As more states begin to pass legislation legalizing cannabis for medical and/or recreational use, the writing seems to be on the wall: cannabis is going to be big business in the coming years. More consumers using these products means more litigious exposure for business owners.
Because the cannabis industry is in the business of producing consumable products and devices for consumption, they have huge products liability exposure. In fact, the first cannabis industry products liability class-action suit was filed in Colorado in October 2015. It won’t be the last.
As an industry that makes or distributes products to consumers, it is imperative that your business have 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 a 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 the following:
- The product is not legal on the federal level..
- The product is applied to the body.
- The product is consumed.
A stand-alone products liability policy is needed for your specific operations. This policy can be tailored to meet the needs of your individual business whether you are a grower, distributor, or dispensary operation.
How To Protect Your Business
What steps do you take to ensure that your products are safe for consumers? There are many companies in the US that currently offer independent third-party testing of cannabis-based products, which should be an automatic inclusion in your safety process.
Many cannabis operations do not have products liability coverage. Does yours? If you do have a policy, does it truly cover your products exposure? Are your insurance limits sufficient?
Contact your Hayes Broker today to schedule a free, no-obligation risk management analysis to determine which products liability coverage is right for your business.