As business owners, we constantly evaluate potential risks that our businesses might face. As a cannabis or hemp business owner, you’ve likely purchased the policies your business requires: General Liability, Property Insurance, Worker’s Comp, Business Income Coverage, Crop, Commercial Auto and/or Transport/Cargo.
Product liability insurance is often as an afterthought…or not obtained at all. Hemp and cannabis businesses might assume they are covered under another business’ product liability policy.
Product liability is a huge coverage gap in the successful operation of your hemp or cannabis business.
Here are the most common questions about Product Liability:
1: Do I need to obtain my own product liability insurance?
YES. Each business in the supply chain—from manufacturers to retailers—should purchase its own product liability insurance. Strict liability doctrine makes your business liable if your business allowed a dangerous or defective product to enter the market.
2: Am I adequately insured if I’m covered as an additional insured on another business’ product liability policy?
NO. It’s not adequate to be listed as an additional insured on another business’ product liability insurance.
Some states, like Washington, now require cannabis businesses to purchase Commercial General Liability with limits of at least $1M. After a string of uninsured product liability claims, Washington modified its insurance requirements for licensee’s by mandating they purchase product liability insurance under WAC 314-55-082.
This states that licensee’s insurance must cover bodily injury, including disease, illness and death and property damage. These issues may arise out of the licensee’s premise/operations, products, and personal injury. The limits of liability insurance can not be less than one million dollars.
What about dispensaries and retail operations?
Prospective dispensary and retail clients often push back on the need for their own product liability insurance. Due to strict liability in product liability, it’s not enough to be covered as an additional insured.
Strict liability allows plaintiffs to sue every party that was involved in allowing a dangerous product to enter the hands of the consumer.
Washington state proactively amended their statutes to clarify that retailers must obtain their own product liability insurance.
Should a producer or processor add a retailer to their insurance certificate?
No. Each licensee should have their own insurance coverage for their own activities. Adding a retailer to a producer/processor’s insurance certificate would mean double coverage on products/activities. This is not a common business practice and might violate state statutes.
Washington’s model for insurance is a good indicator of why each business in the supply chain should purchase its own product liability insurance.
Specifically, the Doctrine of Strict Liability in product liability claims holds each business in the supply chain responsible for products. That means a product could be defectively designed, had manufacturing or warning defects, or businesses in the supply chain didn’t warn consumers about the associated risks of the product.
How can I protect my business against a product liability claim?
- Purchase insurance. But be wary of Health Hazard Exclusions:
- Purchase a product liability insurance policy for your business, even if you’re listed on a processor or manufacturers policy as an additional insured. Policy limits can be quickly exhausted in product liability claims. Unpaid portions will be the responsibility of your business.
- Insurance policies in the cannabis industry are too often written through non-admitted insurance companies. These non-admitted insurers have a lot of leeway on how restrictive they make their product liability coverage.
- What is a Health Hazard Exclusion?
- Health Hazard Exclusion means your insurance does not apply to any claim or suit for any injury or damage in any way related to hemp, cannabis, or marijuana. It’s a huge risk for hemp and cannabis business owners.
- Be sure your policy includes coverage for Product Recall:
- Many insurers offer the option to purchase product recall coverage limits. But it’s not mandatory. As a business owner, it’s imperative to purchase limits for product recall, or you’ll float the bill when clawing back products from consumers’ hands.
- Develop a Product Recall Plan BEFORE you experience a loss:
- Develop a strong recall strategy in place before you need it. Consult state laws, create comprehensive distribution lists to see when and where a product has been sent, and plan a quick response to tainted products. Make sure you record every step you take to ensure your recall is successful.
- Review your policy annually:
- The risk appetites of insurance companies in cannabis and hemp insurance changes frequently. It’s crucial that you perform an annual review of your policy and consult outside legal council if you believe your policy is deficient. Cost is always a factor in a purchasing decision; however, there is a significant difference between purchasing the paper on which an insurance policy is written and purchasing the policy language written on a piece of paper.