If your cannabis business manufactures, distributes or sells products, you’d be hard-pressed to find any company along the supply chain that is willing to do business with you without appropriate product liability coverage.
And while these types of policies defend against lawsuits arising from bodily injury or property damage caused by your products, you may not know there are two types of “claims made” coverages on the market.
Claims Made
Coverage under a claims made policy is triggered when a claim is made against you during your policy period–regardless of when the wrongful act that brought about the claim took place and was reported to the insurer.
As a condition of coverage, the claim must first be made against your company and during the policy period. The only exception to this rule is when a retroactive date exists, eliminating coverage for claims that occurred prior to a specified date as stated on the insurance contract.
Claims Made and Reporting
A claims made & reporting policy also requires that a claim be made against your company first and during the policy period. However, for coverage to apply, the claim must be made against you and reported to the insurer during the policy period.
Here’s a hypothetical example:
- The Acme Cannabis Company accidently manufactured a run of a popular supplement that contained 50 percent more CBD than it should. As a result, a product recall is triggered and dozens of potential claimants file lawsuits under Acme’s insurance policy.
- While Acme has coverage for the lawsuits reported and filed under their policy, several claimants don’t immediately report their claims until months later—just prior to Acme’s policy renewal.
- Assuming premiums on their current policy will skyrocket or that their policy may be nonrenewed, Acme shops for new insurance.
- When Acme discloses on the application that dozens of potential claimants exist from the CBD incident, potential replacement carriers may decline to offer coverage, or offer a policy that specifically excludes any and all claims that may arise from the previous claim incident.
- If Acme can’t secure coverage under a new policy, it may have no choice but to remain with their existing carrier. However, the current carrier is under no obligation to offer renewal terms to Acme, and in fact, it may want to get off the risk entirely – knowing there are dozens of pending claims.
- At this point, under its claims made and reporting policy, Acme may not be able to secure coverage at any price, leaving the company uninsurable.
When shopping for product liability insurance, it’s critical to understand the different types of coverages available and what’s right for your business.
If you need help determining what type of insurance your cannabis business needs, contact me, Corey Tobin, at ctobin@boltonco.com or 626-703-1556. You can also follow me on Instagram and LinkedIn for more information.
