Are Your Product Liability Limits Enough?
Have you wondered if product recalls actually happen in cannabis? Well, in Michigan, the Marijuana Regulatory Agency recently issued a recall for several products due to unreliable test results. This recall could be impacting over 400 sales locations throughout the state in what may be the largest cannabis recall in Michigan’s short history. While an MRA investigation is still on-going, consumers who may have these marijuana products in their possession that meet the recall criteria may return the products to where they purchased.
This recall may have a huge financial impact for “lost” product due to returns and/or destruction, additional testing and other costs associated with the recall. Michigan licensees are familiar with the insurance requirements under Section 408 of the Medical Marihuana Facilities Licensing Act (MMFLA). This states that an applicant/licensee must provide proof of financial responsibility in an amount not less than $100,000 for liability for “bodily injury” to “lawful users” resulting from the manufacture, distribution, transportation, or sale of “adulterated marihuana.” Each licensee then purchases a Product Liability insurance policy to comply with Section 408 and the issuing insurance carrier completes a the Attestation form, certifying that “no products liability exclusion exists in the liability coverage”.
Although you may be satisfying the state’s minimum insurance requirements , is this enough to protect your business from a larger financial loss? Let’s take a closer look!
Is $100,000 of Product Liability Insurance enough for your business?
What is Product Liability insurance?
Product Liability insurance can help protect cannabis businesses from alleged bodily injury or property damage by an end user. Whether you are the company manufacturing, processing or selling the product – you can be held responsible for lawsuits arising out of the use/consumption of the product. Product Liability acts similar to a General Liability policy but pertains specifically to businesses role in the product throughout the supply chain. In addition to Bodily Injury and/or Property Damage claims, Product Liability policies can be tailored to include additional coverage for losses like Loss of Income, Brand Remediation and Product Recall Expense.
Does my cannabusiness need a Product Liability insurance policy?
The short answer – YES! YES! YES!!! Aside from the regulations from a federal level, cannabis business owners are also challenged by state, city, county, towns that all have very nuanced rules and regulations. As noted above, Michigan is one state that has strict requirements for Product Liability insurance. Other states have higher requirements such as Washington, which require cannabis businesses to purchase limits of at least $1,000,000. Other states like Massachusetts take that one step further and require obtain and maintain general liability insurance coverage for no less than $1,000,000 per occurrence and $2,000,000 in aggregate, annually, and product liability insurance coverage for no less than $1,000,000 per occurrence and $2,000,000 in aggregate, annually ….”
In addition to the specific local and state requirements, businesses are liable if you allowed a dangerous or defective product to enter the stream of commerce. Costs associated with product recall can be substantial, as there will likely be costs incurred for notification, shipping, storage, lost revenue and public relations. These costs can seriously erode a company’s bottom line if your insured doesn’t have a product recall insurance policy in force.
Are you financially prepared for the costs to defend your company in a lawsuit and a possible settlement? For most, the answer is a resounding ‘NO’ and that is where Product Liability insurance can help.
What are some examples of product liability and product recall losses?
There are two sides of the coin here. Unfortunately, we live a very litigious society and that means legal costs can add up quickly but it also means that we have certain measures in place to protect consumers. Here are a few recent examples or situations in the product liability conversation:
- A voluntary recall in Michigan where ‘several batches of marijuana were run through the mechanical trimmer of Michigan Medical Marijuana, LLC (AU-G-B-000128) DBA Glo prior to retesting for microbial failures. The mechanical trimmer was contaminated with banned chemical residues Bifenthrin and Chlorfenapyr.”
- A pesticide-free cannabis producer and processor from Washington was recently forced to issue a recall after the chemical o-Phenylphenol (OPP), traced back to their “food safe” gloves, was found on its products. (You can read more from the National Cannabis Industry Association here.)
- An estimated $200,000,000 worth of marijuana product recalled in Michigan due to unreliable test results.
