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Cannabis Insurance Get-Started Guide

The new year brings new opportunities in many parts of the country where cannabis has finally been legalized. Whether it was medical, recreational, or both, the ability to legally sell and obtain marijuana has many dreaming of starting new businesses. Finding a location and product suppliers are important. Getting the proper licensing is a must. Learn all you can about the business before you get started. And don’t forget about insurance. Hayes Brokers has been insuring cannabis businesses since 1996, when it all began in California. In fact, we wrote the book on it. Now, we can insure cannabis operations in every state where it is legal. Here’s how we can help you. Liability Insurance for Cannabis Businesses If you own a retail operation such as a dispensary, you’re going to need general liability insurance. Your landlord may require it, but even if you don’t have a landlord, this coverage will protect you in many other ways.   Premises liability will protect against the odd bodily injury (slip and fall) claim made by customers and visitors. It will also protect against property damage claims by those same visitors. This coverage works like prepaid legal. Should someone threaten to sue for bodily injury or property damage, the coverage will provide legal representation for your business. If your business is found liable, the policy will pay the claim (indemnify you) up to the policy limit. This is the most important coverage you can purchase as a business owner. One thing not covered under most standard Commercial General Liability policies for cannabis businesses is products liability insurance. This coverage can and should...

Application Misrepresentation/Fraud

When researching insurance options the most tedious part of the process is filling out application after application after application. Every company seems to have their own form to complete, and no other application will do. Insurance companies require applications to find out all they can about your business operations. They want to know what they are potentially going to cover so that they can rate your risk properly and charge the appropriate amount of premium. They may also choose to decline a business applicant if the type of business is not something they are interested in insuring. Have You Reviewed Your Application? Depending on the size of the application you may have several pages to fill out, and then there is the signature line that comes at the bottom of the last page. It is usually proceeded by a bunch of legal jargon that most people don’t read prior to signing – but they should. This is what it looks like on the Acord 125 Commercial Insurance Application: That’s a lot to read, but it is definitely worth taking a moment to read and discuss with your broker prior to signing. What Constitutes Material Misrepresentation or Fraud? Material misrepresentation or fraud is defined as a misstatement in answer to a question on an application. That question is so important that if it had been answered truthfully, the insurance carrier may have declined coverage or charged a higher premium for the insurance policy issued.  It can be any of a number of things including: Misrepresenting prior loss history to a new insurance carrier.Failing to disclose criminal convictions or bankruptcies.Misrepresenting the...

“Alarming” Things About Insurance

If you have property insurance (and you should) the application may have asked about your security measures. Do you have armed guards? Do you have a sprinkler system? Do you have a burglar alarm system? In some cases your security measures may earn you a discount on your policy premium. However, they probably also include something else: a Protective Safeguards endorsement. What is that, and could it be a problem? Protective Safeguards Endorsement The Protective Safeguards endorsement will look something like this: The premises and building numbers will correspond with the location(s) scheduled on the declarations page of the policy, and each one will have one or more symbols listed next to it, each starting with “P-”. P-1 is an Automatic Sprinkler System P-2 is an Automatic Fire Alarm P-3 is a Security Service that makes hourly rounds P-4 is a Service Contract with a privately owned fire department P-5 is an Automatic Commercial Cooking Exhaust and Extinguishing System P-9 is any other protective system shown and described in the schedule Why List Protective Systems? If you list a protective system on your application, you will most likely receive a discount on your coverage. However, the insurance company will require that the protective system be in complete working order at the time of a loss, otherwise they will not pay on the claim. The endorsement itself includes a provision adding an exclusion to the policy that says if the policyholder knows that the protective system was not working prior to the loss, then there is no coverage. If the protective system fails because it was not properly maintained, there...

Limited By Your Business Insurance?

