Insurance Requirements High-Growth Cannabis Companies Must Navigate

It’s a new world, where we see many different types of insurance requirements (and coverage change requests) for cannabis companies from their clients, landlords, business partners, and investors.

These processed requests create an endorsement on the policy that puts the change into effect. Whether it’s a change of location or the addition of new coverage to an existing policy, specific endorsements can be more complicated than others.

We frequently see clients forced to request an endorsement because of a contractual requirement. Many don’t really understand what they’re asking, they just know they need to ask it. If this sounds familiar, we’ve got you covered!

Let’s review the top five insurance requirements from clients, landlords, investors, or partners in the cannabis space. We’ll explore in detail where they come from, how they’re processed, what they mean and how they affect your insurance coverage (if a claim should arise).

1. What Is “Additional Insured”?

An additional insured is an entity or person not regularly be covered under your cannabis business’s insurance policy. They must be added based on the contractual relationship. For example, landlords often require additional insured status on their tenants’ general liability policy.

By having an additional insured on the policy, the landlord is protected if a tenant’s guest slips or falls and then sues. The tenant’s (your company’s) policy traditionally would pay out because you’re the one who invited the guest onto the premises. But, since the guest’s lawyer would sue everyone, the landlord wants additional insured status to avoid any doubt about liability.

We also often see clients of an insured who require additional insured status. For example, suppose a dispensary requires being added to a cultivator’s policy — but why? If the cultivator’s grow light causes a fire, the dispensary wants to know that they and their insurance policy will be protected. After all, this claim should be dealt with by the cultivator’s insurer, not theirs.

The majority of additional insured requests take place in the context of a general liability policy. However, an additional insured may also be added to an auto liability, professional liability, or a cyber liability policy.

Various entities can be included as additional insureds. Carriers only require the entity’s name and address, relationship to the insured, and the reasons for requesting the additional insured status.

Once there is an additional entity placed on the policy, they often require a certificate of insurance (COI) that serves as evidence of their status, which we can produce if needed.

The Takeaway

Clients, landlords, and business partners will often want to be added as an additional insured on your general liability policy for your cannabis business. (Partners and clients may also want to be added to your professional liability or auto policies, too.)

2. What Is Loss Payee or Lender’s Loss Payable?

In the same vein as an additional insured, a loss payee is person or entity specifically added to an insured’s property insurance. A loss payee is most frequently someone who has leased equipment to the insured.

For example, suppose a cannabis grow operation rents extraction equipment. The equipment leasing company may ask them to be added as a loss payee for the replacement value of the rented equipment. That way, if a component breaks or the system is otherwise damaged while in the grower’s care, the leasing company is covered for the loss.

A lender’s loss payable endorsement is a minor variation that applies to a creditor who has loaned money to the insured. So, if the insured experiences a substantial loss, the creditor is covered for the amount that they loaned.

To add loss payees and lenders loss payables to a policy, the carriers often need the entity’s name, address, and relationship to the insured.

The Takeaway

Landlords, leasing companies, and investors are frequently added as a loss payee or lender’s loss payee to your property insurance for you cannabis business.

3. What Is a Waiver of Subrogation?

A waiver of subrogation (WOS) often accompanies an additional insured endorsement. Subrogation is defined as the right of the insured to recover losses from a party who is deemed liable for said losses by law. In short, a WOS is an agreement that the insured waives subrogation rights against the additional insured entity if a loss were to occur.

For example, let’s say a landlord requires a waiver of subrogation on their tenant’s policy. If a third party is injured on the premises and decides to sue the tenant, the waiver of subrogation stops the tenant’s insurance carrier from seeking contribution for the loss from the landlord.  

This adds an additional level of protection for the landlord. It’s more than just additional insured status because the tenant’s insurance carrier may still sue the landlord for negligence, even though they’ve been added to the policy.

A waiver of subrogation prevents this type of scenario from occurring, which is why it’s often included in the insurance requirements of a potential landlord, client, or investor contract. A WOS may be added at the behest of the insured entity and could result in additional premiums, depending on the insurance carrier.

The Takeaway

Clients, landlords, and business partners will often ask for a waiver of subrogation to be included in their favor, so you can’t seek contribution from them for a loss. We can add a waiver along with additional insured status if required.

4. What Is a Primary & Non-Contributory Clause?

Another common feature in an additional insured request is called a primary & non-contributory clause. It determines the sequence in which different insurance policies contribute to a single loss. If this is an endorsement to an insured’s policy, then their policy must pay out the loss first instead of seeking contribution from other policies.

Similar to a waiver of subrogation, a primary & non-contributory clause aids helps avoid any additional insured entities having to pay out for a loss using their own insurance.

The Takeaway

Clients, landlords, and business partners will often insist your insurance policy pays out for a loss first and without contribution from their policy. (This can be added along with an additional insured status.)

5. What Is a Notice of Cancellation? 

A notice of cancellation (NOC) clause is included in just about any insurance policy. It requires the insurance company to provide a designated amount of notice before the policy is cancelled.  

Causes of cancellation can include nonpayment of premium or the event that the insured’s operations have been altered or changed and are now considered off-risk.

Additional insured entities frequently require an amendment be added to the NOC clause to provide them notice, as well. This gives investors, landlords, and business partners (who have been added as an additional insured) substantial warning that they will no longer be covered as an additional insured under that policy.

The Takeaway

Clients, landlords, and business partners may want anywhere between a 10 – 30 day notice in the case that your insurance carrier plans to cancel the policy before the designated expiration date. We can request that a notice of cancellation is sent to any additional insured entities at a supplemental cost (depending on the carrier).

Protecting your psychedelics company can seem confusing; however, we’re a full-service insurance brokerage working with carriers worldwide to offer you the best coverage possible. We’re here to help! Please reach out to us today by emailing [email protected] or calling 646-854-1093 for a customized letter of commitment or learning more about your cannabis insurance options.