California Insurance Commissioner Leads Cannabis Working Group

The National Association of Insurance Commissioners has formed a cannabis insurance working group to focus on the issues and opportunities for improving the cannabis insurance marketplace.    In a press release, California Insurance Commissioner Dave Jones will lead this group. 

From our perspective, the timing is appropriate based on the limited number of insurance carrier, deficiencies in coverage language, and failure by the insurance to offer a comprehensive program.

 

California Insurance Commissioner appointed chair of national cannabis insurance committee

News: 2018 Press ReleaseCalifornia Commissioner Dave Jones

For Release: August 8, 2018
Media Calls Only: 916-492-3566
Email Inquiries: cdipress@insurance.ca.gov
California Insurance Commissioner appointed chair of national cannabis insurance committee

SACRAMENTO, Calif. — The National Association of Insurance Commissioners (NAIC) yesterday voted to establish a Cannabis Insurance Working Group to address the issue of insurance availability for the legalized cannabis industry. Recognizing California Insurance Commissioner Dave Jones’ leadership on the issue, the NAIC appointed Jones chair of the NAIC Cannabis Insurance Working Group.

At the NAIC’s Summer National Meeting, Commissioner Jones proposed that the NAIC establish this working group to enable state insurance regulators to better understand where there are insurance coverage gaps for the legalized cannabis industry and to share and develop best practices for state insurance regulators to follow to address coverage gaps and cannabis insurance regulatory issues. Jones previously successfully chaired the NAIC Sharing Economy Working Group which developed a template for insurance coverage for ride sharing and home sharing. Like these prior working groups, the Cannabis Insurance Working Group will enable regulators to better understand the legalized cannabis industry and its insurance needs and the role insurance regulators can play in helping to address insurance needs.

“Cannabis businesses face insurance availability and insurance coverage gaps – which means that those who shop, those who work in, those who sell goods or services to, or those who own, invest in or operate cannabis businesses may not have access to insurance to help them recover if there are accidents, injuries, property damage, or any of the things insurance typically covers,” said California Insurance Commissioner Dave Jones. “As state insurance regulators, one of our responsibilities is to understand new legal businesses and their insurance needs, and then work to encourage the availability of insurance to meet these new risks and coverage needs. I look forward to working with my fellow state insurance regulators to better understand the insurance needs of the legalized cannabis industry and the role we can play in helping to address those insurance needs and other insurance regulatory issues.”

The newly created NAIC Cannabis Insurance Working Group will consider the insurance regulatory issues surrounding the legalized cannabis business from seed to sale, including availability and scope of coverage, workers’ compensation issues, and consumer information and protection. The working group will also develop a white paper outlining the issues and make recommendations for the development of regulatory guidance as appropriate.

Insurance Commissioner Dave Jones launched in California an initiative last year to encourage admitted commercial insurance companies to write insurance to fill coverage gaps for the cannabis industry. As a result of Jones’ initiative, in California the first filing and approval of an admitted commercial insurer offering insurance for the cannabis industry was announced in November 2017, the first surety bond program for the industry was announced in February 2018, the first coverage for commercial landlords for the industry was announced in May 2018, the first standardized cannabis policy forms and program filed by the American Association of Insurance Services (AAIS) was approved in June 2018, and just last week three more insurance carriers were approved by Commissioner Dave Jones to offer surety bond coverage for the cannabis industry in California.

Jones has convened meetings between commercial insurance company executives and cannabis business owners to educate the insurance industry about the sophistication, professionalism and risk management of the cannabis industry. Jones has also organized tours for insurance executives at cannabis businesses.

In October of last year, Jones held a first-in-the-nation public hearing to identify insurance gaps faced by the cannabis industry. Cannabis businesses and insurance industry representatives testified about the limited availability of insurance for cannabis businesses. The hearing revealed that while there is insurance available from surplus lines insurers, insurance gaps in coverage remain, and, until the approval announced last November, no admitted insurance carriers were offering insurance products to cannabis businesses. Jones also announced that he has directed Department staff to devote the resources necessary to timely review the cannabis product and rate filings.

In May, Commissioner Jones hosted a webinar titled “Weeding through the Unique Insurance Needs of the Cannabis Industry” with the National Association of Insurance Commissioners (NAIC) Center for Insurance Policy and Research (CIPR). In April, Jones renewed his call for insurers to offer insurance products for California’s legalized cannabis industry in the wake of published reports that President Trump has overruled Attorney General Jeff Sessions’ policy on federal law enforcement against state legalized cannabis. Jones sent a formal letter to California insurers encouraging them to fill insurance gaps for California’s cannabis businesses.

Massachusetts Recreational Insurance Requirements for Licensing

Commercial Liability and Product Liability Insurance LimitsWashington State Flag

The Massachusetts Cannabis Control Board is moving forward with the approval of 935 CMR 500.00 and includes commercial insurance.  Below are those important requirements:

Liability Insurance Coverage or Maintenance of Escrow (1) A Marijuana Establishment shall obtain and maintain general liability insurance coverage for no less than $1,000,000 per occurrence and $2,000,000 in aggregate, annually, and product liability insurance coverage for no less than $1,000,000 per occurrence and $2,000,000 in aggregate, annually, except as provided in 935 CMR 500.105(J)(2) or otherwise approved by the Commission. The deductible for each policy shall be no higher than $5,000 per occurrence.

