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The latest underwriting requirement from a major cannabis product liability insurance carrier has them saying no to cannabis companies that apparently manufacture or distribute foreign vendor products such as vape pens. The majority of the cannabis industry most likely buys vape pens from China. Essentially, the insurance carrier is declining these applications for product liability coverage. The apparent reason is due to the inability by the insurance carrier to collect from these foreign companies, lack of controls, and alleged explosions that cause bodily injury according to our underwriting representative.
Ironically, a FEMA key point study of electronic cigarettes indicates fires or explosions are rare.
A recent decline of an infused products company that purchased vape pens and batteries from a Chinese manufacturer is direct proof the insurance carrier is strongly opposed to these foreign made products.
What this means for the cannabis industry?
Vape pens have been the most significant product development for the cannabis industry over several years. Many retailers, stores, dispensaries, and infused products companies most likely have foreign made products they sell or manufacture. With the limited number of insurance carriers offering cannabis product liability coverage, the cannabis industry may be left to "self insure" or operate without insurance if a claim arises due to product liability.
The other option is for the cannabis distributor or manufacturer to obtain vape pens through US based manufacturing companies if they exist. The insurance carrier doesn't appear to take exception to these companies.
What are the repercussions for not disclosing to the insurance carrier when applying for insurance?
The consequences could be severe and require careful consideration when completing the application for insurance. In fact, the application may or may not specifically ask if vape pens are purchased from a foreign manufacturer. In our experience, the application will ask the retailer "What type of products will the insured sell in there store?" or request from a manufacturer "Provide a complete list of products that the applicant manufactures on a Word or Excel document?" Clearly, the application does not ask if the product was made in a foreign country.
Furthermore, underwriting groups are not providing any advanced notification to their insurance brokers of their rules or underwriting changes that have such significant implications. This leaves the insurance broker and their client essentially in the dark.
However, the insurance carrier and their representative are likely to request from the insurance broker in our experience, if vape pens are purchased from a foreign manufacturer. This is when honesty is important since untruthful answers might lead to a claim denied by the insurance carrier. In addition, the insurance carrier may potentially invoke misrepresentation or fraud based on the insurance application leaving not only the insured exposed, but the insurance broker procuring the insurance.
The end result may lead to the insurance policy being rescinded and voided depending on state and common laws. Insurance carriers have been known to file their own lawsuits against insurance brokers or insureds when applications have been polluted by false statements as carriers are unforgiving if they believe they've been mislead.
The cannabis insurance industry continues to evolve with more stringent and dysfunctional underwriting requirements as they evaluate their risk exposures. Other requirements that can lead to having your insurance declined includes product testing and buying all lines of insurance from one particular underwriting group.
Consequently, the use of a competent licensed insurance broker or attorney is prudent when applying for cannabis insurance.
This original article first appeared at http://www.marijuanadispensaryinsurance.com/
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