged into your basic electrical outlet.  Rice cookers have been around a long time.  Their chances of it blowing up or causing a fire are pretty low and can even be used to make rice.   But, you combine cannabis and rice cooker with insurance it gets complicated.

As the cannabis insurance industry continues to mature, I’m witnessing a perverse need by the insurance industry to load up customers with many mind numbing requirements in order to obtain insurance.  The list can be exhaustive, burdensome, and nauseating for the agent and customer to meet every demand.

Some of it makes sense and some of it doesn’t, but we’re talking conditions, subjectivities, and warranties to use insurance industry jargon.  Basically, these terms mean if you’re untruthful or fail to comply, the insurance carrier will seek a position to deny a claim based on the facts. 

Essentially, you’re stepping into the insurance black hole that could cost you. 

Now, Greenpoint is not adverse to risk management.  We recognize certain requirements are good for the customer in preventing damage when it makes sense and its reasonable.  We are just trying to find the right balance between meeting the needs of the insurance industry and not overwhelming the cannabis client.

Can you say warranties, conditions, and subjectivities three times?

Here’s a small list of requirements or warranties being mandated by some of our insurance providers:

  1. Active Central Station Alarm
  2. Motion room detectors
  3. Electrical warranty confirming the electrical was performed by a licensed electrical contractor and insured.
  4. Electrical warranty confirming in the next 30 days the electrical will be inspected by a licensed electrician. 
  5. No incandescent lighting
  6. Confirm adequate electrical circuits and plugs for intended use
  7. No smoking of anything at the facility
  8. No open loop extractions
  9. Proper storage of chemicals
  10. Proper storage of fertilizers
  11. Updated roof
  12. Updated electrical
  13. Updated plumbing
  14. Updated hvac
  15. No hanging plastic dividers
  16. Subject to confirmation all employees using the extraction equipment are trained
  17. Subject to equipment being regularly maintained
  18. Proper ventilation/gas detection systems are in place
  19. Subject to providing Standard Operating Procedures and Maintenance Program Log
  20. Non-owned automobile coverage is available if drivers are not on a regular schedule
  21. Confirm your cannabis is not being sold to minors
  22. Confirm you cannabis product is not crossing state lines.
  23. Confirm your cannabis is being testing for heavy metals
  24. Confirm your safe meets a particular TL rating
  25. Confirm your vault meets specific build quality and materials.

Open loop extracting is illegal in regulated cannabis markets

Out of the list, the confirmation of not processing cannabis through an open loop extraction system seems bizarre.  To our readers unfamiliar with the term open loop, think of using a solvent such as butane to extract the cannabis oils without proper equipment and ventilation.   Open loop is like making moonshine in the mountains of West Virginia or Kentucky.  Asking a client if they extract using open loop should have been asked 10 years ago prior to regulations.

The title of one YouTube appropriately calls it Back porch BHO blasting. 

This process would be illegal in regulated markets such as Washington and Colorado.  Knowing its illegal, why would the insurance carrier ask the applicant if they are using an open loop system.  Makes no sense.  Time would be better spent on confirming the types of safety incorporated into their closed loop extraction equipment and methods. 

We strongly encourage the cannabis insurance carriers to carefully scrutinize their list.  What makes sense?  What is reasonable?

For cannabis or cbd operations, we strongly encourage you buy insurance from an insurance broker who has knowledge of these types of issues before entering the game of buying of insurance.

Cannabis Retailers Want Manufacturers to Cover them from Liability through Insurance

Cannabis stores may not realize most carriers are saying no coverage for vape pen batteries

The latest insurance trend in the cannabis industry has to do with cannabis stores requiring their manufacturers to include them as additional insureds for product liability.  Additional insured means the store is listed on the policy for liability protection.  Even more interesting for insurance geeks are stores are asking the batteries for vape pens must be covered.