As a business owner, it is natural for you to always be looking for ways to make a profit. Sometimes these ideas come in the form of new products and services that you can provide to customers. Innovation is important in any industry, but there might be one small hitch in your plans. Does your current insurance policy cover the new service or product? How can you tell? General Liability Policy Hazards On your general liability policy (or your package policy that includes liability) there is usually a page that lays out the hazards and rates. This page includes the following: Class Code. This is a five-digit code number that is assigned to each and every industry component. What your business does will fit into one or more class codes. For example: 91560 – Concrete Construction 97447 – Masonry Some are even more specific, such as restaurants, where classification options include whether alcohol is sold, how much is sold, and whether there is table service. Description. This is a brief description based on the class code number. Rating Basis. This is where your premium amount comes from. Each class code has a basis, which can be area, subcontractor costs, payroll or gross receipts. Rate. This is how the premium is calculated. Insurance companies set rates for class codes and then multiply them by the rating basis to get the premium they will charge. It is a good idea to review this page with your insurance broker to be sure that your business is classified correctly and that all components of your business are accounted for. Sometimes insurance companies will...

What Your Property Insurance Doesn’t Cover

Ask the average homeowner what their property insurance covers and they will probably say “not much”. All too often homeowners make claims against their property insurance for common occurrences that simply aren’t covered by the policy. There are many things covered by property insurance: fire, lightning, explosion, smoke, windstorm, hail, riot, civil commotion, aircraft, vehicles, vandalism, sprinkler leakage, sinkhole collapse, volcanic action, falling objects; weight of snow, ice, or sleet; water damage (in the form of leakage from appliances); and collapse from specified causes (unless, of course, any of these are specifically excluded). However, there are some specific exclusions you should be aware of since claims for any of these will not be covered under your policy. Vermin & Animals The specific property exclusion in the Homeowners 3 – Special Form (HO3) policy form looks like this:     Vermin includes lice, fleas, roaches, bed bugs, and rodents. Damage or infestation by these pests is not a covered peril under your homeowner’s insurance policy. Damage to the home and subsequent repair and treatment of the home would be an out-of-pocket expense. So what is considered a rodent?  According to Wikipedia, the most well-known rodents are mice, rats, squirrels, prairie dogs, chipmunks, porcupines, beavers, guinea pigs, hamsters, gerbils, and capybaras so damage by these would not be covered. What about skunks, bats or raccoons? None of these are considered insects or rodents, so coverage would most likely apply to damage made by these creatures. However, check with your broker or insurance policy for a complete definition. As for part (h) – “Animals owned or kept by an ‘insured’” this means...

State Minimum Auto Insurance

During every sporting event, there are plenty of ads on TV touting the latest online auto insurance company. Each offers online quoting, low down payments and state minimum auto insurance. Those all sound great, but are they? Remember that old adage that “you get what you pay for”? Let’s talk more about state minimum auto insurance. What is State Minimum Auto Insurance? Nearly every state requires that drivers have insurance or financial responsibility in order to drive a vehicle. Since insurance is mandatory, states have established state minimum auto insurance requirements for drivers. State minimum auto insurance limits are the minimum amount of liability insurance (both bodily injury liability and property damage liability) that the state requires for a driver to be “legal” to drive. These limits vary from state to state. Below are some examples: California $15,000 bodily injury liability per person $30,000 bodily injury liability per accident $5,000 property damage liability per accident Florida $10,000 property damage liability per accident $10,000 personal injury protection Here is a handy guide to the websites and information for state minimum auto insurance requirements by state. What Isn’t Required As State Minimum? State laws require only that drivers have minimum liability insurance limits for bodily injury and property damage. Still others require minimum limits of personal injury protection for insured drivers and their passengers. What usually isn’t required is coverage for comprehensive and collision damage (also known as “full coverage”) or uninsured/underinsured motorist coverage, towing & labor, or rental reimbursement. Should You Purchase State Minimum Auto Insurance? As a law, you MUST purchase at least the state minimum in order to...

Happy Holidays

It is the time of year when we all reflect on the past 365 days and look forward to the coming year. Hayes Brokers wishes all of our current and future clients a happy holiday season and a prosperous 2019.

