Product Liability Insurance
Product liability is a type of coverage for the risk associated with cannabis and its derivatives entering the stream of commerce causing harm or damage. As an example, a customer or patient suffers harm after ingesting your product and incurs medical bills and loss of income from being unable to work. They decide to hire a lawyer in order to recover their losses and file a lawsuit.
There have been very few product liability lawsuits that involved a failure to warn or other types of defects involving the growing or manufacturing of cannabis products. Cases that had element of product and professional liability insurance included Case No. 2016-CV-1900 EVANSTON INSURANCE COMPANY, Plaintiff, v.
NUTRITIONAL ELEMENTS, INC., d/b/a THE HEALTH CENTER; and WAYNE KOHNKE, MARTI KOHNKE and TAMARA HEMAN, in their capacity as legal guardians for A.K., C.K. and E.K. The underlying lawsuit was the result of the tragic killing of Kristine Kirk by her husband, Richard Kirk who blamed the results of his action on ingesting a marijuana infused edible according to the Denver Post.
According to the Insurance Information Institute Facts and Statistics a graph indicates in 2015 the average and median personal injury awards after trial for product liability was $4,868,468 and $2,500,000, respectively.
Common reasons to purchase product liability insurance
There are several reasons a company will purchase product liability insurance:
- Protect the company assets
- Contracts with distribution channels require this type of insurance
- Peace of Mind
- Statutory requirement by the state of operation
If you would like to get started with buying this type of insurance, please contact us to begin the evaluation process.
Most commercial liability policies exclude product liability
Unbeknownst to many cannabis operations, the typical commercial general liability policies exclude what is known as products and completed operations or product liability. A sample definition from a insurance policy states:
Products and Completed Operations
a. Includes all “bodily injury” and “property damage” occurring away from premises you own or rent and arising out of “your product” or “your work” except:
Essentially, there is no coverage for a claim involving your product entering the stream of commerce. Below is a sample declaration page indicating the coverage has been excluded:
In order to protect your company from a product liability lawsuit using insurance, the purchase of a separate policy is normally required.
Important factors to consider:
- Product liability insurance is typically a separate policy. Historically, there have been a limited number of carriers combine this coverage with the general liability.
- Product liability provides liability protection for your cannabis product. This should not be confused with insuring your actual product for physical damage such as theft or fire. The limits of liability typically begin at $1,000,000 of protection. For example, I’m filing a lawsuit seeking damages of $500,000 from your policy that has $1,000,000 of coverage protection.
- Product liability is likely offered on what is known as a claims made contract. This means a active policy must be in force that recognizes a particular time period should a claim arise.
- Exclusions remove coverage in the insurance policy. This continues to be an ever evolving area for the cannabis insurance companies. We have product liability insurance companies removing coverage for the equipment or accessories that are manufactured, assembled or used for a vaporizer or vape pen. Or, excluding coverage for cannabis oils used in pens. The cannabis owners must read through the policy and pay closer attention to the exclusions.
- Determine if legal defense costs are included within the limits of liability. For example, if you have a $1,000,000 limit of liability and legal expense to defend your lawsuit was $100,000. Does the $1,000,000 become reduced by the $100,000 or is it separate and distinct?
How much does cannabis product liability insurance cost?
This is a difficult question to answer as there are many factors involved such as the type of operation, annual revenue, coverages, and product sold or manufactured. The premium range can be from a couple of thousands per year and up.
Below is a sample product liability comparison from three different insurance carriers. The price is impacted for a variety of reasons. Worth noting are certain exclusions and deductibles that could have consequences should a claim arise.
For example, if you’re a cannabis infused products manufacturer that produces oils and extracts, you may be less likely to choose Carrier B based on the Oils/Extracts for vaporizing.
What do I need to know about completing a product liability insurance application?
The majority of product liability insurance carriers include the application as part of the policy. This means the carrier is attempting to use the completed application not only policy issuance, but coverage determination should a claim arise. Carefully read through the application to be certain you have a good understanding of the questions be asked from you.
If the insurance broker completed the application on your behalf, it’s important for you to be certain the answers are correct and truthful before signing the document.
If you are needing product liability insurance for your business, please contact us to begin the evaluation process.