A typical scenario is the manufacturer of the vape pen and battery sells these products to a variety of retail cannabis stores.  A store requests their business must be covered on the manufacturers insurance policy for product liability.  The evidence comes in the form of a Certificate of Insurance without any real verification the batteries are indeed covered on the manufacturers policy.

Why are cannabis retailers requesting this type of coverage for batteries?

 

Cannabis Insurance Company making certain requirements

 

We don’t see any evidence of retailers or manufacturers considering this type of obligation in their relationships or contracts.  It may be the cannabis insurance companies forcing their store clients to request the coverage from the manufacturer as a condition of their insurance.  This is a method we strongly are against for a variety of reasons, if its true.

For example, a cannabis store is buying product liability insurance from an agent.  The agents tells the cannabis store they must be added as additional insured on the manufacturers policy or else they may not be able to buy insurance according to the carrier’s underwriter.

The other scenario could be some cannabis store became concerned with exploding batteries and decided to request coverage from their manufacturers in case something went wrong. 

The truth is cannabis insurance companies are not covering most batteries

 

No insurance coverage for vape pens

 

Based on current market conditions certain product liability insurance policies are covering the vape pens.  However, they seem to be running away from batteries.

We reviewed several product liability insurance policies to determine if batteries are being covered. 

Here’s what we discovered:

No Coverage of Batteries on Insurance Policies

Cannabis Insurance Carrier ACannabis Insurance Carrier BCannabis Insurance Carrier C
EXCLUSIONS BATTERIES

This insurance does not apply to "bodily injury", "property damage", or "personal and advertising" arising out of batteries. This exclusion applies regardless of whether:

A. Said batteries were manufactured, sold, handled, distributed or disposed of by your or others trading under your name or on your behalf; or
b. "Your work" or
VAPORIZING EQUIPMENT AND COMPONENTS EXCLUSION

In consideration of the premium charged for the policy, it is hereby understood and agreed that coverage under this policy does not apply to any claim arising out of the use, handling or ownership of vaporizing equipment, or any part of the accessories attached or used with the vaporizing equipment including pens, cartridges, mouth pieces, batteries, chargers, coils and any miscellaneous products used with, or attached to, vaporizing equipment.
DESIGNATED PRODUCTS EXCLUSION--PRODUCT RELATED TO ELECTRONIC CIGARETTES, VAPORIZERS AND SIMILAR DEVICES.

Batteries manufactured, distributed or sold by, or disposed of by, or in any way used or handled by, or sold under the label of :

a. ShenZhen Fest Technology, Co., Ltd
b. ShenZhen E-Young Technology Co., Ltd
c. EFEST
d. ShenZhen Mxjo Technology Co., Ltd
e. MXJO
f. MXJO Tech

In our table, Carrier B is excluding batteries and vape pens from coverage.  Carrier C has a list of batteries they believe are the most dangerous. 

If you’re a store requesting this coverage from your infused product manufacturer it would be prudent to be certain its even offered.  More importantly, cannabis retailers through their agents may want to question the insurance company if this is indeed a requirement of buying and maintaining insurance. 

Number of Insurance Carriers Decrease by Product Type

Cannabis Insurance Carrier Graph by Product Type

Limited Number of Cannabis Insurance Companies

If you’re wondering if there’s a lot of insurance companies serving the cannabis industry this graph may help give you a different perspective. 

The number of insurance carriers providing the primary coverages such as general liability and business property are more readily available throughout the United States.  The reason is the risks appear more predictable to the insurance industry.  As you move on the graph from left to right, the number of carriers offering a particular type of cannabis insurance will decrease dramatically. 

Less options means inability to comparison shop your insurance

Cannabis Insurance Proposal Banner

For example, the Directors & Officers, Commercial Auto, and Workers Compensation may be 2 or 3 companies serving each product segment.  The less number of carriers offering coverage is indicator the risks are not as predictable.  The limited supply of insurance companies doesn’t mean the pricing will be inflated.  It will mean the insurance buyer will not have the ability to comparison shop.

