Cannabis Business Insurance
Errors & Omissions (E&O)
Errors and Omissions (E&O) Liability Insurance for cannabis businesses and their supporting vendors offers protection for a variety of professionals from bearing the full cost of defending a lawsuit stemming from allegations of “negligence” in rendering or failing to render a professional service.
WHY DO CANNABIS BUSINESSES NEED E&O INSURANCE?
Businesses in the cannabis industry providing professional services need E&O just like any other professional service firm. Anyone in a professional service firm, manufacturing operation or laboratory could make a mistake, overlook or misplace critical information, forget a crucial step, or be misinterpreted and be sued. Any client or third party a company interacts with could be the source of an E&O claim.
This includes companies not touching the cannabis product but having clients within the cannabis industry closely associated with the product.
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Errors and Omissions (E&O) Liability Insurance for Cannabis Businesses and Supporting Vendors
Many insurance companies have elected not to extend coverage to service firms in and around the cannabis arena. A cannabis related service firm needs to be transparent and have the right E&O policy in place with an insurance company accepting of the cannabis related exposure.
Examples of professions needing E&O:
Manufacturing Operations
Commercial Real Estate Professionals
Lawyers/Legal Professionals
Laboratories and Testing Services
Technology Professionals
Architects & Engineers
Management Consultants
Financial Institutions
HR/Employment Professionals
Claim Scenarios
Real Estate
A real estate agent sold a building supposedly permitted and zoned for cannabis activity and confirmed as such when asked. The buyer of the property struck a deal with a cannabis business looking to expand in that area and collected lease related earnest deposits and started other arrangements for the build out of the property. The sale went through. Later it was found the property was only being considered for permitting/zoning allowing for cannabis activity, but permission had not been granted. Ultimately, the buyer of the property sued the previous owner/seller for misrepresentation and included the real estate agent in their complaint. They also alleged loss of a business opportunity and the cannabis business tenant was considering legal recourse as well. Legal expenses incurred were over $250,000 with a settlement sure to follow.
Accounting Firm
An accounting firm was hired to set up the tax structure of a client’s multi state cannabis operation. The accountant assigned to the project mistakenly set up several locations as a corporation instead of a partnership resulting in additional tax liability. The client sued the accountant alleging losses for tax liability and the accountant had to pay the client $375,000.
Technology Professional
A software as a service (SaaS) company created a platform for cultivators to use to improve their costs and marijuana growing efficiencies. Amongst the promises made was the ability to automate many manual processes cultivators were challenged with by streamlining. Unfortunately, the SaaS product incurred many problems including inaccuracies with plant tracking abilities and related data. As such, many deadlines and inventory delivery related problems ensued resulting in a suit against the technology company. The claim resulted in over $150,000 in legal and damages amounting to $200,000.
Interior Design Consultant
A company provided consulting services to a cannabis dispensary in an effort to comply with recent COVID 19 guidelines. A local governmental authority received complaints about the seeming lack of COVID 19 safety protocols being carried out within the cannabis dispensary and investigated the location. The equipment suggested by the designer (including personal protection equipment) was incorrectly installed and used which led to a temporary suspension of the dispensary operations. As a result, a suit was filed against the interior design consultant based on these non-compliance allegations. Defense costs are expected to exceed $100,000 at a minimum.
Insuring Against Potential Claims with PLRisk
To learn more about how we provide comprehensive solutions for companies across all industries or to discuss your insurance needs, speak with one of our insurance specialists today.
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