(December 2018)

INTRODUCTION

Dave Jones, the California Insurance Commissioner, put out a call to the insurance industry to develop a commercial product that could be used by cannabis operations in the state of California. American Association of Insurance Services (AAIS) responded to the call with this product that was introduced and approved by the state in 2018. It is restricted to only California and to certain type of operations, but it is a starting point for a more standardized type of coverage. AAIS has developed several definitions, conditions, and exclusions that could provide a coverage baseline. Unfortunately, the one thing the form cannot do is resolve the problem of a product being legal in a state and not being legal at the federal level. This leaves all parties to the insurance contract in a limbo regarding whether the contract is truly enforceable because contracts related to illegal products are generally not considered enforceable.

ELIGIBILITY

The following is a summary of eligibility criteria for the Cannabis Businessowners Policy - California:

• Commercial cannabis businesses that have up to 15,000 square feet of total floor area and up to $5,000,000 in annual sales per location
• Limited types of manufacturing and processing of cannabis
• Cannabis-related service businesses

Individual insurance companies may file their own deviations related to classes and eligibility.

Related Article: Cannabis Businessowners Policy – California Eligibility

POLICY MAKE UP

The Cannabis Businessowners Policy - California consists of three basic forms:

• CB 0001–Businessowners Declarations

Related Article: CB 0001–Cannabis Businessowners Policy Declarations

• CB 0204–Cannabis Businessowners Policy - California

Related Article: CB 0204–Cannabis Businessowners Policy - California Analysis

• Policy Cover Page or Jacket. Individual insurance companies design this form for their own purposes. It may include a table of contents or index to meet the requirements of some states.

COVERAGE FORMAT

The Cannabis Coverage Form is made up of three major sections.

Common Policy Conditions and Definitions

Property Coverages

• Additional Property Definitions
• Building
• Business Personal Property
• Loss of Income
• Perils Insured Against
• Excluded Perils
• Additional Property Exclusions
• Property Conditions

Liability Coverages

• Additional Liability Definitions
• Commercial Liability Coverages

o    Coverage L–Bodily Injury Liability and Property Damage Liability

o    Coverage M–Medical Payments

o    Coverage O–Fire Legal Liability

o    Coverage P–Personal and Advertising Injury Liability

• Additional Liability Exclusions
• Supplemental Payments
• Liability Conditions

Related Article: CB 0204–Cannabis Businessowners Policy - California Analysis

ENDORSEMENTS

Endorsements tailor the Cannabis Businessowners Policy to customize the broad coverage provided to respond to specific situations. Some endorsements are specific to cannabis operations and start with the CB designation. Others are BP endorsements that are available for any type of business. Attaching the correct endorsement is like tailoring a suit–it ensures that the coverage fits the insured.

Related Article: Cannabis Businessowners Policy Available Endorsements And Their Uses

UNDERWRITING

Underwriting the Cannabis Businessowners Policy – California must start with an evaluation of standard property and liability exposures. When evaluating the specific cannabis-related operation there are several unusual exposures that require significant research and background to properly assess a specific risk’s exposures.

Related Article: Cannabis Businessowners Policy Underwriting Considerations

RATING

The Cannabis Businessowners Policy - California's rating procedures are very exacting and require that several steps be performed in a specific sequence. It is important to understand exactly what is expected and the rating method that applies.

Related Article: Cannabis Businessowners Policy Rating Considerations