Exploding lights is a Hot issue for insurance companies covering cannabis

Exploding lights is a Hot issue for insurance companies covering cannabis

Nervous insurance carriers offering checklists and recommendations meant to reduce the next grow fire

Cleveland based Cannasure Insurance Services is offering an industry first check list for cultivators to help reduce the chance of exploding lights.   A checklist is unique since it offers tangible recommendations on a weekly, monthly, and yearly basis. 

Why are they doing this? 

The material from exploding grow lights will cause plastic trays used to contain cannabis plants to ignite.  The damage from these events is a nightmare for the business and insurance carriers.  The damage can lead to millions of dollars in property damage with plants destroyed, soot filled ventilations systems, unusable ballasts, and inoperable electrical systems.   Worst case scenario is the building burns down and lives are lost.    

Recommendations by Cannasure include daily awareness of buzzing sounds from ballast, lights flickering, and lights that start in a delayed manner.  Before buying lights a conversation with the manufacturer to discuss failure rates is worth the time.  A red flag warning occurs when the lighting manufacture will not disclose or discuss their failure rates.  This is an excellent information to help determine if a manufacturer is worth the risk.  

Other carriers will list their recommendations on the quote

The list includes light fittings and lams are according to the operating instructions, position lighting to avoid particles from igniting combustible material, and replacing bulbs appropriate for the ballast.  


Grow Light Catastrophic Recommendations

Insurance risk too high when certain grow light combinations cause the most problems   

According to Canopius US Insurance, a 100% led lighting system is the gold standard for reducing possible insurance  claims.  If you’re not LED, then be prepared to answer a series of questions on the type of ballasts and lighting manufacturers being utilized.   

The one question to result in a automatic declination of your insurance request is if metal halide bulbs are used in high pressure sodium ballasts. The combination of these two products is problematic because of  electrical incompatibility.  In fact, the underwriting manual warns underwriters “The Leading Cause of Fire Losses in Cultivation Facilities Comes from HID Grow Bulb/Ballast Incompatibility.”

Between check lists and recommendations Cannabis insurance carriers are more assertive in their underwriting and recommendations to reduce the chance of claims being made.  Rightfully so, they are worried.  

 

 

   

 

National Flood Insurance Unavailable to Cannabis–What are my Options?

National Flood Insurance Unavailable to Cannabis–What are my Options?

If the flood wasn’t bad enough.  Collecting insurance money will be even worse.

 

The cannabis insurance industry is fraught with complexity and coverage gaps when it comes to buying insurance.  Flood insurance is another example of how difficult it is to obtain coverage. 

The National Flood Insurance Program (“NFIP”) administers the federal program to provide flood insurance covering personal and business property in the United States.  Heavy rains or over flowing rivers will destroy buildings and business property.  If you are business other than operating in the cannabis industry buying flood insurance is relatively simple.  The NFIP becomes your preferred source for flood insurance.

Flood insurance is typically purchased when a property is located in a designated flood zone.  A lender may require flood insurance as a condition of a loan.       

However, if you’re in the cannabis industry you should be aware the NFIP will not cover your building or property if insured through them.  The underwriting manual recognizes even though cannabis licensees may operate in states where it is legal it doesn’t matter.  Federal law trumps state law.    

The NFIP may not knowingly insure a building or its contents used for the manufacture or distribution of a controlled substance in violation of federal law. Doing so would directly promote, effectuate, or encourage a violation of the law, which would violate public policy and general principles of insurance.   

2020 NFIP Manual

What’s the Big Deal if I don’t disclose my marijuana business to the NFIP?

The answer isn’t good.  The NFIP will deny your claim and void the insurance policy.  Both of these are harsh consequences.  This means a cannabis building located in a flood zone could suffer a catastrophic financial loss ending their business operation. 

The bottom-line is don’t apply for flood insurance through the NFIP.        

The NFIP will not issue a policy to a person or entity that acknowledges the property to be insured is used in violation of 21 U.S.C. § 856, for example: a marijuana grower or dispensary; and the NFIP will void a policy and deny a claim where the NFIP discovers the property is likely in violation of 21 U.S.C. § 856 because it is used primarily and principally for the manufacture or distribution of a controlled substance.

