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.
Cannabis Insurance requirements when using a rice cooker
Buying Cannabis Insurance is like Entering into a Black Hole
This article was prompted by a client who uses a rice cooker to infuse THC. I began to sweat imagining what list of conditions and requirements would the insurance carrier force upon us just to buy insurance. Think about it…its a rice cooker using low heat that can be plugged into your basic electrical outlet. Rice cookers have been around a long time. Their chances of it blowing up or causing a fire are pretty low and can even be used to make rice. But, you combine cannabis and rice cooker with insurance it gets complicated.
As the cannabis insurance industry continues to mature, I’m witnessing a perverse need by the insurance industry to load up customers with many mind numbing requirements in order to obtain insurance. The list can be exhaustive, burdensome, and nauseating for the agent and customer to meet every demand.
Some of it makes sense and some of it doesn’t, but we’re talking conditions, subjectivities, and warranties to use insurance industry jargon. Basically, these terms mean if you’re untruthful or fail to comply, the insurance carrier will seek a position to deny a claim based on the facts.
Essentially, you’re stepping into the insurance black hole that could cost you.
Now, Greenpoint is not adverse to risk management. We recognize certain requirements are good for the customer in preventing damage when it makes sense and its reasonable. We are just trying to find the right balance between meeting the needs of the insurance industry and not overwhelming the cannabis client.
Can you say warranties, conditions, and subjectivities three times?
Here’s a small list of requirements or warranties being mandated by some of our insurance providers:
Active Central Station Alarm
Motion room detectors
Electrical warranty confirming the electrical was performed by a licensed electrical contractor and insured.
Electrical warranty confirming in the next 30 days the electrical will be inspected by a licensed electrician.
No incandescent lighting
Confirm adequate electrical circuits and plugs for intended use
No smoking of anything at the facility
No open loop extractions
Proper storage of chemicals
Proper storage of fertilizers
No hanging plastic dividers
Subject to confirmation all employees using the extraction equipment are trained
Subject to equipment being regularly maintained
Proper ventilation/gas detection systems are in place
Subject to providing Standard Operating Procedures and Maintenance Program Log
Non-owned automobile coverage is available if drivers are not on a regular schedule
Confirm your cannabis is not being sold to minors
Confirm you cannabis product is not crossing state lines.
Confirm your cannabis is being testing for heavy metals
Confirm your safe meets a particular TL rating
Confirm your vault meets specific build quality and materials.
Open loop extracting is illegal in regulated cannabis markets
Out of the list, the confirmation of not processing cannabis through an open loop extraction system seems bizarre. To our readers unfamiliar with the term open loop, think of using a solvent such as butane to extract the cannabis oils without proper equipment and ventilation. Open loop is like making moonshine in the mountains of West Virginia or Kentucky. Asking a client if they extract using open loop should have been asked 10 years ago prior to regulations.
The title of one YouTube appropriately calls it Back porch BHO blasting.
This process would be illegal in regulated markets such as Washington and Colorado. Knowing its illegal, why would the insurance carrier ask the applicant if they are using an open loop system. Makes no sense. Time would be better spent on confirming the types of safety incorporated into their closed loop extraction equipment and methods.
We strongly encourage the cannabis insurance carriers to carefully scrutinize their list. What makes sense? What is reasonable?