Christmas Presents, Christmas Perils

Tis almost the season! With the holidays shortly upon us, we thought it would be a good idea to examine how the holidays might impact your homeowner’s insurance coverage. This season is a joyful one, but sometimes bad things happen. How will your current coverage respond? The Peril of Fire As seen in this classic scene from National Lampoon’s Christmas Vacation, Christmas trees are highly flammable: According to the National Fire Protection Association (NFPA) the likelihood of fire increases in December and January. A huge spike in home fires occurs in the 10 days after Christmas, when homeowners have stopped watering the tree regularly, and are more lax about turning the lights off. Electrical shorts from overloaded circuits near a source of kindling (a dried out Christmas tree) accounted for about 40% of Christmas tree fires. See more facts about Christmas tree fires here. The good news: your homeowner’s insurance will cover the peril of fire unless the fire was intentionally set (and 24% of them are). The Peril of Theft All types of theft increase during the holidays, including shoplifting. However, the worst kind of theft to experience at this time of year is the theft of holiday gifts. Christmas lights on the house, a brightly lit tree glowing in the window and no cars in the driveway are a beacon to thieves looking to cash in on some holiday spirit. This family was hit in 2013:  There are many ways to keep your home from being burglarized, including making sure the home looks occupied at all times, installing a security system, and keeping gifts out of sight...

What Does Equipment Breakdown Cover?

As a business owner, you may have been presented a quote by your broker for Equipment Breakdown (aka Boiler & Machinery) coverage. You may have even seen this coverage as a line item on a property, package or business owner’s package (BOP) quote. In many parts of the country, boilers are no longer used, but this coverage is still valuable for many reasons. What Is Equipment Breakdown? Decades ago, this coverage was called Boiler & Machinery and was designed to cover boilers and production machinery used by factories and other businesses. Over time this coverage was expanded to cover such things as air conditioning units and elevators, so the coverage was renamed to Equipment Breakdown insurance. Equipment Breakdown insurance is property coverage. Heating and air conditioning equipment, as well as other machinery components now rely heavily on electricity. Electrical arcing, which is excluded by the property coverage form, is a major reason for equipment breakdown and would be covered under equipment breakdown insurance. What Does Equipment Breakdown Cover? This coverage is designed to cover a significant gap in the Building & Business Personal Property coverage form that specifically excludes: Mechanical breakdown The explosion of boilers and pressure vessels and Electrical arcing The systems that are usually affected by these claims include: Electrical systems Heating, air conditioning, and refrigeration Boiler & other pressure vessels Computers and communications equipment Mechanical Production systems Alternative energy systems Some claim examples: An air conditioning motor burned out in a high rise senior citizens apartment complex at the height of summer. “Spot coolers” were rented to keep the place cool while employees worked overtime to...

Preparing for a Fire Threat: Insurance

We’ve all seen the incredible and horrifying pictures of the devastation from the Camp and Woolsey fires in California over the recent weeks. Whole towns demolished. Property damage estimates are expected to exceed $19 billion for homes and businesses. The amount of uninsured or underinsured losses has not yet been calculated, but it is sure to be some portion of that amount. How could those home and business owners have better protected themselves with insurance? How could you better protect your home and business? First Things First If there is a fire bearing down on your area at this time, you cannot purchase new coverage or  make changes to any of your property or auto insurance policies. Insurance companies will put moratoriums on binding new policies or making changes to existing policies in the face of imminent threat of property damage. Call your broker after the threat has passed to discuss purchasing new coverage or making changes to existing coverage. Properly Insuring Your Property How much is your property worth? It’s an interesting question that has more than one answer. There is, of course, sentimental value. Unfortunately, that cannot be insured. Then there is market value, which fluctuates over time. Your expensive home or business can increase in value in times of economic upturn, but can decrease in times of peril, such as an oncoming fire. While this is a good starting point for insuring a home it does not accurately reflect how much coverage you may need in the event of a covered cause of loss. Replacement cost value is what property insurance policies are based on. Depending...

