Beforehand I wrote about insurance coverage typically (see right here) and merchandise legal responsibility insurance coverage particularly (see right here). At this time I wish to take a look at some coverage exclusions to level out doubtlessly problematic phrases that you could be discover when reviewing your insurance coverage contract throughout your annual insurance coverage audit.
First, I want to say some truths that I consider are correct within the insurance coverage context, based mostly upon my a few years of interacting with enterprise purchasers:
Many enterprise house owners by no means learn their insurance policies. Insurance coverage contracts are sometimes dozens or a whole lot of pages lengthy. They’re sophisticated, and they don’t seem to be written like different contracts, which makes them worse to learn than a standard enterprise contract. This ends in many enterprise house owners that means to learn the contract however not often getting past the protection jacket on the primary web page of the coverage.
Many enterprise house owners by no means have anybody on their group learn their insurance policies. Enterprise house owners typically intend to (and do) delegate the insurance coverage evaluation and renewal to somebody on their govt group, however that not often ends in anybody studying the contract past the primary web page of the coverage. Many insurance coverage house owners don’t wish to pay their lawyer to evaluation their insurance policies, so they’ll typically depend on their dealer to guarantee them as to what protection they’ve. As a result of insurance coverage claims come up solely intermittently, the significance of the insurance coverage contract seemingly pales when in comparison with provide and buyer contracts which might be the lifeblood of the enterprise, so these are inclined to fall by the wayside till the subsequent annual renewal.
The best insurance coverage dealer or agent might be your ally. First, some terminology. An insurance coverage dealer represents an insurance coverage purchaser, and an insurance coverage agent represents a number of insurance coverage firms. If you’re acquainted with actual property, you possibly can analogize to the business insurance coverage context. An insurance coverage dealer is much like an actual property purchaser’s agent, whereas an insurance coverage agent is much like an actual property twin agent who represents each the client and the vendor in a transaction. Every of those people might be useful to you in the precise context with the precise motivation. An insurance coverage dealer will at all times be your ally as a result of they be just right for you and may store your wants round to varied insurance coverage firms. An insurance coverage agent is usually “captive” to the corporate or firms they signify and has to promote you insurance coverage merchandise provided by these firms, however they’re nonetheless motivated to promote you a great product to maintain your recurring enterprise yr after yr. In each eventualities, you’ll not know the entire forms of insurance policies which might be out there, even in case you are acquainted with the essential insurance coverage insurance policies: business normal legal responsibility, employment practices, employees’ compensation, administrators & officers, property casualty, product legal responsibility, business automobile, enterprise interruption, and key particular person insurance coverage. It’s higher to depend on somebody throughout the business than attempt to decipher the buying course of by your self.
Insurance coverage firms should not your pals. I do know many insurance coverage brokers and brokers, and plenty of are good people who find themselves motivated to supply good service, however there’s a cause why firms rent good, skilled legislation companies to assist negotiate with insurance coverage firms once they wish to make a declare for a loss towards their coverage. I additionally know many legal professionals who work for insurance coverage firms doing “insurance coverage protection work” the place they combat exhausting to assist their insurance coverage firm purchasers keep away from paying out funds to their insured. It’s not fairly to be on both facet of the desk. However you do not need to attempt to navigate the technical and sophisticated morass by your self.
Let’s shift from these normal factors to the subject of insurance coverage riders:
Insurance coverage riders defined. A hashish firm rising hemp or marijuana will sometimes acquire a business normal legal responsibility coverage in response to a statutory requirement to hold insurance coverage, like this language from Washington:
The licensee shall always carry and keep business normal legal responsibility insurance coverage or business umbrella insurance coverage for bodily harm and property injury arising out of licensed actions. The boundaries of legal responsibility insurance coverage shall not be lower than a million .
(a) This insurance coverage shall cowl such claims as could also be attributable to any act, omission, or negligence of the licensee or its officers, brokers, representatives, assigns, or servants.
(b) The insurance coverage shall additionally cowl bodily harm, together with illness, sickness and demise, and property injury arising out of the licensee’s premises/operations, merchandise, and private harm.
These broad classes above are, in idea, the objects that can come up within the lifetime of a hashish firm, however the ubiquitous insurance coverage riders (contract amendments) chip away at this safety. Your coverage won’t cowl each occasion on objective, even in the event you attempt to purchase probably the most complete coverage you could find. And in the event you do wish to procure a coverage that covers each potential occasion, it would virtually at all times be too costly to your finances. It’s to your profit to audit your insurance policies and perceive what occasions are and should not coated and know your online business effectively sufficient to know what occasions are probably to come up based mostly upon your marketing strategy.
When auditing your insurance coverage protection, pay shut consideration to the insurance coverage riders that seem on the finish of most sections of an insurance coverage contract. After reviewing a whole lot of pages of insurance coverage insurance policies as a part of my due diligence for a current M&A transaction, I level out the next language from precise insurance coverage insurance policies that will trigger the everyday hashish enterprise proprietor to pause:
- This coverage doesn’t cowl seeds, seedlings, vegetative vegetation, flowering vegetation, or harvested materials that isn’t but completed inventory.
- This insurance coverage doesn’t apply to bodily harm and property injury arising instantly or not directly from alcoholic drinks.
- This [workers’ compensation] coverage excludes volunteers and employment practices legal responsibility.
- This [workers’ compensation] coverage doesn’t cowl enterprise house owners.
- This coverage excludes nutraceutical substances akin to important oils.
- This coverage excludes vaporizing gadgets.
- The insured should notify the corporate relating to a change of possession. (This isn’t, strictly talking, an exclusion just like the others above, nevertheless it was important sufficient that I wished to incorporate it right here.) This clause turns into related within the M&A context and is totally different from the usual change of management language in different contracts (like financial institution financing agreements) that would impression whether or not you resolve to do a inventory deal or asset deal. A change of possession impacts the coated firm’s expertise score, and insurance coverage firms love any excuse to reassess an organization’s threat profile, discover elevated threat, and lift a premium in consequence.
Attorneys receives a commission to deal in particulars. Typically enterprise house owners consider they’re coated by an occasion once they actually should not, however it’s a must to look past the insurance coverage protection jacket and diagram the impact of your insurance coverage riders. Because of this we at all times advocate a complete insurance coverage audit not less than as soon as per yr.
For extra info on the twists and turns of insurance coverage insurance policies, see the next posts: