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.
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 customers
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.
Bolting 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.
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.
Cannasure Offering “Parametric” Insurance for Cannabis Plants Grown Outdoors
What does it mean and should you buy it?
Parametric insurance is now available to cannabis and hemp companies through Cannasure Insurance Services. The first question one should ask themselves is what is “Parametric Insurance.” According to the National Association of Insurance Commissioners:
The term parametric insurance describes a type of insurance contract that insures a policyholder against the occurrence of a specific event by paying a set amount based on the magnitude of the event, as opposed to the magnitude of the losses in a traditional indemnity policy.
The key terms to help understand the meaning are “specific event,” “set amount,” and “magnitude of the event.” The specific events according to Cannasure are likely to be Hail, Drought, Excess Rain, Wildfire, Frost, Wind, Tornado, and Cyclones. Once the threshold or “magnitude” is breached by the specific event, then the insured (“policy holder”) will have a loss or claim. The terms and conditions will be spelled out within the insurance policy.
Here’s an example of how a claim may be analyzed and paid to a cultivator. A Oklahoma grower insures their crop for $1,000,000 (“set amount”). The data indicates the location has a history of tornadoes (“specific event”). The insurance policy determines a threshold before a payment will be made is EF-3. If a EF-4 or EF-5 (“magnitude”) tornado which exceed an EF-3 were to destroy the crop, then the cultivator is eligible for coverage. As you can determine from this hypothetical example, the parameters have been stated and triggered for coverage to be paid.
Potential Advantages for Cannabis and Hemp Parametric Insurance
Coverage availability. Particularly important to satisfy contractual obligations such as lenders and investors
Simplified underwriting process.
Payment of claims is less likely to be held up in contractual disputes. The cannasure program indicates payments could be made in as little as three days. This is a significance difference with traditional insurance polices as claims can take months.
Because a threshold must be met, the cultivator will have an incentive to take necessary precautions to protect their plants such as sensors and warning systems.
High coverage limits are available up to $100M.
This coverage can coincide with other traditional insurance contracts to replace certain gaps in coverage that may exist.
Available for medical cannabis and hemp growers.
Potential Disadvantages for Cannabis and Hemp Parametric Insurance
You may experience damage and receive no payment from the insurance carrier because a parameter was not breached. Using the example from above, a EF-3 Tornado may cause damage to your field. This is below the contractual threshold for meeting a EF-4 and EF-5.
Minimum annual premium is $15,000. This program is likely designed for larger outdoor operations with substantial risk.
Not currently available for recreational cannabis growers.
Parametric crop insurance can help reduce risk particularly knowing certain weather events would have catastrophic consequences. It is important for cultivators to understand their exposures meaning events that would cause damage, thresholds and finer details of the insurance policy before procuring the insurance.
File name : Cannasure-Parametric-Crop-Insurance.pdf
Colorado Executive Order Allows Cannabis and Hemp Curbside Pickup
Governor Jared Polis has signed an executive order due to the impact of the coronavirus allowing medical and recreational stores to accept online, phone, and curbside pick up. The emergency rules are effective for the next 120 days.
Please read the rule changes in blue carefully.
Executive Order D 2020 11
Colorado Emergency Rule Adoption Response to COVID-19
The most frequent question we receive is whether business insurance – specifically Business Income and Extra Expense (“BI/EE”) – will provide coverage during business closure (or reduced hours) due to Coronavirus or COVID-19. The closure or reduced hours may be voluntary or enforced by a government action. For example, the ski resorts in Colorado are being closed by Executive Order from Governor Polis. This is an example of a Civil Authority enforcing a law.
As of today, we know that insurance companies are having their legal teams evaluate the language within the insurance policies, to determine if coverage would be offered for a claim of this nature.
All of our carriers are consulting with their legal counsel at the moment.
