UNIQUE COVERAGE NEEDS
PACKING YOUR PARACHUTE:
CannaCover U.S. Insurance Attorneys Present At
Cannabis-Aid Conference On Unique Coverage Needs
BY:MICHAEL S. HALE
BY: MICHAEL S. HALE
ON OCTOBER 31, 2018, insurance attorneys Michael S. Hale
and Stuart Dorf co-presented a program on insurance coverage
issues associated with the cannabis business. Entitled “Packing
Your Parachute,” this presentation is available on video at https://
vimeo.com/299570522/b1870d65c5 with a summary interview
of the presenters at https://vimeo.com/299570073/3f53125f0b.
Here are the highlights of the presentation:
• An explanation of why your insurance agent might be
more important that your insurer
• A discussion on unique exposures to the cannabis
business and how these can be addressed
• A review of common types of policies that cannabis
businesses purchase
• Comments on cost savings ideas
• An analysis of risk management ideas in contracts and
leases
• A checklist of key coverage points to look for in
comparing programs and proposals
practice with policyholders coming to us saying that their
insurer claimed it was not given all the information and has given
them back their premium and effectively torn up the policy.
Be very careful with applications for insurance. You want
to fully disclose to insurance companies the type of cannabis
business you are engaging in or will be engaging in. Growers,
processors, and dispensers all present different exposures.
Insurance companies are not shy about denying coverage where
they believe there was a misrepresentation by the insured as
to what the exposures were. We see this all the time in our law
practice. Do not allow your insurance agent to complete the
application for you.
Even where you have properly disclosed the nature of the
business, traditional insurance companies often look closely
at policy conditions and exclusions to see whether there is
appropriate coverage. One of the things that is looked to right away
by the insurer at the time of a claim is whether the named insured
has the insurable interest in the property being insured. If not,
the insurer can deny coverage. As a result, it is very important to
be sure that all entity names of your business are properly listed.
When it comes to buying insurance, the cannabis business
faces unique challenges. The 6th Circuit Court of Appeals in
Cincinnati recently affirmed the dismissal of a lawsuit brought
by a landlord against its insurance company which had denied
coverage due to a criminal acts exclusion in its property
insurance policy. This raises eyebrows for both cannabis- and
noncannabis-related businesses given its broad sweeping effect.
If you are a landlord and require that your tenant insure the
building, this can create a precarious situation. In short, the
landlord will most likely not be listed as an additional insured
which means that if the tenant violates the policy conditions, the
landlord is out of luck as well. We have cases we are currently
managing where this exact scenario happened.
The first order of business when buying insurance for your
cannabis-related business is to be completely open with the
insurer / agent on the nature of the business. If the scope of the
business changes, you should place this in writing to the agent.
Independent insurance agents in Michigan do not necessarily
bind the insurance companies they sell for. Thus, if you tell your
agent about the business and this is not properly communicated
to the insurance company, you could face a coverage problem.
It is important that you read your policies. This can be more
boring than watching paint dry, but it is important that at least
an effort is made to look at the policy declaration pages and the
language of the form. These are contracts and courts require that
policyholders read them. If you do not, any lawsuit against your
insurance agent for failing to properly advise of coverage will be
met with the defense that you should have read your policy!
Insurance companies are not shy about denying coverage for
“misrepresentation,” including not revealing key information
even where it is not requested. We see this all the time in our
Be certain that all locations are properly listed, including all
addresses in multi-address properties.
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