If you’re a cannabis or hemp/cbd licensee it will be important as your shop for insurance to keep this in mind as you’re contemplating your insurance needs.

Are Insurance Carriers Violating the Constitutional Rights of the Cannabis Industry?

Cannabis Insurance Application

Questionable Questions Asked by Insurance Carriers

Applying for business Insurance through the use of applications produced by the insurance company is a normal business practice regardless of the industry.  What isn’t normal and seemingly unique with the insurance industry are questions to cannabis applicants if they are operating illegally and conducting criminal activity.

Below are the exact questions currently used by a major insurance carrier we’ll keep anonymous at this time. 

  • Do you distribute your cannabis product to minors? 

Answering yes would potentially mean the applicant is violating state and federal law for selling cannabis to a minor.  One exception could be if the applicant is a medical marijuana licensee whose patient has a prescription from an MD who happens to be a minor. 

  • Do you transport or distribute your product across state lines? 

Answering would be an admission the applicant is distributing cannabis across state lines would be a violation of state and federal law.

  • Do you either grow marijuana on public lands or purchase any marijuana grown on public lands? 

Once again, a potential violation of federal and state law by answering in the affirmative and self incrimination. 

These questions became part of a supplemental application for business property. This is insurance coverage for buildings, equipment, tenant improvements, and loss of income.  As if the insurance process isn’t lengthy enough, the supplemental application is four pages totaling 31 questions with a sub-set of approximately 40 more questions.   

Apparently, the insurance industry has forgotten certain provisions within the US Constitution affording citizens of rights.  More specifically, the Fifth and Sixth Amendment protects the rights of individuals from self incrimination and allows due process to be performed before an individual is denied their freedom.

Amendment V

No person shall be held to answer for a capital, or otherwise infamous crime, unless on a presentment or indictment of a grand jury, except in cases arising in the land or naval forces, or in the militia, when in actual service in time of war or public danger; nor shall any person be subject for the same offense to be twice put in jeopardy of life or limb; nor shall be compelled in any criminal case to be a witness against himself, nor be deprived of life, liberty, or property, without due process of law; nor shall private property be taken for public use, without just compensation.

Source: Cornell Law School

Amendment VI

In all criminal prosecutions, the accused shall enjoy the right to a speedy and public trial, by an impartial jury of the state and district wherein the crime shall have been committed, which district shall have been previously ascertained by law, and to be informed of the nature and cause of the accusation; to be confronted with the witnesses against him; to have compulsory process for obtaining witnesses in his favor, and to have the assistance of counsel for his defense.

Source: Cornell Law School

Most people have heard to plead the fifth or being given their Miranda rights.  The sixth amendment gives everyone the opportunity have their day in court. 

What about other industries?  Are similar questions being asked in the Pharmaceutical and Liquor Industry?

NoNot even remotely close. 

We reviewed other insurance applications used for the Pharmaceutical Industry offered through CNA Insurance and Kinsale Insurance Company to determine the scope of their questions.   Neither of these two applications asked questions that would place a person(s) in legal jeopardy.

How about the liquor industry? 

Those Insurance applications don’t question an applicants ongoing criminal violations either.   One application asked if the insured had been convicted of a felony.  A conviction of a felony is different from conducting a felony.

Properly Underwrite Risk without Violating the Rights of Others 

Cannabis Insurance Police

Photo by Vincent Chan on Unsplash

Most insurance brokers and underwriters will  not object to the proper underwriting and evaluation of risk by the insurance industry before coverage is offered and purchased.  This would include being in compliance with all laws. 

However, it would not be appropriate and possibly illegal for insurance companies to continue with this line of questioning as a business practice.  If the applicant indicates yes to providing cannabis to minors would the insurance company deny the application and notify law enforcement? 

Insurance companies are not members of the law enforcement community and should leave it to the professionals.

Insurance Application Questions