One of our insurance carriers increased the price by 15% for a cannabis manufacturing company. The increase in premium will also mean underwriting by insurance companies is about to become even more cumbersome.
Insurance carrier removes coverage for vitamin e acetate
Even more interesting, the insurance carrier has added vitamin e acetate to the list of ingredients now being excluded or not covered if a claim or lawsuit was to be filed. This ingredient has been identified by the New York State Department of Health as being linked to those individuals experiencing illness.
A recent product recall by Medicine Man identified vitamin e acetate as a ingredient they did not want their customers consuming.
Vitamin E Acetate Product Liability Coverage Removal
Voluntary Product Recall for Vape Pens by Colorado Cannabis Licensee
Medicine Man Pulls Vape Products with Propylene Glycol or Vitamin E Acetate Off Shelves
Colorado based Medicine Man issues press release removing vape pens off their shelf if ingredients include propylene glycol or vitamin E acetate
Voluntary recalls might be a covered loss on certain product liability insurance policies.
Recalling a product will not typically jeopardize the indemnification provision in most product liability policies.
In a press release, Colorado based cannabis licensee Medicine Man is removing all vape products containing the ingredients propylene glycol or vitamin E acetate. Vitamin E acetate has been identified by the New York State Department of Health as being linked in their investigation with victims suffering health consequences.
Product recall covered by insurance?
From a insurance and risk perspective, Medicine Man is taking the prudent step to reduce their potential liability exposure by removing product for sale, if indeed these ingredients are linked to the national health risks associated with vaping.
A “product recall” is typically defined in most product liability insurance policies. This definition will help determine the type of recall being performed and how the policy may respond. For example, some policies define product recall based on notification from an authorized government entity versus a voluntary recall.
Depending on the cannabis product liability insurance company, the costs covered for a recall may include notification, transportation, and disposal of product depending on the policy wording.
Does a product recall jeopardize my liability protection?
Not typically. A product recall demonstrates being proactive and reducing liability for the licensee and insurance company. Most reasonable insurance companies will view these actions as mitigating your risk exposure.
If it is determined vitamin e acetate is responsible for the health problems, then cannabis licensees should begin analyzing the many risk factors such as any potential legal basis of the claim or lawsuit, types of damages, other parties involved, and how their insurance carrier might respond based on the policy wording.
Deaths and Respiratory Issues from Vaping Devices will cause Insurance Carriers to Contemplate Product Liability Coverage
Could the Use of Cannabis Vaping Devices be the Next Wave of Insurance Claims?
Today, the California’s Cannabis Industry Association (CCIA) issued a statement responding to recent respiratory issues caused by vaping devices. There have been 60 reported cases in California, but no cases have been associated with products purchased from California cannabis licensees. There has been one death in California according to SF Gate.
The CCIA may be responding to a recent death that occurred in Oregon connected to a cannabis device purchased from an Oregon cannabis licensee. The Oregon Health Authority issued a statement on September 3, 2019 indicating the following:
Investigators at the OHA Public Health Division say they received reports that the individual, who died in July, had recently used an e-cigarette or vaping device containing cannabis purchased from a cannabis dispensary.
This investigation is ongoing, but may be the first death linked to a cannabis vaping device purchased from a licensee in the history of the United States.
Source: New York Department of Health
The State of New York has also insured a warning to the public. Their focus is on unregulated cannabis devices bought in New York illegally with preliminary indications of high levels of vitamin E acetate.
Laboratory test results showed very high levels of vitamin E acetate in nearly all cannabis-containing samples analyzed by the Wadsworth Center as part of this investigation. At least one vitamin E acetate containing vape product has been linked to each patient who submitted a product for testing. Vitamin E acetate is not an approved additive for New York State Medical Marijuana Program-authorized vape products and was not seen in the nicotine-based products that were tested.
The State of New York has provided product images from black market devices that can be viewed here.
Expect Product Liability Insurance Carriers to Take Immediate Action through Policy Modifications
The cannabis insurance industry will likely evaluate the potential impact of these events on products being offered and bought by licensees. At this stage it would appear vitamin E acetate has been isolated with illegal cannabis vaping devices. If the product purchased in Oregon has the same ingredient, then insurance carriers might not react as quickly.
The type of insurance most likely to pay for claims and lawsuits is product liability coverage. These policies were designed to provide liability protection for cannabis products like vaping devices when they enter the stream of commerce and consumed by a third party.
If a respiratory illness or death was to occur using a cannabis vaping device, then insurance of this nature will respond to any claims or lawsuits that could arise. These policies offer starting limits of $1,000,000 with legal defense included for bodily injury damages. The respiratory illness or death would fall under the category of bodily injury as defined by the policy terms.
The Oregon death related to a cannabis vaping device could trigger the few product liability carriers to immediately modify their policy terms through an exclusion to eliminate this threat or cause certain insurance carriers to exit the industry. That exclusion may be a simple removal of vitamin E acetate also known as alpha-Tocopherol acetate or Tocopherol acetate to an outright ban on any type of vaping device.
Cannabis licensees should review their product liability insurance coverage
Determine if you have product liability insurance. Most commercial general liability policies will remove the coverage. The insurance term to indicate coverage is typically “Products & Completed Operations.”
If you have product liability insurance review if vape pens or vaporizing devices are excluded on your policy or included on your list of products to be covered. This modification is most likely to show up as a separate page and might require a review from your attorney.
