Avoiding coverage missteps in the cannabis space requires agent education

Exploring where risks lie and what insurance these businesses need

Avoiding coverage missteps in the cannabis space requires agent education


By Alicja Grzadkowska

Before the coronavirus hit the US, many states were in the process of fighting to legalize recreational marijuana – a green wave that will likely continue to sweep the country again soon.

As a result, the commercial cannabis market has been growing, though it remains underserved by insurance. On June 24, Insurance Business America will host a free webinar titled, “New Cannabis Markets: What Clients Need in a Coverage Policy,” during which a panel of experts will discuss the inner workings of manufacturers, retailers, and dispensaries to help insurance professionals gain insight into where the risks lie and what coverage is needed.

The webinar will provide information on what to consider before insuring for medical versus recreational cannabis usage, how cannabis companies are mitigating loss and what impact this has on coverage, and how the insurance market is evolving under new laws.

The panellists will include Chris Boden, cannabis practice group team lead at Crouse and Associates, Mark Brannon, principal at Merlinos & Associates, and Joseph Jonas, commercial lines product manager at AAIS. The webinar will be moderated by Chantal Roberts, CEO and principal at CMR Consulting.

Roberts is an expert witness for lawsuits involving insurance claims, and often speaks to brokers and agents to help them understand what’s going on in the cannabis insurance space so that insureds can get the correct coverage. One of the common missteps she sees is the misuse of terminology in this burgeoning industry.

“You really have to be careful with the word ‘cannabis’ because cannabis is actually the plant and you could have hemp, and that’s cannabis, or you can have marijuana, and that’s cannabis,” explained Roberts. “You could even have CBD, which is really popular nowadays, and that’s cannabis.”

The misuse of these terms came up in one claim where a mom-and-pop store was selling CBD cream and a patron developed a rash from using it, so they filed suit against the mom-and-pop store, and other stakeholders in the supply chain.

“There was an absolute cannabis exclusion on the store’s policy so the insurer denied the claim. Obviously, this isn’t what the mom-and-pop store wanted. They don’t mean to sell marijuana, but they mean to sell CBD cream,” said Roberts. “They intended to have coverage and the agent intended to give them coverage, but the insurer took the strict word of ‘cannabis’ and CBD is derived from cannabis, so you really have to watch your definitions.”

In this situation, and in many other cases involving insurance for cannabis companies, Roberts is concerned that an insurer might reject a claim because of the vernacular used, which could be an unpleasant surprise for the agent and the insured since they didn’t actually have coverage. “‘Yes, we took your premium, but we’re not going to pay for it’ and that just makes insurers look bad,” she said.

Other issues that can arise during the cannabis claims process surround the collection of data needed to prove, for example, how much product was on the premises before a theft occurred, or other information related to running a cannabis business. Insureds may be reluctant to hand over documentation about their business operations and suppliers to another professional due to the federal illegality of marijuana.

To help their insureds avoid the many roadblocks that come with securing the right coverage for their cannabis businesses, Roberts recommends that agents and brokers keep educating themselves, in part by attending webinars like the one that’s coming up.

“Agents need to do exactly what they’re doing if they’re attending seminars or webinars – staying up to date with all of the trends that are going on,” she said. “Being a good advocate for their insured means knowing the policy backwards and forwards, and seeing where there may be gaps and being able to fill those gaps.”

To find out more about the IBA webinar on June 24 on coverages and risks in the cannabis industry or to register, click here.

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