Fortunately lawsuits are not too common for small businesses. However, when they happen they can devastate or even force you out of business. Cannabis related companies can be more prone to lawsuits than most standard companies because they are seen as easier targets with stockpiles of cash to pay or settle claims.
An umbrella or excess insurance policy is designed to sit over your general liability, product liability, auto liability and employers' liability. These base liability policies usually cover the first million dollars of exposure. The umbrella will cover an additional one million up to five million, ten million, or even higher depending on your needs.
While the concept of umbrella insurance is fairly simple, there are some misconceptions about umbrella policies...
- Some think that an umbrella covers all liability exposures, but they are typically not designed to sit excess over directors and officers or professional liability policies. If higher limits are desired for these lines of coverage, you must purchase higher limits on those individual policies.
- Some business owners think an umbrella is not needed because they will never need that much coverage. While true that it is not common to have a large liability loss, one million dollars on coverage and defense does not go very far any more. If there is a large loss your insurance carrier may cut a check for one million dollars and walk away leaving you to take over the defense and excess settlements or payments.
- Many people think an umbrella policy is too expensive. This is simply not true. While rates differ based on your operations and company size, we see average annual premium in the $1,500 per million range. Also, when buying limits like three million or more pricing tends to go down because the likelihood of such a large loss goes down.
You can do absolutely nothing wrong and still have to defend yourself against a lawsuit. Insurance can be confusing so we like to use examples from your world to help you better understand why you need an umbrella...
- General Liability - You're a dispensary owner. A customer slips and falls on a freshly mopped floor. They injure themselves badly. You are sued for injuries, loss of their income, loss of future ability to make wages, punitive damages for negligence, spousal damages and future medical bills. Initial indication of damages are in the 2 million dollar range not including defense expenses. Your general liability insurance company does not see potential for fighting and agrees to pay 1 million. The prosecution will not settle for 1 million. THIS is when your umbrella would kick in and take over any losses and defense over one million... See how fast 1 million can go?
- Product Liability - Your an edible manufacturer. A toddler manages to obtain your product and consumes it, well above even an adult suggested dosage. The family sues for medical bills, and punitive exemplary damages that they and their child suffer. They ask for three million dollars. Your product liability insurance carrier has defense insude the limit of liability and sees this as a losing battle. They a check for your/their losses at your policy limit. You still have to pay for ongoing defense and potentially larger settlement bills. Your umbrella liability company takes over and you can continue defending your suit or settle with room to breath.
- Auto Liability - You are a cultivator. Your delivery van is in route to a client and is at fault in an accident causing bodily injury to three passengers in another vehicle. The injured parties and their attorneys learn you are in the cannabis business and start making high demands. Your auto liability is for standard limits of one million dollars. Your carrier defends you, but the damages are for three million forcing you to sell assets or declare bankruptcy.
These are all scary situations, but ones that could easily happen. If you have not purchased an umbrella yet, now is the time to pick one up before something like the above happens. If you do have an umbrella, consider higher limits. The cost of coverage is a very small price to pay vs. dealing with lawsuits out of pocket. To talk about umbrella or excess liability for your cannabis business, please consult with us. We want you to understand your exposures and the insurance you purchase to protect them.