2020 NFIP Claims Manual

What to do if located in a flood zone and need flood insurance?

The number of carriers offering flood insurance to cannabis companies is very limited.  But, we were able to discover one carrier with a specific cannabis flood program.  If your loan closing requires flood insurance you have an option.  The program is new and pricing seems reasonable. 

For the sake of the cannabis industry, we hope the carrier will be a reliable source into the future for flood insurance.         

You Cannasure a 180 Change is Coming for Cannabis Insurance

You Cannasure a 180 Change is Coming for Cannabis Insurance

Cannasure Insurance Services Acquired by One80 Intermediaries

Change is coming for the cannabis insurance industry. 

Cannasure Insurance Services (“Cannasure”) has evolved from a retailCannasure Logo insurance broker to a wholesale broker specializing in cannabis and hemp insurance coverages over the past 10 years.  A wholesale broker represents the insurance carrier as opposed to a retail broker representing the customer. 

Knowing Cannasure has its roots firmly planted as a retail broker they have been innovative with their product offerings.  However establishing an efficient relationship that requires quick turnaround and high volume has been a challenge.

Cannasure has now been acquired by One80 Intermediaries according to this press release and change is likely coming.

Quoting times should improve for cannabis insurance companies who need a quick response

Currently it takes 7 to 10 days plus to receive a quote from Cannasure.  The Boston based company One80 Intermediaries appears to have underwriting offices located throughout the United States including Canada. 

This presence should likely help Cannasure with reducing the amount of time it takes to quote knowing a local office is available to serve retail insurance brokers specializing in this segment.

Future of Cannabis Insurance might be through online quoting platforms

One80 Intermediaries is able to quote online a variety of business classes such as special events, liquor stores, and Truckers to name a few.   This could be what’s in store for cannabis insurance.  This would greatly reduce the amount of time it takes for retail insurance brokers to turnaround quotes and possibly eliminate lengthy supplemental and acord applications that choke the quoting system. 

Simple cannabis operations with 1 or 2 locations who need basic general liability and property coverage would be perfect candidates for online quoting.  

Expansion into workers compensation, directors and officers, and transportation lines

The cannabis industry has been void of robust product offerings.  Currently, most workers compensation insurance is through assigned risk pools.  Directors & Officers is offered by a small number of carriers, and commercial automobile is practically a monopoly held by one company.

According to the One80 Intermediaries website they appear to have a substantial experience and business practice in these areas.

This would be good for the cannabis industry to have access to more products and services.

 

One80 Intermediaries Current Product Offering

Cannabis Product Offering

 

 

Thieves Impersonating Insurance Inspectors is a Different Kind of Risk

Thieves Impersonating Insurance Inspectors is a Different Kind of Risk

Colorado MEDThe Colorado Marijuana Enforcement Division has issued a bulletin where it describes individuals impersonating in a fraudulent manner an inspection of a licensed cannabis business.

Their goal is to obtain images of fire extinguishers, exit signs, alarms, and safes.

Calls or texts seem to be the choice of communication when “impersonating a marijuana industry supplier requesting to inspect the premises”

Photographing safesLOCKED SAFE

These fraudulent inspections have similarities to the physical inspection required by insurance companies when initially buying a insurance policy.

Legitimate insurance inspectors will  photograph fire extinguishers, electrical panels, existing damage, and exits signs.  Safes are not typically photographed for the insurance carrier.

Contact your insurance broker

If you’ve recently bought cannabis insurance, it would be prudent to contact your insurance broker to verify if the name and company they are representing is from the insurance company.

In addition, the following questions or requests should be made:

  • Insist they contact you via email in order to loop your insurance broker in on the communication.
  • Find out the name of insurance carrier and policy number to based their inspection.

Taking the extra steps to verify the individual with other sources could be the difference between experiencing a catastrophic loss.   

