Product liability insurance is a type of insurance that every cannabis business requires. It defends businesses from lawsuits if one of their products causes bodily injury or property damage. In the cannabis industry, many businesses in all areas of the supply chain will not work with companies that fail to hold a product liability insurance coverage or cannabis insurance.
It has become increasingly necessary for cannabis businesses to hold this type of insurance. For example, the Centers for Disease Control and Prevention (CDC) reported more than 2,600 vaping illnesses across all 50 U.S. states. These bodily injuries will almost certainly lead to lawsuits, and businesses without adequate product liability coverage must cover all their costs out-of-pocket.
So what do businesses within the cannabis industry need to know about product liability insurance in order to protect themselves?
How Does Product Liability Insurance Help Cannabis Businesses?
It is important to be aware of what product liability insurance actually is. By definition, it defends businesses against lawsuits arising from bodily injury or property damage caused by their products. The majority of policyholders are manufacturers, distributors and retailers. The most common product liability claims involve design defects, manufacturing flaws and cases involving labeling. If your business carries out any of these activities, you must have product liability protection or your entire business is vulnerable.
Areas of Coverage in Product Liability Insurance
Product liability insurance covers a wide variety of different scenarios. One mistake could potentially drag a cannabis business into a legal quagmire. Even if a lawsuit turns out to be frivolous and the business wins their case, they will still need to pay the legal costs out-of-pocket if they are uninsured. Product liability insurance acts as a shield against product-related lawsuits lodged against cannabis businesses.
A first-party claim relates to accident, injury or loss caused by defects in manufacturing, improper labeling and neglecting to warn consumers about potential hazards. In relation to the cannabis business, this could include inaccurate measurements of THC, mold growth or the presence of unknown carcinogens. Any of these scenarios could arise from a single mistake made by an employee. Product liability insurance protects your business against these types of claims.
Claims Arising from Manufacturing Defects
A manufacturing defect is defined as a product that has departed from its intended design. Marijuana edibles are especially vulnerable to these first-party claims as THC concentrations tend to be higher. This can cause complications if an edible is ingested in a single sitting. Companies can avoid this through appropriate labeling. States like Colorado already have laws regulating the maximum legal amount of THC which can be present in a single edible. The vulnerability posed by marijuana edibles means any manufacturer or seller must have a product liability policy that defends them.
Product liability insurance also includes protection against third-party claims made against cannabis businesses. A third-party claim is when a business is found liable for damages resulting from someone using their products. Third-party claims are broad and could include anything from property damage to medical expenses to DUIs.
Business is Held Liable for Damages
For cannabis companies, the relevant threats to their business could come from a variety of different areas. Some examples include an exploding vaporizer that leads to bodily injury, contaminated marijuana bought from a third-party vendor and then resold to customers or selling marijuana edibles that result in food poisoning. Businesses could be held liable for something they have little control over, particularly when products are purchased from a brand-new supplier. Product liability coverage offers the protection needed to defend the business against these types of claims.
What Does this Policy Exclude?
It is important to examine any product liability coverage in minute detail. Many insurers include specific exclusions for cannabis businesses that could result in little to no meaningful coverage if a product liability lawsuit is lodged against them. It is not uncommon to see a general cannabis exclusion clause. This clause renders the purchased protection useless if the business operates within the cannabis industry. This is why business owners are advised to only work with insurers who have experience working with cannabis businesses.
Some of the most common policy exclusions for cannabis businesses include health hazard exclusions, carcinogens exclusions and hardware exclusions, which will not cover things like vaporizers. There are other exclusions, too. Insurers who tend to include these exclusions have little desire to do business with the cannabis industry. This is why it is vital that business owners examine any potential product liability before they begin paying their monthly premiums, otherwise they might find they have no protection at all.
Let MFE Protect Your Cannabis Business With Product Liability Insurance Coverage
The legal cannabis industry is just a few years old. Many insurers are uninterested in accepting cannabis businesses as clients, but that does not mean they will not still take your money. However, when you need help your insurer will simply point to their exclusions and decline to offer any further support. You need an insurer you can rely on, one that understands the needs of the cannabis industry. MFE Insurance offers dedicated product liability insurance coverage to businesses across the cannabis industry. Contact MFE Insurance to begin tailoring the right product liability insurance policy for your business.