It’s a new world, where we see many different types of cannabis company insurance requirements (as well as coverage change requests) from our clients’ landlords, business partners and investors.
These processed requests create an endorsement on the policy that puts the change into effect. Whether it’s a change of location or the addition of new coverage to an existing policy, certain endorsements can be more complicated than others.
We frequently see clients forced to request an endorsement because of a contractual requirement. Many don’t really understand what they’re asking, they just know they need to ask it. If this sounds familiar, we’ve got you covered!
Let’s review the top five insurance requirements from clients, landlords, investors or partners in the cannabis space. We’ll explore in detail where they come from, how they’re processed, what they mean and how they affect your insurance coverage (if a claim should arise).
1. What is “additional insured”?
An additional insured is an entity or person who would not regularly be covered under your cannabis business’ insurance policy. He or she (or it) needs to be added based on the contractual relationship in place. Take landlords, for example. Often, they require additional insured status on their tenants’ general liability policy.
By having an additional insured on the policy, the landlord is protected if a tenant’s guest slips, falls, then sues. The tenant’s (i.e. your company’s) policy traditionally would pay out because you’re the one who invited the guest onto the premises. But, since the guest’s lawyer would sue everyone, the landlord wants additional insured status to avoid any doubt about liability.
We often see clients of an insured who require additional insured status too. Let’s take a supporting example: a dispensary that requires being added to a cultivator’s policy. Why is this important? If the cultivator’s grow light causes a fire, the dispensary wants to know that they and their insurance policy will be protected. After all this is a claim that should be dealt with by the cultivator’s insurer, not theirs.
The majority of additional insured requests take place in the context of a general liability policy (though an additional insured may also be added to an automobile or professional liability (errors & omissions and/or cyber policies too).
Various entities can be included as additional insureds as well. Carriers only require the entity’s name and address, relationship to the you, and the reasons for requesting the additional insured status.
Once there is an additional entity placed on the policy, they often require a certificate of insurance that serves as evidence of their status, which we can produce if needed.
In a nutshell: Clients, landlords and business partners will often want to be added as an additional insured on your general liability policy for your cannabis business. (Partners and clients may also want to be added to your professional liability or auto policies too.)
2. What is loss payee or lender’s loss payable?
In the same vein as an additional insured, a loss payee is person or entity specifically added to an insured’s property insurance. A loss payee is most frequently someone who has leased equipment to the insured.
Let’s look at another example: a cannabis grow operation that rents extraction equipment. They may be asked by the equipment leasing company to be added as a loss payee for the replacement value of the rented equipment. That way, if a component breaks or the system is otherwise damaged while in the grower’s care, the leasing company is covered for the loss.
A lender’s loss payable endorsement is a minor variation that applies to a creditor who has loaned money to the insured. So if the insured experiences a substantial loss, the creditor is covered for the amount that they loaned.
In order to add loss payees and lenders loss payables to a policy, the carriers often need the entity’s name, address and relationship to the insured.
In a nutshell: Landlords, leasing companies and investors will frequently be asked to be added as a loss payee or lender’s loss payee to your property insurance for you cannabis business.
3. What is a waiver of subrogation?
A “WOS” or waiver of subrogation often accompanies an additional insured endorsement. Subrogation is defined as the right of the insured to recover losses from a party who is deemed liable for said losses by law.
A waiver of subrogation is an agreement that the insured waives subrogation rights against the additional insured entity if a loss were to occur.
Let’s take another example: A landlord requires a waiver of subrogation on their tenant’s policy. If a third party is injured on the premises and decides to sue the tenant, the waiver of subrogation stops the tenant’s insurance carrier from seeking contribution for the loss from the landlord.
This adds an additional level of protection for the landlord – more than just additional insured status because the tenant’s insurance carrier may still sue the landlord for negligence, even though they’ve been added to the policy.
A waiver of subrogation prevents this type of scenario from occurring, hence why it’s often included in the insurance requirements of a potential landlord, client or investor’s contract.
A WOS may be added at the behest of the insured entity and could result in additional premiums, depending on the insurance carrier.
In a nutshell: Clients, landlords and business partners will often ask for a waiver of subrogation to be included in their favor so you can’t seek contribution from them for a loss. We can add a waiver along with additional insured status if required.
4. What is a primary & non-contributory clause?
Another common feature in an additional insured request is called a primary & non-contributory clause. It determines the sequence in which different insurance policies contribute to a single loss. If this is an endorsement to an insured’s policy, then their policy must pay out the loss first instead of seeking contribution from other policies until its limits are reached.
Similar to a waiver of subrogation, a primary & non-contributory clause aids helps avoid any additional insured entities having to pay out for a loss using their own insurance.
In a nutshell: Clients, landlords and business partners will often insist your insurance policy pays out for a loss first and without contribution from their policy. (This can be added along with an additional insured status.)
5. What is a NOC or notice of cancellation?
A notice of cancellation (NOC) clause is included in just about any insurance policy. It requires the insurance company to provide a designated amount of notice before the policy is cancelled.
Causes of cancellation can include nonpayment of premium or the event that the insured’s operations have been altered or changed and are now considered off-risk.
Additional insured entities frequently require an amendment be added to the NOC clause to provide them notice as well. This gives investors, landlords or business partners (who have been added as an additional insured) substantial warning that they will no longer be covered as an additional insured under that policy.
In a nutshell: Clients, landlords and business partners may want anywhere between a 10 – 30 day notice in the case that your insurance carrier plans to cancel the policy before the designated expiration date. We can request that a notice of cancellation is sent to any additional insured entities at a supplemental cost (depending on the carrier).
You’ll likely encounter all of these cannabis business insurance requirements in your contracts and term sheets as your start-up company grows. But not to worry: we can take care of these requirements fairly painlessly.
If you have any questions or need to make any of these insurance changes, reach out — we’re there to help!