Product Liability protection is not automatic when you purchase marijuana business insurance. Marijuana product liability insurance is issued as a separate insurance policy and will provide defense for a marijuana product liability lawsuit as your customers can hold you liable for bodily injury or property damage that takes place from consumption of marijuana flowers, edibles, and concentrates.
A marijuana product liability policy is issued on what’s called a 'Claims Made' form, which is a type of policy that is designed to cover claims that are reported only during the policy period. The policy will respond only if a written claim is made during the policy period or any applicable extended reporting period (also known as a tail) which is offered by the carrier. The key is to make certain that you maintain continuous coverage as again the coverage trigger is when the claim is made, and the claim must be made during the policy period.
A marijuana product liability will be subject to a deductible, please refer to your policy for the deductible that would apply for a products liability claim. Whether you are a producer, processor, wholesaler, retailer, or a laboratory you should carry product liability insurance as you can inevitably be named in a lawsuit.
The best example I can provide to you about this threat is a claim a former client of mine, no longer operating, was involved in. My client imported organic seed from China. As part of the import process FDA guidelines require the seed needs to be tested for E Coli bacteria before the seed is allowed to enter the food supply. Their lot of 11,000 pounds tested negative and was sold to a supplier.
The supplier then sold a wholesaler. The wholesaler then sold the seed to a processor for their product being produced. All through this distribution chain the seed was tested and came back testing negative for E Coli bacteria. The processor put the seed into their product, the product ended up testing positive for E Coli bacteria.
Even though my client took the necessary care and did everything correct to relinquish liability exposure they were still brought into a lawsuit from the processor for the tainted seed. The hierarchy of the claim looked as follows:
Importer -> Supplier -> Wholesaler -> Processor
The lawsuit made it all the way up to my client and it demanded my client pay the full cost of the product being recalled from store shelves in addition to the cost of destroying the bad product. In the end their insurance company paid $50,000 to settle the claim.
How would this look claim within the cannabis industry?
Producer -> Laboratory -> Processor -> Wholesale -> Retail
In Oregon temporary rule 333-008-1190 states that usable marijuana and immature plants are to be tested for pesticides, mold and mildew prior to the usable marijuana or immature plants transferred to a patient or a designated primary caregiver. You need to be aware even if a test comes back negative for pesticides, mold, and mildew your grow operation could potentially be named in a product liability lawsuit.
A lawsuit has been filed in Colorado in regards to the use of pesticides, A first for the marijuana industry: A product liability lawsuit. You can be certain that all parties in the supply chain are named in the above lawsuit.
I specialize in marijuana business insurance, even with having the proper checks and balances in place within supply chain marijuana product liability insurance should be considered as it will financially protect your business if it is named in a suit. If you’re interested in discussing marijuana product liability insurance or would like to receive a quote please call me at (503)-922-4847 or select “Request a Quote” below.
The articles posted in this blog are intended to provide insight and is not a substitute for consultation with a licensed insurance broker to address your particular risk or circumstance.