The wildfires sweeping through California, Oregon, and Washington have impacted many business sectors, and the cannabis industry is no exception. I interviewed Mike Rodgers, an insurance broker at the Fournier Group in Portland who focuses on the cannabis industry, about what cannabis losses may be covered and how to best position your insurance claim for success.
Mike, what insurance might apply for a cannabis grower that has wildfire loss?
Outdoor growers will normally not have coverage for growing crops (referred to in insurance as “stock”). Coverage for outdoor grows is available, but very expensive and hard to get. Indoor growers, on the other hand, should have coverage for damage to growing stock. Finished stock—harvested crops—may be subject to a sub-limit. Sub-limits may apply to other types of loss as well.
Damaged equipment will be covered as “business personal property,” separately from the stock. Also, don’t forget about business interruption, also called business income. That coverage applies to loss of net revenue from physical loss or damage to your property. Business income coverage can be a lifeline, allowing you to make payroll and lease payments if your cash flow is interrupted.
What about “smoke taint” damage to crops or finished product?
Smoke is almost always a covered cause of loss. There may be a question about whether cannabis crops that are subject to heavy smoke are actually damaged goods (unlike other kinds of products that are more obviously damaged). Assuming that there is damage to the crop or the product, smoke taint may be treated differently depending on whether the smoke came from a building burning, or a forest burning. Insurers may take the position that smoke from a forest fire is an “act of god,” and not covered. The precise coverage language may be important here—as it is for many things.
What about processors, retailers, or other service providers like testing labs? Damage to processor and retailer facilities should be fully covered for finished products and products in progress, unless the business rejected inventory coverage. One issue may be whether the business was complying with the “protective safeguards” required in their policy. Those are the requirements for sprinkler systems, motion sensors, alarms, locks, etc. Be prepared to document compliance with those kinds of warranties in the policy, or explain why they were not in force (e.g. due to loss of electricity).
Even businesses that are not themselves physically damaged may have coverage for lost income under “dependent property coverage,” if a customer or supplier was damaged and can no longer follow through on commitments to buy product, or supply something that you need in order to make or sell your product.
Any tips for businesses that are contemplating making a claim?
Yes—take a lot of care in how you present your claim. Be careful about wording your claim because there are a lot of traps out there in terms of exclusions and conditions on coverage. There is much more uncertainty about coverage issues for cannabis, and of course, lots of state regulations on these businesses. One of the services that we offer is assistance with preparing claims, so that we can use our experience with prior claims to help smooth the path.
We thank Mike for his insight, and wish the best of luck to all of our friends in the insurance and cannabis industries during these difficult times. Be well and stay safe folks!