Washington LCCB Appears Now to Require Product Liability Insurance for Cannabis Licensees
The Washington State Liquor and Cannabis Control Board (“LCCB”) seems to be reversing their initial opinion on whether product liability insurance was a requirement by statute (WAC 314-55-085) for its licensees. Internal communication by the department seems to indicate product liability insurance will be understood as a being part of the statute.
We have consulted with internal staff, and would like to take this opportunity to clarify that commercial general liability insurance is required for all licensees under WAC 314-55-082. This coverage would cover instances of product liability claims. More information is also available at the Office of Insurance Commissioner’s website, here: https://www.insurance.wa.gov/your-insurance/business-insurance/marijuana/. If you have questions about that, please reach out to OIC.
Source: Washington State LCCB Amanda Smith, Forms and Records Analyst 07-17-2018
Need to cover instances of product liability claims
While not clearly stated in the statute (WAC 314-55-085), this additional communication “This coverage would cover instances of product liability claims” (emphasis added) does appear the direction the LCCB is taking when defining the type of insurance they mandate upon their licensees.
WAC 314-55-085 does provide an indication of the intentions of those who wrote this section.
The intent of the required insurance is to protect the consumer should there be any claims, suits, actions, costs, damages or expenses arising from any negligent or intentional act or omission of the marijuana licensees.
However, the statute would have been less ambiguous by naming the coverage lines such as “products and completed operations” or “product liability.” The statute could be further interpreted to include “professional liability” based on the broad nature of protecting the consumer from “any claims.”
Another issue with this wording is “intentional acts” are typically not the types of claims covered by insurance. If someone is acting with intent to harm the consumer, then most claims of this nature are likely to be considered outside the scope of insurance due it be intentional as opposed to accidental. Intentional acts should be removed from the statute.
Lack of pesticide testing is good reason to transfer this type of risk to the insurance industry
In our opinion and clearly conjecture, the lack of any pesticide testing on cannabis products could be a strong reason the statutory opinion was astutely reversed to transfer any and all underlying risks to the insurance industry covering future product liability claims.
If you’re the LCCB, then protecting the regulatory agency from pesticide lawsuits would be prudent. These types of claims have not surfaced, but could be laying dormant for future insurance carriers to worry about. Furthermore, the statutes require the LCCB is named as an additional insured, primary and non-contributory, and waiver of subrogration. The LCCB will be protected by the insurance of their licensees.
In the future, the LCCB is likely to become vigilant with enforcing product liability insurance is not excluded, but a coverage line purchased by the licensee.
Need to buy product liability insurance in Washington?
Product liability insurance is available in the marketplace by a small number of insurance carriers making it expensive for many licensees particularly those just starting up. These are separate insurance policies from the primary commercial liability. The price for this type of insurance is based on revenue along with other factors such as the type of operation and product mix.
This additional expense is compounded by the fact the market price for cannabis is low in the State of Washington. Many 502 producers are hanging by thread and additional insurance is not affordable.
The 7 Worst Exclusions on Cannabis General Liability Insurance Policies
Look Inside your Cannabis Insurance Policy to Avoid Surprises
The following is a list of exclusions we’ve found on a variety of cannabis commercial general liability policies over the years, we had to publish because they can lead to harsh consequences or surprises for business owners.
Typically, exclusions can be embeddedare separated from the main body of the commercial liability and meant to notify the policy holder of circumstances when coverage may not be offered.
Cannabis business owners should look for these exclusions
The Washington Changes to Defense Cost Exclusion: Perhaps the worst and most despicable exclusion we’ve seen on a cannabis general liability policy because it gives the right to the insurance carrier to seek reimbursement for claims that are not covered. The exclusion is in direct conflict with another policy condition that requires insured’s to notify their carrier of potential claims. This exclusion will leave many cannabis companies with either a big dilemma or a bill they weren’t anticipating.
The Products and Completed Operations exclusion: Many cannabis companies were never informed by their agent or broker the policy doesn’t cover your product liability. If someone gets sick off your weed, you need to buy a separate insurance policy to cover the risk of product liability.
The Breach of Contract Exclusion: Cannabis insurance companies want to be certain their insurance policies are not covering broken promises with other parties through written or oral agreements. Don’t plan on using your insurance for claims involving money owed to other parties because it didn’t work out between you.
The total mold, mildew, and other fungi exclusion: Cannabis companies who are being sued by landlords or other parties might not realize no coverage exists for grow sites covered with mold or mildew.
The Protective Safeguard Exclusion: The reason certain cannabis insurance policies add this exclusion is to notify their clients of conditions you must follow for covering the actual cannabis products. One cannabis carrier requires the safe to be bolted to the ground if it weighs between 800 lbs. to 2,000 lbs. Many cannabis business owners will question the need to bolt a 2,000 pound safe. This same carrier requires a 1 hour fire rating for your safe. Don’t bother filing a claim if the safe was suppose to only last 30 minutes in a fire.
The Limitation to Designated Premises or Project Exclusion: This exclusion makes our list because it surprises many cannabis companies when they realize their insurance is specific to the locations listed on the insurance policy. If you need your insurance to cover an offsite event, then this exclusion doesn’t provide the protection you need. Many insurance brokers fail to realize the certificate of insurance they issued for the 420 event holder could be meaningless. Many cannabis event holders are probably sitting on certificates of insurance that could be worthless.
The Skin Tanning Exclusion: This is not the worst, but simply the dumbest exclusion we’ve seen included on a cannabis general liability policy. What does a skin tanning exclusion have to do with a cannabis company remains a mystery to most?