Comparing Insurance Companies When Buying Theft Coverage for your Cannabis
Cannabis retailers, growers, and manufacturers have a real need to protect their product from theft. Stores in particular have a high degree of risk because they’re open to the public. Imagine as the owner robbed during business hours submits their claim has it denied because of obscure policy requirements.
Claims being claims happen everyday to retailers throughout the United States. The reason is the words matter inside of your insurance policy.
We analyzed four different insurance carriers covering cannabis products sold through medical dispensaries and retailers and discovered some alarming differences. The results were based on the language from each carrier’s insurance policy. Keep in mind policy terms may be subject to interpretation not only by the insurance company, but legally through a court of law.
Insurance carriers #2 and #3 from the chart below don’t make it easy for their clients to operate. They both mandate display cases be locked during business hours. Our initial reaction was how does a retail cannabis store serving customers lock and unlock display cases with each and every transaction? This doesn’t seem practical or even possible. If you’ve had a claim denied for this reason, the impossibility to comply could be a valid argument to raise with your insurance company. We were told by one insurance company underwriter this requirement was meant to avoid the “smash and grab” theft scenario. If someone is willing to break through glass, I’m not sure how a locked display case would prevent this from happening.
Two out of the four insurance carriers (#1 and #4 from the chart below) recognized when a retailer is open for business their product can be displayed in cases without having to lock it. This seems reasonable and practical based on the circumstances.
Remove product each day
Carrier #1 will reduce coverage for product not stored in a safe or vault during non-business hours by 50% or $100,000 whichever is less. If your are insuring $100,000 of product on display, but only 50% can be stored in the safe, then $25,000 of coverage is available for the product left out each night. The implication from the policy wording is you need to remove all of your product each day in order to have a chance of it being covered. This would be labor intensive and non-sensical.
It’s hard to imagine thieves removing a safe that weighs 2,000 pounds. This much weight is equivalent to a 1979 Volkswagen Beatle, baby humpback whale, or the liberty bell. Carrier’s #3 and #4 have more stringent requirements with 800 to 2,000 pounds bolted to the ground with a one hour fire rating. Insurance carrier #2 was the least offensive with their safe requirements. If the safe weighs less than 750 pounds, it must be bolted to the ground. Carrier #1 had the lightest safe requirement at 550 pounds.
Warnings: not following the rules
IF THESE REQUIREMENTS ARE NOT MET, THEFT COVERAGE IS HEREBY EXCLUDED FROM THIS POLICY IN ITS ENTIRETY.
Carriers number 3 and 4 warn their customers in large caps the seriousness for not complying. This type of language could be considered a “default mechanism” used by insurance companies as a penalty against their customer for not following the rules in order to deny a claim. If you don’t meet the requirements, then theft coverage is excluded i.e. not covered from this policy in its entirety. The carrier’s need to include the word HEREBY is likely meant for the policy holder to take this more seriously knowing its a legal term of art.
The cannabis retailer has a tremendous burden to overcome when buying coverage for their product and filing a claim. The insurance carrier may be playing a game of chess in which you are the pawn. The insurance company is anticipating their client’s lack of awareness of the terms and conditions in order to say “checkmate.” None of the insurance companies will make life easy for you. If you are contemplating this coverage here are a few suggestions:
- Take the time to review the insurance language to understand the meaning and intent. Yes, it can be boring, but ignorance may be no excuse.
- Not sure on what something means, then ask the insurance carrier to clarify and archive their response in case of a claim
- Engage your legal counsel for help with understanding policy terms. The money spent will be well worth avoiding a fight with the insurance company in the future.
Remember, you are relying on the insurance company to pay claims. Don’t make it easy for them to deny it.