Of all the coverages this very unique business must purchase, the one that stands out the most is product liability. They are the most insidious of all claims because the issues are often around death or disability: a subject where plaintiffs and juries often make larger than life awards. Defense costs will also prove to be expensive, time-consuming and may forever make a brand’s name recognition tarnished to the public.
Most cannabis businesses have not accepted this situation as seriously as other more established industries: understandably so, because canna is a new and upcoming consumer product.
Truth is that product liability law sits beneath so defined “injury law” that specifically deals with injury. There is little or no support for federal product standards and claims are brought under the rubric of negligence theory, strict liability or a breach of an understood warranty. Marketing issues, design flaws, poor manufacturing and advertising falsehoods are the plaintiff bar’s cudgels to perhaps ruin a cannabis business’ reputation. For the cannabis industry its supply chain remains silent. But serious relevant liability partners include: cultivators, crop tenders like nutrient and irrigation firms, companies that infuse the end product, emulsion distributors, concentrate add-ons, vape manufacturers, packaging companies, retail establishments, packaging manufacturers, and of course the ever-present and necessary laboratories who must comply with increasing governmental rules.
Today in 2021, and absent Federal standards, state laws must be adhered to with in-house compliance staff or outside consultants. But most importantly, you must find those professionals who understand that each state is different. Vet your legal partners by checking their references, using ISO/FDA/FTC standards as needed, so that your defense counsel has solid arguments whether in pre-trial negotiations or actual courtroom cases.
As of 2021, there have not been any product liability cases that went to trial and are public information. We believe that is because a plant is your main product — although the vaping crisis was an awfully bad time, showing poor judgment by the early entrants. When the well‑heeled beverage, tobacco and food companies step into cannabis the opposing bar will be more aggressive because of the huge funds, including insurance, available to these companies. Over the years KRM has been told by these sharks that no one really cares about claim costs, because there are high limits and cash available with these mostly publicly‑traded companies. The damage to reputation is never a concern of the plaintiff bar.
When you finally decide to buy products coverage do not take the fastest, lowest-cost route. Check the rating of your carrier. Unfortunately, the market for insurance in the cannabis industry is very, very limited to smaller, non-admitted carriers. The industry has not been well served yet, and most policies are claims made: an unfortunate option that locks insureds into a certain carrier unless an additional fee is paid for changing to another company. If a carrier refuses to pay on a claim you as the insured have rights, but it comes down to a cost decision. Kanna Risk Management is diligently working on putting together a more stable, well-financed insurance program and we will keep you apprised.
Next time we will discuss more nuances on coverages and talk about the multi-faceted state regulations affecting all of those in the business. See you next time … be safe and well and Happy Holidays …
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