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.  

 

 

   

 

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

 

 

Are Insurance Carriers Violating the Constitutional Rights of the Cannabis Industry?

Are Insurance Carriers Violating the Constitutional Rights of the Cannabis Industry?

Cannabis Insurance Application

Questionable Questions Asked by Insurance Carriers

Applying for business Insurance through the use of applications produced by the insurance company is a normal business practice regardless of the industry.  What isn’t normal and seemingly unique with the insurance industry are questions to cannabis applicants if they are operating illegally and conducting criminal activity.  

Below are the exact questions currently used by a major insurance carrier we’ll keep anonymous at this time. 

  • Do you distribute your cannabis product to minors? 

Answering yes would potentially mean the applicant is violating state and federal law for selling cannabis to a minor.  One exception could be if the applicant is a medical marijuana licensee whose patient has a prescription from an MD who happens to be a minor. 

  • Do you transport or distribute your product across state lines? 

Answering would be an admission the applicant is distributing cannabis across state lines would be a violation of state and federal law.  

  • Do you either grow marijuana on public lands or purchase any marijuana grown on public lands? 

Once again, a potential violation of federal and state law by answering in the affirmative and self incrimination. 

These questions became part of a supplemental application for business property.  This is insurance coverage for buildings, equipment, tenant improvements, and loss of income.  As if the insurance process isn’t lengthy enough, the supplemental application is four pages totaling 31 questions with a sub-set of approximately 40 more questions.           

Apparently, the insurance industry has forgotten certain provisions within the US Constitution affording citizens of rights.  More specifically, the Fifth and Sixth Amendment protects the rights of individuals from self incrimination and allows due process to be performed before an individual is denied their freedom.  

Amendment V

No person shall be held to answer for a capital, or otherwise infamous crime, unless on a presentment or indictment of a grand jury, except in cases arising in the land or naval forces, or in the militia, when in actual service in time of war or public danger; nor shall any person be subject for the same offense to be twice put in jeopardy of life or limb; nor shall be compelled in any criminal case to be a witness against himself, nor be deprived of life, liberty, or property, without due process of law; nor shall private property be taken for public use, without just compensation.

Source:  Cornell Law School

Amendment VI

In all criminal prosecutions, the accused shall enjoy the right to a speedy and public trial, by an impartial jury of the state and district wherein the crime shall have been committed, which district shall have been previously ascertained by law, and to be informed of the nature and cause of the accusation; to be confronted with the witnesses against him; to have compulsory process for obtaining witnesses in his favor, and to have the assistance of counsel for his defense.

Source:  Cornell Law School

Most people have heard to plead the fifth or being given their Miranda rights.  The sixth amendment gives everyone the opportunity have their day in court. 

What about other industries?  Are similar questions being asked in the Pharmaceutical and Liquor Industry?

NoNot even remotely close. 

We reviewed other insurance applications used for the Pharmaceutical Industry offered through CNA Insurance and Kinsale Insurance Company to determine the scope of their questions.   Neither of these two applications asked questions that would place a person(s) in legal jeopardy.

How about the liquor industry? 

Those Insurance applications don’t question an applicants ongoing criminal violations either.   One application asked if the insured had been convicted of a felony.  A conviction of a felony is different from conducting a felony.   

Properly Underwrite Risk without Violating the Rights of Others   

Cannabis Insurance Police

Photo by Vincent Chan on Unsplash

Most insurance brokers and underwriters will  not object to the proper underwriting and evaluation of risk by the insurance industry before coverage is offered and purchased.  This would include being in compliance with all laws. 

However, it would not be appropriate and possibly illegal for insurance companies to continue with this line of questioning as a business practice.  If the applicant indicates yes to providing cannabis to minors would the insurance company deny the application and notify law enforcement? 

Insurance companies are not members of the law enforcement community and should leave it to the professionals.     