This means procuring a commercial general liability policy with limits of $1,000,000 per occurrence and $2,000,000 per aggregate and product liability with limits of $1,000,000 per occurrence and $2,000,000 per aggregate.

What other insurance requirements exist in 935 CMR 500.00?

Licensees will need to purchase workers compensation insurance if they have employees.  The regulations does not indicate any other obligations such as naming the State of Massachusetts as an additional insured. 

What is the purpose of Commercial General Liability? 

This is a business insurance policy covering the premise or business location for liability, personal and advertising injury, and legal defense.  The State of Massachusetts has determined $1,000,000 per occurrence and $2,000,000 per aggregate will provide adequate protection from third party lawsuits. 

What is the purpose of Product Liability? 

Product liability is a type of insurance policy protecting a cannabis company from third party lawsuits.  An example would be a recreational marijuana customer becomes sick from a cannabis product bought at a store.  The customer files a lawsuit against the retail and possibly the manufacturer.  The State of Massachusetts has determined $1,000,000 per occurrence and $2,000,000 per aggregate will provide adequate protection from third party lawsuits. 

What does $1,000,000 per occurrence and $2,000,000 per aggregate mean? 

Per occurrence is the maximum amount paid primarily for bodily injury and property damage.  Per aggregate is the the maximum paid for multiple types of claims. 

How do I buy insurance to meet the requirements in Massachusetts? 

Please contact us. 

How is the Price of Liability Insurance and Equipment Coverage Determined?

Price Information for Liability and Property Insurance Quotes

Many cannabis business owners wonder how exactly is their insurance premium calculated by the

insurance company on the quote you may have received.  The quote for insurance has a lot of details leaving many to wonder how was the price calculated.  Some quotes may be vague, while others offer numerous details difficult to understand. 

Cannabis Extraction Equipment

Cannabis Extraction Equipment

In this article we explore two coverage lines–commercial general liability and business property.  The former policy covers your business and location for a variety of liability issues from another party.  The latter is about protecting the property or “things” you own. 

The cost of insurance for a dispensary, store, manufacturer, or grow is typically based on a variety of factors. 

  1. What type of insurance policy and coverages are you seeking? 
  2. Are you a store, grow, or edibles company? 
  3. How much revenue or square feet do you occupy? 

How is the price for commercial general liability calculated by the insurance company?  

Depending on the insurance company, the price for this policy may be based on gross revenue or amount of square feet from where you operate.  Certain carriers will calculate the cost of insurance differently for a retail store as opposed to a grow facility.  The reason is based on attempting to measure the amount of risk associated with a particular type of company.  The math behind the calculation is simply revenue times a rating factor for a retail establishment.  Or, square feet times a rating factor. 

Most insurance carriers will offer standard limits of $1,000,000 per occurrence and $2,000,000 per aggregate.  If you’re seeking a additional limits, the insurance company may be able to increase these amounts or recommend an excess policy.

How is the price for equipment determined?

You own a variety of business equipment such as C02 extractors, HVAC, lighting, and computers that needs a quote for insurance.  Depending on the insurance company, the price quote for this policy is the amount of coverage you need times a rating factor. 

For example, a edibles company needs $100,000 of equipment coverage for their butane extraction.  The price is $100,000 times a rating factor used by the insurance company.  Or, you have $1,000,0000 of grow lights, hvac equipment, and equipment for production used with the cannabis plants, the cost is $1,000,0000 times a rating factor.

What other insurance costs should I be aware of on the quote? 

Most insurance carriers will charge fees and include a premium tax. Those fees vary with the insurance carrier and range from $100 to $500.  The premium tax is based on the state the business is located and insurance was purchased. 

Need more information to figure out the cost of insurance? 

We’re here to help with our online tool to calculate the price of insurance for your cannabis business.  The tool is based on if you’re a retail store, dispensary, grow, or manufacturing company.  Please keep in mind this is for informational use only and no underwriting have been conducted by the insurance carrier. 

However, it’s a great tool to get a rough idea on the cost of insurance for these two products.  

Buying Insurance in order to repel the Department of Justice

Buying insurance is a standard business practice for every industry

Cannasure Patrick McManamon

McManamon Source National Cannabis Industry Association

A recent article in the Marijuana Business Daily entitled “Finding right insurance is key to any marijuana company’s business plan” discusses how insurance is an important area of compliance and prudent for cannabis businesses to protect themselves from the Department of Justice.   The article indicates more states are requiring cannabis insurance and went further by interviewing Cannasure Insurance Services’ Patrick McManamon who stated “Being in compliance is the main thing that we want to show the Department of Justice, and part of that is going to be insurance.”  McManamon shares an interesting perspective that insurance is about compliance and may fend off the Department of Justice. In our opinion, cannabis companies who buy insurance are simply being normal and responsible business owners.  It would be difficult to imagine the Department of Justice deciding if they should enforce federal marijuana laws to consider the procurement of insurance as a reason not to exercise their rights.  Regardless of the industry, every business buys insurance as a standard procedure.  Perhaps, the message to the cannabis industry is be responsible and buy insurance in order to meet the obligations to others.  Those others may include a state regulatory agency, landlords, employees, vendors, and the general public. 