- A budtender recommends a certain product or brand to a consumer who later claims to have experienced an adverse reaction to the product. The consumer sues the dispensary for poor advice by the budtender.
- A processor of cannabis oil is sued by consumers alleging that the oil contained harmful chemicals.
- A consumer claims they experience illness or injury after ingesting a cannabis edible. They sue both the dispensary and manufacturer of the product.
What options are there to protect my cannabis business?
Luckily, many insurers have been developing enhanced Product Liability policies to address the growing exposures for these businesses. Here are your next steps along some of the options you may have.
- First off, it is important that you currently have a Product Liability insurance policy in place that completely satisfies your state requirements. (What Are “Gram Shop” Laws in Michigan?)
- If you are only carrying the state minimum, it would be wise to check into increasing your liability limits or possibly adding an Excess Liability policy.
- Watch for specific coverage such as Budtender Professional Liability coverage
- Not all Product Liability policies are created the same. Product Liability policies vary from insurer to insurer but you can find options that include:
- Product Recall with limits of $100,000 – $2,000,000 that covers Recall Liability and Recall Expense
- Self-initiated recall and government initiated recall triggers
- Loss of Income due to Loss of Reputation
- Optional Extra Brand Remediation Expenses
- Pre-Recall Monitoring Expenses
- Be careful and ask about exclusions! Very few insurance policies in Michigan can provide $100,000 of Product Liability without any exclusions, so that means virtually every policy varies in what it excludes. Some examples are:
- Health Hazard Exclusion
- Pollution Exclusion
- Specified Products/Substances Exclusion
- Criminal Act/Willful Violations
- It is important that you work with an insurance professional that specializes in cannabis insurance to help identify what coverage options may be available for your exposure as well as the best fit for your budget.
What options are there to protect my cannabis business?
Consumers who have marijuana products in their possession that meet the recall criteria may return the products to the marijuana sales location where they were purchased for proper disposal. Consumers with weakened immune systems or lung disease are at the highest risk for health-related incidents such as aspergillosis, which can impact lung function, if these potentially harmful products are consumed. Consumers who have experienced adverse reactions after using these products should report their symptoms and product use to their physician. Consumers are requested to report any adverse product reactions to the MRA via email: [email protected] or via phone: 517-284-8599.
Contact Spire Insurance Solutions
While there may be a lot of uncertainty regarding this new requirement in the industry, Spire Insurance Solutions and our partners in the cannabis industry will continue to monitor and provide updates as this develops. Contact our team to do a full review of your current insurance coverage to ensure you’re compliant with state requirements and protecting your business as intended. You can click the icon below or email us at [email protected].
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About Spire Insurance Solutions:
Spire Insurance Solutions provides risk management solutions to both the Recreational & Medical Industry. Through a consistent approach, Spire is your expert buyer of insurance and helps companies purchase important Insurance coverages in the evolving Cannabis industry. With years over 45 years in business with experience in assessing risk, our team sees that many cannabis related businesses do not have the coverage they desperately need. Our mission is provide unparalleled and caring service to our clients through our knowledgeable staff and give back to our employees, agency, industry and our communities.
When it comes to insurance, it helps to work with an agency that has both the experience and capabilities to meet your needs. We will help you manage and plan for your potential risks. As professionals, we assess your needs and offer you a variety of insurance products to choose from. Let Spire Insurance Solutions elevate your insurance solution to help your growing business.
Disclaimer: This Blog/Web Site does not provide insurance or legal advice. This site is for educational purposes only as well as to provide you with general information and a general understanding of insurance, not to provide specific legal advice or specific contract advice. Viewing this site, receipt of information contained on this site, or the transmission of information from or to this site does not constitute a client relationship.
The information on this Blog/Web Site is not intended to be a substitute for professional insurance or legal advice. Always seek the advice of a licensed agent in your state pertaining to insurance and legal issues.
Author: Tyler Bartosh
Sources: MRA – Marijuana Regulatory Agency; JenCap (Lee Woodruff); PL Risk (Michael Peters)
