Vaporizers have been regulated inconsistently across the U.S. and it’s to the detriment of the cannabis industry, including when it comes to covering product liability.
Over 2,600 cases of vaping-related illnesses have been reported to the Centers for Disease Control and Prevention (CDC), including nearly 60 deaths, raising questions about safety and leaving cannabis businesses vulnerable to potential claims from consumers. From vape batteries that explode to lung injuries to compliance issues, there has been an increase in the number of claims coming from vaporizers.
With the right product liability coverage, you can protect your business from these potential sources of claims. But do you have the right policy? It’s surprising how many businesses don’t understand the policy that they get. A common mistake amongst new businesses is to take the cheapest rate and not actually consider the policy; they hope it will cover them if they need it, but they often end up underinsured and vulnerable to unexpected claims.
One important aspect to a product liability coverage is the Duty to Defend language. As businesses all the way up the supply chain can be forced to defend themselves in court from a product liability claim, it’s important your policy includes Duty to Defend. The Duty to Defend policy must be solid and not have exclusions that render the policy useless.
There are two types of claims: First-party claims and third-party claims. If there are defects, bad labels or improper warnings, that is when you can see a first-party claim. Third-party claims come from damages caused by the use of the product. That could range from doctor bills to lost wages.
Cannabis companies could see claims come from incidents such as:
- Illnesses supposedly caused by defective vaporizer cartridges
- Cannabis-product that is contaminated
- Food poisoning
- False advertising
- Product recalls
Watch out for cannabis insurance policies that have so many exclusionary clauses that limit your policy and leave your business vulnerable. Exclusions are the tiny details that determine whether you qualify for the coverage you pay for, and some predatory companies purposefully write in exclusions for cannabis businesses so that filing a successful claim is impossible.
Some insurance carriers outright exclude cannabis-related operations in their policies; others refuse to cover products that could cause a health hazard (including vape injuries). The Carcinogens Exclusion, if present in a policy, prevents any company that sells dry flower or vaporizers from getting proper coverage of bodily injury, property damage, and personal and advertising injury.
If you’re a vape manufacturer, look out for Hardware Exclusions. This excludes hardware like batteries and cartridges from being covered. The Impairment Exclusion leaves out any products that could alter a person’s mental state, which includes both THC and CBD.
You’ll most often come across these kinds of exclusions when you work with a traditional insurance carrier that doesn’t have the tailored policies. Those kinds of industry-specific policies come from knowing the ins and outs of the cannabis industry.
Have you seen any outrageous exclusions in insurance policies for cannabis? Share your experience in the comments below.