We Give Thanks

At this time of celebration, we give thanks for all of the blessings of the past year. Thank you for trusting us to protect your business and your family. Happy Thanksgiving from Hayes Brokers.

California Employee/Worker Bonds for LLCs

As part of our ongoing series on insurance coverage for Limited Liability Companies (LLCs), we wanted to tackle the topic of contractor LLCs. Many states do not allow contractors to operate as LLCs due to the ease of terminating the corporate structure. However, California has recently begun allowing contractors to form LLCs, but are requiring additional safeguards for these businesses. The first was increasing the contractor licensing bond amount from $12,500 to $15,000 in 2016. The second was the requirement of an additional bond for contractor LLCs. This bond is the called the Employee/Worker Bond. What Is The Employee/Worker Bond? The California Contractor State Licensing Board (CSLB) now requires the Employee/Worker Bond for all contractor LLCs in order to remain in good standing with the state. The minimum bond amount is $100,000, though higher amounts may be required. This bond is required by LLCs to protect employees and workers of those companies against payroll fraud: underpaying employees and workers or not paying them at all. How prevalent is this problem? Between 2013-2015 a group of companies working on the Pacific Amphitheater in Costa Mesa failed to pay prevailing wages (or to pay workers at all) to the tune of $200,000. A construction company in Paramount is accused of shorting workers payroll or not paying them at all, in addition to other allegations involving workers compensation. These are just two examples in a sea of thousands, with more stories coming out every week. Why Is This Bond Required? For LLCs the ability to cut-and-run becomes easier: they can just shut down the LLC and start a new one if things...

Liquor Liability and Your Business

It is common knowledge that if your business is in the business of providing alcoholic beverages, then you must have a liquor license and purchase liquor liability insurance from your broker. This would be relevant to bars, restaurants, sports facilities and other businesses where liquor is “on the menu”. But what if your business doesn’t typically provide liquor and wants to host an event where liquor is served? Should you allow alcohol at the company picnic? For most businesses, there may be coverage. Let’s examine. Liquor Liability Exclusion The Commercial General Liability Coverage Form (CG 00 01) enumerates a long list of exclusions, including liquor liability. This is how the coverage form reads:               The exclusion says that bodily injury or property damage for which the insured (policyholder) is liable is excluded as it relates to liquor, especially if the business may be held liable for causing intoxication, furnishing alcohol to underage persons or someone who is already intoxicated, or violates any laws with regard to the sale, gift, or distribution of alcoholic beverages. This seems pretty clear. There is no coverage for liquor liability under the policy. But is it completely excluded? Host Liquor Liability You may have heard this term before “host liquor liability”. Does it exist, or is it some mythical creature dreamed up by someone under the influence? It does exist, sort of, but you usually won’t see the words “host liquor liability” on your policy. In fact, the whole premise of host liquor liability is based on the “give back” in the exclusion above. Here is how that looks:...

A Closer Look At Insurance for LLCs

As we have previously discussed, LLCs are a great way to protect company assets, but this corporate structure is not a replacement for actual insurance coverage. Insurance for LLCs should still be a consideration. Let’s take a closer look at why. You Can Still Be Sued In an article on Legal Zoom about LLCs, it is noted that forming an LLC makes a company a separate entity from the company owners. In the eyes of the law, the company “can own money and property, have a bank account, make agreements, sue people, and be sued.” While the corporate structure may protect individual owners from legal liability for company activities, it does not protect the company from being sued. Lawsuits cost money. The best prepaid legal option a company can have is a solid commercial general liability policy to protect against both nuisance claims and legitimate lawsuits. There’s an insurance policy for that: General Liability. You Can Still Make Mistakes Many professional businesses such as lawyers and doctors cannot form LLCs in certain states. If your business is formed as an LLC the corporate structure does not protect you or the business from decisions made by professionals within your company that result in damage or loss to your customers. There’s an insurance policy for that: Professional Liability / Errors & Omissions You Can Still Suffer A Property Loss The physical assets of your business such as your equipment, furnishings, and buildings are still vulnerable to damage or loss. Fire, theft, hurricanes, earthquakes, floods and other natural disasters won’t stop at your front door due to your corporate structure. There are...