 Will the insurance company pay out

The article indicates situations when insurance companies have sold policies only to result in claims not being paid citing Green Earth Wellness (“Green Earth”) versus Atain Specialty Insurance Company.  The  Green Earth lawsuit did result in Atain Specialty Insurance Company (“Atain”) raising the argument cannabis is federally illegal as one of the reasons to the deny the claim. Aside from the Green Earth lawsuit, there are policy exclusions mentioned in the article citing two as being the most common:  “Schedule 1,” “federally illegal” and “health hazard.” We reviewed cannabis insurance policies for these particular exclusions.  The “federally illegal” is most likely referencing the Business Personal Property policy excluding “Contraband, or property in the course of illegal transportation or trade.”   Essentially, the carrier has the right to not cover your property because of this exclusion.  The problem for insurance carriers who decide to use this as a reason to deny a claim may find themselves in litigation.  The Colorado court in Green Earth v. Atain recognized the ambiguity of the contraband exclusion, but relied on the mutual intentions by both Green Earth and Atain they were in the transaction together to buy insurance for a medical marijuana company.  In other words, there was no surprise by either party a contractual relationship is formed knowing one of the parties is distributing, manufacturing, and cultivating a controlled substance. Regarding the Health Hazard exclusion, there are product liability policies sold in the cannabis industry with a health hazard exclusion.  Below is a sample of the Health Hazard exclusion.  In our opinion, the inclusion of this language on a product liability insurance policy could result in coverage being denied based on a given set of facts or circumstances.  We don’t believe every product liability claim will be denied, but it does appear if cannabis is being used to contribute toward a health hazard, then coverage may be in jeopardy.

Sample Health Hazard Exclusion

Cannabis Health Hazard Exclusion

Health Hazard Exclusion–Possible Reason to Deny Coverage

Lastly, McManamon states when buying insurance “Vet that person like you would your attorney, your accountant. Once you find that agent, you really work with him and stick with him.” We couldn’t agree more.

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10 Questions or Factors to Consider when Buying Marijuana Insurance

Different Scenarios to Contemplate when Purchasing Coverage for your Business

The typical process of buying insurance involve the following steps:Marijuana Store

  1. Contacting a retail insurance broker 
  2. Completing a insurance application
  3. Review the insurance quote, coverages, and policy forms
  4. Signing the application and paying for the insurance
  5. Receiving and reviewing the insurance binder
  6. Receiving and reviewing the insurance policy

Below are tips based on our experience for licensees contemplating their insurance, insurance coverages, and particular risks with their operation. 

This list may be altered depending on if your business is retail, cultivation, or a infused products manufacturer as each operation will have risks unique to them.  

  1. Think about the risks you want to insure or not insure.  If you’re not going to insure those risks, then figure out if you can control or manage the risk.  A good example is not buying cannabis insurance protection because you have a steel vault.
  2. Your lease agreement or other contracts will determine if you have insurance obligations to meet.  Read those obligations carefully and discuss with your insurance agent. 
  3. Does your state or local jurisdiction require you to purchase a certain type of insurance coverage?  You’ll want to be certain you’re meeting those obligations because your license depends on it. 
  4. Workers compensation insurance is required by law throughout the United States.   If you have employees, you’ll need insurance to cover them if they become injured on the job.
  5. Think about what insurance products you need.  At a minimum, a commercial general liability insurance policy is required if you’ve leased space for the business.  Do you want or need product liability?  Do you want to cover your cannabis or crop?  The answers to these questions will depend on price, concern for risk, and other variables such as peace of mind.   
  6. Your insurance needs will be different if you have construction.  Why?  The risk is different hen you’re under construction as opposed to being operational.  Depending on the amount of construction, the insurance carriers are likely to frown on issuing a insurance policy if they discover a substantial level of construction activity.  You will need different insurance policies to cover this type of risk.  
  7. Don’t wait until the last minute to buy insurance.  Shop around among a variety of insurance brokers to make sure its the right fit with both parties.  
  8. Be certain the insurance broker sends you the entire quote and policy documents.  You want to be certain an exclusion of coverage wasn’t intentionally removed.
  9. Don’t sign the insurance application unless you’re certain the answers are correct.   
  10. Determine how long the insurance broker and carrier has been serving the cannabis industry.  Many insurance companies enthusiastically enter and then exit the industry.  A inexperienced insurance broker can lead to problems during a claim and even litigation.   The truth is not all underwriters from surplus lines brokers are professional and honest with their business dealings and representations they make on behalf of their insurance carriers.