Insurance Application Questions

 

The Aftermath of When a Cannabis Insurance Company Leaves the Industry

Changing insurance is time consuming and complicated for the customer and insurance broker

Throughout our history insuring cannabis companies, we’ve seen many insurance carriers enter and exit the industry.  It’s the same old story presented to us enthusiastically, we have a great new program to offer your clients.  Our time spent on the specifics of their program evaluating pricing, coverages, and policy forms only to result several months later the story has changed with them ending their program.

The reason is the same–cannabis is federally illegal or a recent change has spooked them in the opposite direction. 

Strange, how the realization of the program they built, not one person from the insurance carrier asked themselves should we insure a Schedule 1 drug listed on the Controlled Substance Act with customers selling, distributing and manufacturing it? 

If we do, what risks should we prepare for when insuring this segment.  When you think about, it’s really a risk management 101 question.

When insurance carriers decide to leave the cannabis industry many times they fail to consider the consequences of their decision on the companies they insure.  Those consequences include the hassle of securing a new insurance carrier, analyzing coverage differences, and understanding the differences between their former policy and new policy.   To properly buy insurance is time consuming not only for the client, but the retail insurance broker representing their interests.  

A professional retail insurance broker can easily spend numerous hours evaluating with their client the risk and coverages.  The coverage analysis between insurance companies and their policies requires piecing together the intricate details of complicated terms to gain a understanding of potential deficiencies.   

Commercial liability may have different exclusions and endorsements 

No two commercial liability policies will be exactly the same.  A former program offered by a insurance carrier not only offered a occurrence based Products and Completed Operations Aggregate, but extended liability with several endorsements below: 

  • Blanket Additional Insured When Required by Contract
  • Liberalization Included
  • Per Location and Per Project Aggregates Included
  • Waiver of Transfer of Rights of Recover Included

Obtaining these types of coverages with a new cannabis insurance carrier will be difficult if not impossible to achieve. Once again, the customer through their insurance broker are left to deal with this problem.

Business Property may have different deductibles and coinsurance penalties

Changing to a new insurance carrier may have different coinsurance penalties and deductibles on business property coverages.  Property means building, tenant improvements, grow equipment, computers, cannabis, etc…. 

Coinsurance is a penalty for not being insured to value on your property.  A lower coinsurance percentage is better than a higher percentage because of the way the formula is calculated in the policy.  If a customer is being placed with a new insurance carrier at 90%, knowing they had a 80% coinsurance clause, then the new policy will be a disadvantage.  

The deductibles may be different from old to new policy.  Some policies offer $1,000, while new policies may offer higher deductibles at $2,500 with special requirements for theft or hail.    

Product liability can be a thorn to switch from carrier to carrier

A significant impact when a insurance carrier abandons their program is if the insured has a product liability.  Why? 

Depending on the type of insurance policy, the transition from claims made to occurrence based may have implications along with exclusions inside those policies that remove coverage.  Occurrence is a better policy because it takes away the relevance of time not having to be recognized past or future.  Claims made must recognize the past and future in order to properly indemnify the underlying risks that may be brewing.   

Certain product liability insurance carriers have an exclusion for cannabis.   Essentially, these policies may be worthless in our opinion.  Other carriers might exclude the certain portions of a product line such as their vape pens.  Both of these exclusions can have dramatic impact on how a claim may be settled.  The insurance broker with their client are left

Pricing from the old to the new policy likely to be higher

The insurance carrier exiting the cannabis industry will have likely procured a substantial number of new insurance customers due to competitive pricing.  We most recently saved a cannabis cultivation company a significant amount of premium changing them to a new program.  They will enjoy the savings for one year with improved coverages only to be notified their policy will be non-renewed at their policy anniversary.

Most likely, their new product liability insurance policy will be more expensive.  Once again, the insurance broker is forced to deliver the bad news your new insurance will be more expensive.


 

 

Insurance Carriers Evaluate if We’re In or Out with Marijuana

The insurance industry as always been and will continue to be the oxygen to ignite any industry

 

On any given day it would appear if the cannabis insurance industry is having an identity crisis trying to determine if they should or should not insure the marijuana industry.  Recent announcements from the “in crowd” include California based Gold Bear Insurance Company and Topa Insurance.  The “out crowd” includes Evanston Insurance Company and Risk Placement Services.  If we’re keeping score its tied evenly.  Of course, this doesn’t take into consideration other insurance carriers outside our sphere and when Lloyds of London was perhaps the original domino to say no to marijuana.