Contractor’s Guide to Waiver of Subrogation

For nearly every job and every general contractor, there is a contract in place for subcontractors. As part of that contract, there are insurance requirements. Those insurance requirements usually include a requirement for a waiver of subrogation in favor of the general contractor and/or the project owner. The questions are: what is a waiver of subrogation, and should you give it to them? What is Subrogation? So what, exactly, is subrogation? The term itself translates to “in place of another”. In insurance terms, subrogation is the right of an insurer to attempt to recover money from another party for their involvement in a claim. For example you have full coverage auto insurance and you are involved in an accident for which you are not at fault. Your insurer pays your claim and then turns to the at-fault driver or his insurance company to recover the money paid to you. In contractor’s terms, if a subcontractor’s insurance pays a claim and the general contractor was wholly or partially responsible for the claim, the subcontractor’s insurance carrier may try to recover all or some of the money paid out on the claim. Why You Should Get a Waiver of Subrogation If you are a contractor and you work with subcontractors, it is a good idea to get a waiver of subrogation to protect both your insurance policy and your claims history. Here is how this works: Your policy is protected: Requiring your subcontractors to provide a waiver of subrogation means that if they are sued due to work done by a subcontractor on a job for you, their insurance company cannot...

Insurance for College Students

It seems just like yesterday your little pumpkin was born, but now he or she is off to college. You pack up his or her belongings, drive the child off to the dorm (or apartment), drop him or her off, and breath a sigh of relief. Will he get enough sleep? Will she get enough to eat? Will he make the football team? Will she get the grades she needs to get into law school? All of these are normal worries. Something else you should be worrying about: is your kid (and his or her belongings) covered while he or she is at university? Now THAT is a good question. Let’s find out more about insurance for college students. Dorm Life vs. Off-Campus Life While Tommy or Jill is living at the dorm or off-campus in an apartment, are their belongings covered? The answer: it depends. If your student lives in the dorms on campus and is registered as a full- or part-time college student, their belongings may be covered by your homeowners’ insurance policy. Typically the amount of coverage will be 10% of the contents limit on your homeowners’ insurance policy. For example, if your contents limit if $50,000, then the limit for your student will be $5,000. Will this cover all of his belongings? If he has an expensive computer or other electronics equipment, you may want to consider increasing your contents limit at home or talking to your broker about special coverage for these items. There may also be an age limit for this coverage, usually age 25 or 26. If you have a college student...

California Governor Signs Insurance Bill

On August 30, 2018, California Governor Jerry Brown signed a bill designed to protect homeowners. This bill requires personal lines insurance companies to perform a replacement cost calculation for homeowners every other year. This bill was prompted by a large number of underinsured homeowners who experienced losses in the recent wildfires. These underinsured homeowners found themselves unable to replace their homes with the checks they received from their insurance companies. What Is A Replacement Cost Estimate? Your home can have many values: Market Value: this is the amount that the home would sell for if it was put up for sale in its current condition. This value is based on other homes in the area, and may fluctuate with the economy or increase with increased demand for homes in a particular area. Actual Cash Value: this is the amount it would cost to replace your home with similar quality and materials less depreciation based on the age and condition of the home. Replacement Cost Value: this is the amount that it would cost to replace your home with similar quality and materials in its current location to bring your family whole again. The condition is not a factor. This amount may be more or less than the Market Value. When insuring, you should always insure for the Replacement Cost, since this is the amount that it will take to rebuild the home at the time of the loss. A replacement cost estimate is a valuation calculator that uses the size, building materials, location and age of your home to estimate how much it would cost to replace the home...