Source: Insurance Underwriter (CO)
As such, it is important for cannabis licensees to review their policies and coverages with their Agent, to determine if Business Income and Extra Expense was purchased. This form of income and extra expense coverage is typically triggered by a property loss (such as fire or theft to covered personal property), and may extend during the period of business interruption.
Specified Causes of Losses: Is the Coronavirus considered an “Act of God”?
Sometimes known in the insurance industry as “triggering events,” below are events that some could consider “Acts of God”: fire, windstorm, hail, etc. The question is whether the Coronavirus qualifies as an “Act of God”, or if it’s specifically excluded.
We searched various insurance policies for key words such as “Act of God”, “virus”, and “pandemic” and certain policies seemed to be silent on these terms. The fact that these terms are silent might be an opportunity for interpretation by the insurance carriers and their lawyers.
However, other policies included a specific policy form entitled “Exclusion of Loss Due to Virus or Bacteria” (ISO form CP 01 40), which specifies “We will not pay for loss or damage caused by or resulting from any virus, bacterium or other micro-organism that induces or is capable of inducing physical distress, illness or disease.” This exclusion would seem to be problematic and potentially block coverage.
Business Income and Extra Expense (BI/EE): What does it mean?
Below are two different examples of Business Income from insurance policies. In plain language, BI/EE typically provides Net Income or Loss before taxes, and normal operating expenses including payroll. Determining whether manufacturing risks are addressed, or if executive payroll must be subtracted, will require a thorough review of your insurance policy.
Example A: The coverages do not limit payroll.
Example B: The coverages limit payroll by removing compensation for executives, department managers:
“Should I buy or increase my business income and extra expense coverage before I close my doors due to Coronavirus?“
Buying the BI/EE does not guarantee coverage for this event. There unfortunately is no certainty if the BI/EE will be covered until a claim is filed and reviewed.
“How much does business income and extra expense cost?”
This depends on the insurance carrier and other factors. One example: $500,000 of BI/EE may cost $2,500/year or .50 per $100 of coverage.
You can estimate your premium for BI/EE below:
March 16, 2020 2:49 p.m. MST – Medical Cannabis Deliveries: Non-Owned Auto Liability
The State of Michigan will apparently allow delivery of medical cannabis to patients due to the Coronavirus. Cannabis licensees can review their insurance policy for non-owned auto liability insurance coverage. If the employee is using their own vehicle, this insurance might provide excess liability over the employee’s personal auto policy, and could protect the cannabis licensee with additional coverage limits. Coverage will depend on each carrier’s specific Underwriting Guidelines.
If you are paying insurance premiums to a premium finance company, you may be entitled to payment relief. ClassicPlan, the premium finance company we use at Greenpoint Insurance Advisors, LLC, is offering payment options for customers. You may call them directly at (800) 347-6482 from 8:30am – 5pm PST to discuss your loan, or email them at email@example.com. Please reference your Company/LLC name or your Loan number, if available.
March 17, 2020 11:58 a.m. MST –
Pinnacol Assurance Workers Compensation
Important information for customers and their employees seeking testing for coronavirus exposure
In light of the unprecedented nature of the coronavirus (COVID-19) pandemic, we want to ensure all our mutual customers and their employees can get tested quickly if they suspect they’ve been exposed or infected with COVID-19 as a result of their work.
If a customer or their employees need to get tested, please advise them to go to the medical provider of their choice, and Pinnacol will pay for the COVID-19 testing. They don’t need to go to one of their designated workers’ comp providers for the test.If a customer or their employee believes there is a work-related exposure to COVID-19, we recommend they file a claim. Should the test results be positive, current state law regarding workplace exposure will apply in order for Pinnacol to pay for further COVID-19-related treatment and benefits.
We realize this is an uncertain time for customers and their employees. If you have questions about COVID-19 testing or claims, please contact your Pinnacol claims representative. Also, we encourage you and our customers to visit Pinnacol.com for additional information on preparing their business for COVID-19.
