Cannabis Business Insurance
Product Liability Insurance protects cannabis businesses from allegations that their product caused bodily injury or property damage to an end user.
Thanks to the doctrine of strict liability (holding any company in the supply chain responsible for end user losses), it’s necessary for most cannabis businesses to obtain Product Liability Insurance that contains product recall limits.
Do businesses have to obtain Product Liability Insurance?
Yes. Strict liability doctrines make businesses liable if they allow a dangerous or defective product to enter the stream of commerce.
Is product recall Included in a Product Liability policy?
In general, it’s necessary for businesses to round out their Product Liability Insurance policy to include product recall. Luckily, there are standalone product recall policies available to close any gaps in a current policy.
Is a business’s Product Liability Insurance exposure adequately insured if they are an additional insuree on a manufacturer’s policy?
No — prospective dispensary and retail clients often push back on the need for their own Product Liability Insurance. Due to strict liability in Product Liability, it’s not enough to be covered as an additional insured. Strict liability allows plaintiffs to sue every party that was involved in allowing a dangerous product to enter the hands of the consumer.
Product Recall Vs. Product Withdrawal Insurance
Mandated and voluntary cannabis recalls raise questions about the availability of product recall insurance for cannabis businesses. Once a recall is initiated, cannabis businesses will incur costs associated with the notification, withdrawal, warehousing, staffing, disposal, replacement, and lost income caused by the recall. Most cannabis general liability and product liability policy forms do not automatically provide coverage for product recall or product withdrawal. However, some cannabis carriers now offer limited product withdrawal or recall insurance as a sublimit on their policy form.
Product recall insurance usually covers voluntary (insured triggered) and involuntary (government/agency triggered) recalls.
Product recall insurance will help an insured cover a wide range of costs including:
- Advertising and promotional costs to launch the recall
- Shipping costs to collect recalled products
- Product destruction and disposal costs
- Product replacement, repair, and distribution costs
- Fees to wholesalers, distributors, and retailers.
- Business interruption costs.\
- Reputation repair and management costs
- Contingent business interruption expenses
Limited product withdrawal is more common in the cannabis industry and is often added via a product liability policy endorsement sublimit.
Limited product withdrawal insurance may cover the following costs associated with a covered recall:
- Costs of notification
- Costs incurred for overtime pay for employees
- Costs of hiring contractors and temporary employees
- Costs of transportation, shipping, packaging, and warehousing
- Costs to dispose of the affected product
The following costs associated with a recall are typically excluded by a product withdrawal endorsement:
- Costs to replace the affected product
- Costs to regain market share or goodwill
- Costs due to lost business income or contingent business income loss claims
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Cannabis Insurance: Product Withdrawal vs. Product Recall