Why Is Flood Insurance So Expensive?

Whether it is your first time purchasing home or business flood insurance, or your renewal just came in the mail, you’re sure to have sticker shock. How can one policy covering one peril be so expensive? There are a few reasons why, and there are some things you can do about it. Location, Location, Location If you own property in a flood-prone area, your rates will be higher than in areas not prone to flooding. This can mean you are located near a water source such as a lake or river, or it could mean that you live in an area susceptible to run off or dam failure. Your flood zone is the largest determining factor in your premium. The Federal Emergency Management Agency (FEMA) defines flood zones as Special Hazard Flood Area (SFHA – zones starting with A or V), moderate hazard flood area (zones starting with B and X zones that appear shaded on the FEMA map), and minimal flood hazard areas (zone C or unshaded zone X). What can you do? Short of moving, you can check your flood zone to be sure what is on your policy is correct. FEMA is constantly revising maps in all areas. You can check your flood zone in the FEMA Flood Map Service Center. Bear in mind that the flood map link above won’t be enough to change your policy – you will need either a Letter of Map Revision (LOMR) from FEMA or have your elevation certificate updated by a licensed surveyor. The rate change most likely won’t be retroactive, but it would affect your upcoming flood policy...

Get It While It’s Hot: Products Liability Insurance

The July 1, 2018 deadline for updated packaging has come and gone with store shelves looking a bit empty. Retailers and distributors are even still trying to unload items with the old packaging. Though a lawsuit could happen at any time and for any reason, non-compliant packaging could become a source of individual or class action lawsuits. Is your business ready? Even if you have a lawyer on retainer, these lawsuits can get expensive. The best way to protect your business is with Products Liability Insurance. What Is Products Liability Insurance? Products liability insurance is often referred to as products and completed operations insurance. It is sometimes, but not always, included in a General Liability or Business Owners Package policy.  However, this coverage is usually excluded for cannabis operations. The Insurance Services Office (ISO) defines products and completed operations hazard as “‘bodily injury’ or ‘property damage’ occurring away from premises you own or rent and arising out of ‘your product’ or ‘your work’…” (CG0001 Page 15). While this is a standard definition, it may vary slightly by insurance company and policy. It is important to note that products liability covers not only a physical product but also work product such as building and installation.  This coverage is triggered by bodily injury (including death) or property damage.  However, products liability insurance does NOT cover product recall. Do You Have Products Liability Insurance? The best way to determine if you have products liability coverage is to review your policies with your insurance broker.  While this coverage is often included in some policies, it is far more common that it is excluded for medical and recreational cannabis operations due to...

Can Your Wind Deductible Be Eliminated?

Many years ago homeowners and business owners in coastal areas could buy the same policies as everyone else. Property coverage was included and the deductible was the same amount no matter what happened to the building, and life was good. Several years of active hurricane seasons have changed everything. Property insurance in coastal areas is harder to come by, and often includes a higher deductible for wind and hail, named storm, and/or hurricane damage. What Is Your Deductible? If you live in a coastal area, you may have noticed that your policy includes a strong warning that there is a separate deductible for wind-related events. For example, your regular deductible for all other perils might be $1,000, but your deductible for wind/hail, named storm or hurricane might be $5,000. Some areas have even instituted a percentage deductible of 2%, 3%, 5%, or even 10%. The percentage deductible is typically applied to the amount of your insurance, NOT the amount of your damage. For instance, if you have a 5% deductible and you have a building insured for $1,000,000 that sustained $100,000 in damage, your deductible amount would be $50,000, meaning the insurance company would only reimburse you for $50,000 in damage. When Does Your Deductible Apply? Your wind event deductible will apply as it is described in the policy: Wind or Hail: If the damage is incurred due to any event involving wind or hail, such as a tornado or even extremely strong winds, the higher deductible will apply. Named Storm: This is a better option, as the higher deductible will only apply if damage is incurred due to...

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