The most recent cause for this neurosis seems linked to the reversal by the Department of Justice to retract the Cole Memorandum, while insurance executives witness the creation of the world’s largest cannabis market in California.  A interesting dilemma as two worlds collide between profit versus legality and reputation.

As one of our Surplus Lines Broker said about the fluctuating insurance market has necessitated a daily dose of stomach medication to calm their nerves.  

Various US Attorneys in states like Colorado and Washington have issued their responses when their boss issued the new directive. Colorado Attorney General Cynthia Coffman went further in her Washington Post opinion piece stating “It is too late to dismantle the marijuana industry.” Coffman went further by recognizing the will of the voters and putting aside her lack of support to legalize recreational marijuana.

These reactions may provide the insurance industry with some level of “security” needed to continue to pioneer through these trails. The cannabis industry must have stable and reliable insurance partners to protect their companies, other parties, and as a matter of public policy. The insurance industry as always been and will continue to be the oxygen necessary to ignite any industry.

 

Justice News

Department of Justice
Office of Public Affairs

FOR IMMEDIATE RELEASE
Thursday, January 4, 2018

Justice Department Issues Memo on Marijuana Enforcement

 

The Department of Justice today issued a memo on federal marijuana enforcement policy announcing a return to the rule of law and the rescission of previous guidance documents. Since the passage of the Controlled Substances Act (CSA) in 1970, Congress has generally prohibited the cultivation, distribution, and possession of marijuana.

 

In the memorandum, Attorney General Jeff Sessions directs all U.S. Attorneys to enforce the laws enacted by Congress and to follow well-established principles when pursuing prosecutions related to marijuana activities. This return to the rule of law is also a return of trust and local control to federal prosecutors who know where and how to deploy Justice Department resources most effectively to reduce violent crime, stem the tide of the drug crisis, and dismantle criminal gangs.

 

“It is the mission of the Department of Justice to enforce the laws of the United States, and the previous issuance of guidance undermines the rule of law and the ability of our local, state, tribal, and federal law enforcement partners to carry out this mission,” said Attorney General Jeff Sessions. “Therefore, today’s memo on federal marijuana enforcement simply directs all U.S. Attorneys to use previously established prosecutorial principles that provide them all the necessary tools to disrupt criminal organizations, tackle the growing drug crisis, and thwart violent crime across our country.”

Attorney General Jeff Sessions Federal Marijuana Enforcement Memorandum

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The Cole Memorandum

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Reversal of the Cole Memorandum has Another Surplus Lines Broker Exiting the Cannabis Industry

Offering Cannabis Insurance may not be Worth the Risk

Managing General Agent Risk Placement Services, Inc (“RPS”) has announced their departure from offering insurance to the cannabis industry as a result of Attorney General Jeff Sessions recent roll back of the Cole Memorandum paving the opportunity to enforce federal cannabis laws.  RPS’ program was a sleeping giant launched recently in Colorado and established in Nevada that offered a comprehensive program with reasonable policy forms.  They partnered with United Specialty Insurance to offer general liability, product liability, and a variety of property coverages.  The local Colorado office was enthusiastic to be offering such a competitive program to the industry.

RPS’ decision is not unique as Evanston Insurance Company took similar action to exit out of the medical cannabis industry shortly after the Jeff Sessions announcement.  Their timing may have been either positively or negatively influenced by the amount of potential business they could have reaped in California.  If they had stayed committed to their program, the amount of business from California would have been significant.

While no specific examples of federal enforcement are evident by the change in position with the current administration, the impact is leaving many insurance executives asking if the risk of insuring pot is worth it.  This news come on the heels of Cannasure aligning themselves with Topa Insurance Company to begin offering their own cannabis insurance program.