Our team encounters many different cannabis business insurance requirements. These are the coverage demands from your investors, landlords, business partners, and other key players who want to protect themselves as much as you do.
We process these requests by asking underwriters to endorse the policy, changing how its coverage responds to claims. Unfortunately, we often see clients forced to request an endorsement they don’t completely understand because of a contractual requirement.
Sound familiar? Not to worry — let’s try to clear things up by reviewing the top five insurance requirements that cannabis companies must navigate.
1. Additional Insured
An additional insured is an entity or person who wouldn’t typically be covered under the insurance policy but needs to be due to a contractual relationship.
For example, landlords frequently require additional insured status on their tenant’s general liability policy. The landlord (as an additional insured) is protected if the tenant invites a client into the building who slips and falls, then decides to sue the landlord.
The tenant’s policy (i.e., your cannabis company) would usually pay out in this scenario. Why? Because you’re the party that invited the guest onto the premises.
We also encounter the clients of an insured cannabis company needing additional insured status. A smoke shop might require additional insured status on a device manufacturer’s policy. This strategy protects if a cannabis-related product harms a customer, and the store is held liable for simply selling it.
Entities can also be included as additional insureds relatively quickly. We request the entity’s name, address, relationship to the insured, and the reason they ask for the additional insured status.
Clients, landlords, and business partners will frequently want to be added as additional insured to your general liability policy. (Partners and clients may also like to be added to your professional liability or auto policies.)
2. Loss Payee/Lenders Loss Payable
A loss payee is a person or entity added to an insured’s property insurance like an additional insured. This person is often someone who has leased equipment to the insured.
Let’s say a company rents film equipment to produce an instructional video on growing cannabis. The equipment leasing company might ask to be added as a loss payee for the replacement value of the equipment rented. So, if a camera breaks while the renter uses the equipment, the leasing company is covered.
A lenders loss payable endorsement is a variation that applies to creditors who have loaned money to the insured. In this scenario, the creditor is covered for the loan if the insured suffers a substantial loss.
Carriers often require the entity’s name, address, and relationship to the insured to add loss payees and lenders loss payables to a policy.
Landlords, leasing companies, and investors often ask to be added as a loss payee or lenders loss payee to your property insurance.
3. Waiver of Subrogation
So what’s a waiver of subrogation (WOS)? It’s an agreement where the insured waives subrogation rights against the additional insured entity if a loss occurs.
For instance, let’s say a landlord requires a WOS on a tenant’s policy. If a third party is injured on the premises and decides to sue the tenant, the WOS prevents the tenant’s insurance carrier from seeking contribution for the loss from the landlord.
This approach also offers an extra layer of protection for the landlord (more than the aforementioned additional insured status). Why? Because the tenant’s insurance carrier could still sue the landlord for something (let’s say, negligence) even though they were added to the policy.
A WOS prevents this type of occurrence and is often included in the insurance requirements of a potential client, landlord, or investor’s contract. It could also be included at the request of the insured entity and could result in additional premiums, though it depends on the insurance carrier.
Landlords, business partners, and clients will frequently ask for a waiver of subrogation to be added in their favor making it legally impossible to seek contribution from them for a loss. We can add a waiver and additional insured status upon request.
4. Primary & Non-Contributory Clause
Another common accompaniment to an additional insured request is a primary & non-contributory clause. This clause outlines the order in which various insurance policies contribute to a single loss.
If this endorsement is placed on your policy, it means that your policy must pay out the loss first and not seek contributions from others until your policy’s limits are reached.
In the same vein as waivers of subrogation, a primary & non-contributory clause prevents additional insureds from having to pay out for a loss using their own insurance.
Landlords, business partners, and clients will often require your insurance policy pay out for a loss first and without contribution from their policy. This clause may be added along with additional insured status.
5. Notice of Cancellation
A notice of cancellation (NOC) is part of the declaration of nearly any insurance policy. As you may suspect, it requires the insurance company to provide a certain amount of notice before the policy is canceled.
Some causes of cancellation include nonpayment of premium or in the case that the insured’s operations have been altered and are now deemed off-risk.
Additional insured entities frequently require an amendment to the NOC clause to give them notice. This amendment provides investors, landlords, or business partners who have been added as an additional insured adequate warning that they will no longer be covered as an additional insured under the policy.
Landlords, clients, and business partners generally want a 10-30 day notice if your insurance carrier intends to cancel the policy before the original expiration date. We’re happy to request a notice of cancellation be sent to any additional insured entities at an additional cost (depending on the carrier).
You’ll likely encounter some or all of these business insurance requirements in your contracts and term sheets as your cannabis company grows.
The good news? We can handle any of these requests with ease. Protecting your cannabis 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 to learn more about your cannabis insurance options.