Commercial General Liability Insurance Cannabis Infused cookie dough

Commercial General Liability insurance (“CGL”) is a type of business insurance policy issued to medical and recreational marijuana businesses for protecting the company from claims associated with negligence, occurrence, or offense based on a unique circumstance.  

Other terms used by the insurance industry to describe the CGL include liability coverage and premise liability.  The uniqueness of the CGL is its intended purpose for covering the business from where it operates.

The typical CGL will begin with the insuring agreement. This is a declaration of understating by the insurance carrier of their agreement with the insured or cannabis company on a very broad basis.  Key terms within the insuring agreement include “legally obligated.” which is not defined by the policy and provides no guidance as to when it may or may not apply.     

Sample Insuring Agreement

We will pay those sums that the insured becomes legally obligated to pay as damages because of “bodily injury” or “property damage” to which this insurance applies. We will have the right and duty to defend the insured against any “suit” seeking those damages.

However, we will have no duty to defend the insured against any “suit” seeking damages for “bodily injury” or “property damage” to which this insurance does not apply. We may, at our discretion, investigate any “occurrence” and settle any claim or “suit” that may result.

Aside from the liability limits, the policy will include a duty to defend clause to allow for legal representation should a claim or lawsuit arise and paid for by the insurance company.  It is important to be aware, the legal expense paid may erode the occurrence limit depending on the terms in the policy.  If a policy has $1,000,000 per occurrence and $500,000 of legal expense from an open claim, then $500,000 is available for settlement. 

Certain cannabis insurance carriers offer the duty to defend on the condition they may be reimbursed for their legal expense.  These types of policies are difficult to navigate particularly when a potential claim presents itself.

If we initially defend an insured (“insured”) or pay for an insured’s (“insured’s”) defense but later determine that none of the claims (“claims”), for which we provided a defense or defense costs, are covered under this insurance, we have the right to reimbursement for the defense costs we have incurred.

Source: International Insurance Company of Hannover SE

The importance of reading the entire insurance policy and paying close attention to the exclusions and endorsements is important.  These changes in the policy can have dramatic implications on the coverage being offered.

Example Insurance Coverages and Terms

Name of CoverageSample LimitsOther Important ProvisionsSummary of Key Policy Terms.

Please Note: Insurance policies issued by different carriers may have modified terms as depicted in this sample below. User should review and rely on their own policy language for further accuracy or clarity.

General Aggregate$2,000,000Deductible 0Aggregate limits is the carriers way of limiting the total amount being paid on the policy as a result of different lines of insurance being utilized.

Using this example quote, the maximum sum of what will be paid for medical expense is $5,000, Coverage A of $1,000,000, and Coverage B of $1,000,000. The example of $2,000,000 would be met if both Coverage A and B were fully paid on a claim.
Products and Completed OperationsEXCLUDEDProducts and Completed Operations is liability coverage for the product entering the stream of commerce resulting in a claim or lawsuit. This coverage is typically excluded in most Commercial General Liability policies in the cannabis industry.

Products and Completed Operations means Includes all "bodily injury" and "property damage" occurring away from premises you own or rent and arising out of "your product" or "your work".... The quotes reference in the insurance policy the term is further defined.

Your product means (1) Any goods or products, other than real property, manufactured, sold, handled, distributed or disposed of by.....:

Learn More about Product Liability Insurance
Each Occurrence$1,000,000Deductible 0The amount of coverage for each occurrence defined in most insurance policies as means an accident, including continuous or repeated exposure to substantially the same general harmful conditions.
Personal and Advertising Injury$1,000,000Deductible 0This coverage offers Third party liability protection for Personal and Adverting Injury. This term is typically defined as

a. False arrest, detention or imprisonment;
b. Malicious prosecution;
c. The wrongful eviction from, wrongful entry into, or invasion of the right of private occupancy of a room, dwelling or premises that a person occupies, committed by or on behalf of its owner, landlord or lessor;
d. Oral or written publication, in any manner, of material that slanders or libels a person or organization or disparages a person's or organization's goods, products or services;
e. Oral or written publication, in any manner, of material that violates a person's right of privacy;
f. The use of another's advertising idea in your "advertisement"; or
g. Infringing upon another's copyright, trade dress or slogan in your "advertisement".

This coverage is subject to a variety of exclusions that either remove or modify the definition based on intent or false statements. There have been a variety of lawsuits in the cannabis industry involving copyright infringement.
Damage to Premises Rented to you Limit (any one premises)$300,000Deductible 0Liability coverage for the damage to the actual business location rented to the cannabis licensee. Typically, the building insurance for the landlord acts as the primary form of building insurance. Depending on the circumstance this coverage may provide additional building coverage.
Medical Payments$5,000Deductible 0Medical payments paid regardless of fault for bodily injury.
(08/17) Commercial General Liability Declarations
(12/07) Commercial General Liability Coverage Part
(03/05) Exclusion-New Entities
(12/07) Employment-Related Practices Exclusion
(09/99) Total Pollution Exclusion
(08/17) Combination General Liability Endorsement
(08/17) Assault and/or Battery Exclusion
(08/17) Fines, Penalties, Punitive of Exemplary Damages
(11/85) Exclusion-Products/Completed Operations Hazard
(08/17) Audit Premium Amendatory Endorsement
(08/17) Exclusion-Sexual Abuse or Molestation
(08/17) Exclusion-Total Liquor
(08/17) Exclusion-Professional Liability
(03/05) Silica or Silica Related Dust Exclusion
(07/98) Limitation of Coverage to Designated Premises
(08/17) Exclusion-Residential Occupancy
(08/17) Waiver of Transfer of Rights of Recovery Against Others to Us
(08/17) Commercial Lines Common Policy Declarations
(08/17) Schedule of Forms and Endorsements
(08/17) Claims Notification
(08/17) General Clauses Endorsement
(08/17) Applicable Law (U.S.A.) Clause
(08/17) Privacy Policy Statement
(08/17) Sanction Limitation and Exclusion Clause
(08/17) Minimum Earned Premium Endorsement
(08/17) Mold and Fungus Exclusion
(08/17) U.S. T.R.I.A. of 2002 as amended-Not Purchased
(05/04) Nuclear Energy Liability Exclusion Endorsement
(11/98) Common Policy Conditions

Sample documents included in a Commercial General Liability insurance policy. The construction of a policy is based on standardized forms. The Commercial General Liability Coverage document is primary. The additional documents are exclusions or endorsements that modify the terms of the policy.