So, you have cannabis insurance in place but your startup is required to provide an additional insured endorsement and certificate of insurance. You scratch your head and ponder, “What the heck is that?”
Let’s tackle both of these common requirements so you can take on the next big contract with ease.
1. Additional Insured endorsements
Additional insured endorsements on a cannabis startup’s insurance policy adds another person or entity to the policy, effectively giving the “additional insured” coverage.
If you’re running a cannabis-related company, you’ll undoubtedly run across this requirement in contracts. It’s a common feature in vendor agreements, commercial leases, service level agreements and manufacturing agreements.
When endorsing the policy, the underwriter will classify the cannabis business based on its operations. When a partnership is created between two businesses, their exposures often aren’t aligned. Adding that new partner as an “additional insured” ensures that the new partner’s operations are contemplated by the insurance policy.
Let’s take a vape pen manufacturer, for instance. A dispensary or distributor strikes a deal with the vape pen manufacturer, who will want to be added as an additional insured. If a manufacturing defect claim comes in against the retailer or distributor, they’ll want to ensure that the manufacturer’s insurance kicks in to provide coverage.
Another example: a landlord/tenant relationship. The landlord may want to be added to the tenant’s insurance policy. And for obvious reasons. The landlord doesn’t have control over what goes on in the tenant’s office, especially when this turns into large scale cultivation. If the tenant (a cannabis startup) decides to host a yoga class for employees, the landlord doesn’t want to be responsible for injuries arising from tenant’s actions.
One important caveat: being added as an additional insured to another’s policy does not completely cover your company. An additional insured endorsement just creates a pecking order of insurance policies.
In our example above, the vape pen manufacturer’s coverage would kick in first. The distributor is exposed and will have to pay out if the claim exceeds that coverage.
The takeaway? An additional insured endorsement extends the insured’s policy to cover other entities with whom the insured company is partnered. (It’s a common requirement so don’t be surprised when it pops up in a contract.)
Depending on the partner (landlord or vendor) and industry, additional insured endorsements are often required pertaining to your general liability, cyber liability and errors and omissions insurance policies. (Endorsing a general liability policy is almost always free of cost but there may be a fee to endorse the E&O/cyber policies.)
2. Certificates of Insurance
To put it simply, a certificate of insurance (COI) proves you actually have insurance. It’s usually a one-page document detailing the coverage actively in place. This includes effective dates, limits of coverage and insurance carriers providing the coverage.
Certificates of insurance are the simplest method to show that contract requirements relating to insurance have been met. Rather than reading through your full policies, your partners/landlord can quickly review a certificate of insurance then file it away.
Typically, a certificate can be produced as soon as the insurance policy listed is in force. To speed up the COI production, make sure to relay to your broker:
- The full name and address of the additional insured
- Any specific language the additional insured requires on the certificate
Your broker will generally ask to see the clause in the contract to make this process more seamless (we happily do!).
Want to learn more?
Contact us at Alpharoot, were ready to answer any question you have and find you the insurance coverage that your cannabis company needs.