We’re updating our site regularly with Frequently Asked Questions and other essential resources. If anything occurs in the coming days to change this guidance, we will update you as soon as possible.
**UPDATE** Regarding Business Income & Extra Expense
After discussion with Underwriting today, it appears that the carriers are taking a position that Business Income & Extra Expense would need to be triggered by a direct physical loss of, or damage to, property at the business premises, that occurs as a result of a covered cause of loss defined within the policy. Since that situation does not seem to exist in the case of the Coronavirus business closures, it could present challenges in collecting on a claim. Unique circumstances such as these would require submitting a claim to see how it unfolds, with decisions based on policy language interpretation and case law.
Policy Language: We will pay for the actual loss of Business Income you sustain due to the necessary “suspension” of your “operations” during the “period of restoration”. The “suspension” must be caused by direct physical loss of or damage to property at premises which are described in the Declarations and for which a Business Income Limit of Insurance is shown in the Declarations. The loss or damage must be caused by or result from a Covered Cause of Loss.
March 18, 2020 11:33 a.m. MST Washington DOI Coverage Position on Coronavirus Covered or Not
Washington state business owners typically buy insurance coverage to protect themselves from potential losses. With the outbreak of a coronavirus (COVID-19), business owners may question if their existing insurance policy covers this type of loss.
What you need to be covered from coronavirus and other outbreaks
To be covered against any business losses due to a communicable disease, such as COVID-19, you would need to have purchased an additional endorsement to your policy. Depending on the type of business you own, your agent or broker can tailor your endorsement to your business needs. For example, if you own a small convenience store, it might cover wages for employees who are sick and can’t show up for work due to a communicable disease outbreak.
At this time you might not be able to buy this type of endorsement. After the outbreak is over and the market’s stabilized, contact your insurance agent or insurance company directly to see if they even offer it.
NOTE: The Office of the Insurance Commissioner does not have the authority to require insurers to sell any type of coverage or policy endorsements to consumers.
Small Business Administration and disaster assistance
Our primary provider of commercial automobile insurance will provide payment relief for those suffering from the Coronavirus. If you have commercial automobile insurance with us, please contact us for more information
March 18, 2020, 4:27p.m. MST N.J Fast Tracks Bill to Override Policy Language
New Jersey is fast tracking Assembly Bill 3844 to have Business Income and Extra Expense recognized as a covered loss for the Coronavirus. Does this mean other states will follow? Language from the bill essentially overrides any exclusions for viruses: The coverage required by this section shall indemnify the insured, subject to the limits under the policy, for any loss of business or business interruption for the duration of that declared State of Emergency.
March 19, 2020, 12:21p.m. MST Cannabis Insurance Carriers Restricting BI/EE
The cannabis insurance carriers are responding with restrictions for adding Business Income and Extra Expense due to Coronavirus. Below is a recent notification received by us:
Business Income with or without Extra Expense Coverage
Effective immediately, your binding authority is restricted with respect to adding and/or increasing Business Income with or without Extra Expense limits on the following business:
Any existing in-force policy mid-term; or
Any renewal policy at the renewal inception date
This restriction is in effect until June 1, 2020, unless otherwise communicated.
March 19, 2020, 3:48p.m. MST California Department of Insurance
A statement issued by the California Department of Insurance will consider the extraordinary circumstances resulting from the coronavirus and business interruption.
March 20, 2020, 2:39 p.m. MST Update Michigan Delivery and Non-Owned Auto Liability
Michigan will allow medical marijuana deliveries due to the coronavirus. However, insurance carrier who offer non-owned auto liability will not broaden their coverage to cover a claim of this nature. This means a commercial automobile policy must be secured.
March 27, 2020, 9:37 p.m. MST
Even non-cannabis businesses continue to be shocked no coverage for the coronavirus may be available.
Due to the overwhelming number of questions, we will continue to provide ongoing information for the industry as it pertains to Coronavirus and its potential impact on insurance.