What is (and isn’t) changed by Covid-19?
The cannabis industry is changing quickly as Covid-19 has spread worldwide and is greatly impacting the way all businesses are operated. In many states, dispensaries are considered essential businesses and are remaining open, although social distancing is still being enforced for the safety of employees and customers. So far, the cannabis industry has experienced a large increase in sales in states with legal cannabis.
Increased sales often lead to increased potential for theft, and for those businesses instructed to suspend operations, extended periods of closure can also provide the opportunity for burglary. It is becoming increasingly important for businesses to consult with a security risk advisor and secure policies with licensed cannabis insurers. This will ensure businesses remain in compliance and continue operating smoothly during this time.
Insurance has become a necessity to protect cars, businesses, homes, and lives. As the cannabis industry has expanded, so has the need for insurance to protect cannabis facilities. However, there is still one lingering issue with insurance in the cannabis industry. Due to conflicting state and federal laws, regulations have discouraged insurers from protecting this market, making it more difficult to find the right insurer for cannabis businesses.
As with many industries, there are various types of insurance that protect different areas of a cannabis business. The three main coverages include: Physical Property Liability, Product Liability, and General Liability. While not all states require some of the more specific coverages, it’s important to cover the greatest risks – threats to properties, products, and the business.
PHYSICAL PROPERTY LIABILITY
Physical Property Liability will cover damage to the actual structure of the cannabis facility, including land and buildings. In the event of a burglary or robbery, property could be damaged. In addition to replacing lost products, the repairs needed to bring the business back to operating conditions can be prolonged and costly, requiring a temporary closure in order to conduct repairs. Policies may also cover this extended period of closure and profit loss caused by property damage under business interruption coverage.
While it may seem straight forward, most policies do not define damage, and in situations like the current pandemic of Covid-19, many business owners are left wondering if they have coverage. There is no question that Covid-19 has interrupted businesses all over the world, but does the virus’ ability to survive on surfaces for hours count as damage to the property?
Although it does not cause permanent physical damage to a property, there is federal legal precedent to make the argument that “property can sustain physical damage without experiencing structural alteration” (Gregory Packing, Inc. v. Travelers Property Cas. Co. of America; 2014). Many businesses that must temporarily close due to the threat of spreading Covid-19 will likely be covered under business interruption coverage since the virus’ presence on surfaces makes the environment unsafe.
PRODUCT LIABILITY
Product Liability is now required in many states for cannabis businesses that are growing, harvesting, processing, distributing, and/or dispensing cannabis. This would protect the business in the event that a customer consumed a cannabis product from their business and either became ill or caused harm to themselves or others.
Recently, many companies, including cannabis businesses, have begun to produce products to help the country respond to Covid-19. Since the Trump Administration has declared the virus a pandemic under the Public Readiness and Emergency Preparedness (PREP) Act, companies that have recently begun producing these products are protected from litigation against them if the products are faulty. Although many of these companies have never produced things like face masks or hand sanitizer and may encounter problems during their manufacturing, under the PREP Act it would be almost impossible for someone to sue if the product did not work as advertised.
GENERAL LIABILITY
General Liability can cover both virtual and physical responsibility. This will cover bodily injury or harm, personal injury, and property damage, as well as other situations that may arise including libel, slander, and copyright infringement. Unfortunately, many businesses overlook the need for general liability and are hesitant to incur another expense. But, investing in protection is far less expensive than the cost of recovering from many losses.
Some businesses may face litigation as a result of Covid-19 and may wonder if their general liability insurance will cover expenses. The highest risk will be for those businesses remaining open during this period. If an employee becomes ill and infects customers or vendors, the operating business may be held liable if it can be proven that the business was negligent.
Unfortunately, all policies list exclusions, and most insurers agree that claims from Covid-19 will likely be excluded due to pollution exclusions. While pollution exclusions typically consist of industrial chemicals or contaminating materials, insurers may consider Covid-19 a contaminant and reject claims under this exclusion. Some policies do cover pollutants, but the language is often very specific. It is important for business owners to read their entire insurance policies to guarantee their business is fully covered.
INSURANCE REQUIREMENTS
For now, states have varying guidelines on insurance requirements, which may also depend on the type of cannabis facility and whether the product is CBD, Hemp, or Medical or Recreational Cannabis. In states like California, cannabis businesses are required to show proof of insurance, and in Illinois general liability insurance is required during the application process. Many times, the state can request proof of insurance without warning. If a cannabis business is out of compliance, they will be required to close their business until they can provide proof of coverage.
Depending on your insurance carrier, they may ask for you to provide proof of the security equipment in place. Many require that you have all perimeter and interior areas covered where there is an entry/exit point, as well as where cannabis is placed or stored. This may include installing access control on all doors leading to sensitive areas, as well as motion alarm coverage for all areas containing cannabis products. They may also require proof of coverage from video surveillance locations. This is crucial in the event a business must file a claim. If an owner cannot provide proof of an incident, they may be held accountable for loss of products or cash.
MAKING THE RIGHT CHOICE
One of the best ways to obtain guidance on insurance in cannabis coverage is to hire a security risk advisor. This type of business can help identify industry nuances, possible exposures and risks, and ensure businesses stay compliant by conducting a risk assessment on the facility based on current state regulations.
When committing to opening a cannabis business, it’s important to connect with insurance groups and security risk advisors to identify the demands for each individual facility. Since states have distinct rules and regulations, it is crucial to be educated on what is required to remain in compliance and prevent potential shutdowns. All facilities are different and unique, and their insurance needs are too, and during difficult times like the present, it is increasingly important to choose the right policy.