MED Fraud Alert

Comparing Insurance Companies When Buying Theft Coverage for your Cannabis

Comparing Insurance Companies When Buying Theft Coverage for your Cannabis

Cannabis retailers, growers, and manufacturers have a real need to protect their product from theft. Stores in particular have a high degree of risk because they’re open to the public.  Imagine as the owner robbed during business hours submits their claim has it denied because of obscure policy requirements.

Alarming differences

Claims being claims happen everyday to retailers throughout the United States.  The reason is the words matter inside of your insurance policy.

We analyzed four different insurance carriers covering cannabis products sold through medical dispensaries and retailers and discovered some alarming differences. The results were based on the language from each carrier’s insurance policy.  Keep in mind policy terms may be subject to interpretation not only by the insurance company, but legally through a court of law.

Locked display cases serving customersRETAIL STORE CANNABIS IN DISPLAY CASE

Insurance carriers #2 and #3 from the chart below don’t make it easy for their clients to operate.  They both mandate display cases be locked during business hours.  Our initial reaction was how does a retail cannabis store serving customers lock and unlock display cases with each and every transaction?  This doesn’t seem practical or even possible.  If you’ve had a claim denied for this reason, the impossibility to comply could be a valid argument to raise with your insurance company.  We were told by one  insurance company underwriter this requirement was meant to avoid the “smash and grab” theft scenario.  If someone is willing to break through glass, I’m not sure how a locked display case would prevent this from happening.

Two out of the four insurance carriers (#1 and #4 from the chart below) recognized when a retailer is open for business their product can be displayed in cases without having to lock it.  This seems reasonable and practical based on the circumstances.

Remove product each day

Carrier #1 will reduce coverage for product not stored in a safe or vault during non-business hours by 50% or $100,000 whichever is less.  If your are insuring $100,000 of product on display, but only 50% can be stored in the safe, then $25,000 of coverage is available for the product left out each night.  The implication from the policy wording is you need to remove all of your product each day in order to have a chance of it being covered.  This would be labor intensive and non-sensical.

Volkswagen BeatleBolting a 2,000 pound safe

It’s hard to imagine thieves removing a safe that weighs 2,000 pounds.  This much weight is equivalent to a 1979 Volkswagen Beatle, baby humpback whale, or the liberty bell.  Carrier’s #3 and #4 have more stringent requirements with 800 to 2,000 pounds bolted to the ground with a one hour fire rating.  Insurance carrier #2 was the least offensive with their safe requirements.  If the safe weighs less than 750 pounds, it must be bolted to the ground.  Carrier #1 had the lightest safe requirement at 550 pounds.

 

Warnings: not following the rules

IF THESE REQUIREMENTS ARE NOT MET, THEFT COVERAGE IS HEREBY EXCLUDED FROM THIS POLICY IN ITS ENTIRETY.

Carriers number 3 and 4 warn their customers in large caps the seriousness for not complying.  This type of language could be considered a   “default mechanism” used by insurance companies as a penalty against their customer for not following the rules in order to deny a claim.    If you don’t meet the requirements, then theft coverage is excluded i.e. not covered from this policy in its entirety.  The carrier’s need to include the word HEREBY is likely meant for the policy holder to take this more seriously knowing its a legal term of art.

CheckmateGame of Chess

The cannabis retailer has a tremendous burden to overcome when buying coverage for their product and filing a claim.  The insurance carrier may be playing a game of chess in which you are the pawn.  The insurance company is anticipating their client’s lack of awareness of the terms and conditions in order to say “checkmate.”  None of the insurance companies will make life easy for you.   If you are contemplating this coverage here are a few suggestions:

  • Take the time to review the insurance language to understand the meaning and intent.  Yes, it can be boring, but ignorance may be no excuse.
  • Not sure on what something means, then ask the insurance carrier to clarify and archive their response in case of a claim
  • Engage your legal counsel for help with understanding policy terms.  The money spent will be well worth avoiding a fight with the insurance company in the future.

Remember, you are relying on the insurance company to pay claims.  Don’t make it easy for them to deny it.