As careful as you are, and as careful as you try to be, bad things sometimes happen. You can take every precaution in the world to keep people from slipping and falling on your premises, but it can still happen. You can put every warning label possible on your product and someone can still get injured by it. You can be the safest driver on the road, but as the saying goes, accidents happen.
Please don’t make the mistake of thinking you will never get sued — because it could happen when you least expect it. General liability, auto and workers’ compensation are three types of insurance every business owner should consider as a way to protect their investments even if such insurance is not required by law.
Liability Risks
General liability (GL) insurance provides what is known as “premises liability” and “products liability” coverage. Premises liability coverage pays if someone is injured on your property or because of your business-related activities. Products liability coverage pays if someone is injured by your product. These are two of the biggest risks in the cannabis business from a liability standpoint.
Legally, some cannabis companies may be required to carry GL coverage. In Washington, for example, $1 million of GL coverage is required for adult-use marijuana licensees. In other states, insurance may not be required — yet — but businesses absolutely need this coverage.
Unfortunately, given the illegality of the cannabis at the federal level, getting insurance for a cannabis business is harder than it is for other businesses. Many insurers will decline to do business with any company involved in the cannabis industry. There are still carriers that provide GL coverage — you just have to find them through a reputable insurance agent or broker.
The real benefit of GL insurance is that if someone gets hurt and sues you, just call your GL insurer. The insurance company will take it from there and handle the claim. They require your cooperation to investigate and settle the matter, but will do most of the heavy lifting along the way. Yes, it’s still stressful, but not as stressful as not having insurance.
What if you don’t have GL insurance and someone sues you? You will have to hire a lawyer to represent you (many charge about $500 an hour) and you’ll have to pay any damages caused. This scenario could result in you losing everything you’ve built.
Even though the premiums for GL are not fun to pay, you need the coverage and you’ll be glad you have it if something bad happens.
Although car insurance is required by law, many people don’t realize how much coverage is necessary.
Don’t Be Roadkill
Automobile drivers sometimes cause damages in the form of collisions and accidents. The law in the United States holds responsible the at-fault drivers of vehicles for damages they cause, including bodily injuries (medical bills and lost wages) and/or property damages (the cost to repair or replace the car that was struck in the accident).
Drivers in every state are required to be financially responsible for the accidents and damages they cause others to suffer. This financial responsibility is usually expressed in the form of a minimum amount of liability insurance.
For instance, in my home state of North Carolina, we have to carry auto liability limits of $30,000/$60,000/$25,000. This means that in any one accident, the insurer will pay up to:
– $30,000 to any one injured person for his/her bodily injuries, but no more than;
– $60,000 in total for all the bodily injuries sustained in the accident (regardless of how many people are injured); and
– $25,000 for property damage liability.
Suppose you had these limits and hit a school bus, injuring 20 children. Any one child could collect no more than $30,000 for their injuries, but in reality, the insurer would likely just divide up the $60,000 among all 20 children, giving each of them $3,000. Considering that one broken bone can cost $50,000 or more in medical bills, you can see that only buying the bare minimum of liability insurance required by your state is a very dangerous way to manage your risk of auto accidents.
So, how much liability insurance should you carry? My recommendation is a minimum of $1 million/$3 million/$1 million, which, using the above formula, will pay up to $1 million to any one injured person, but no more than $3 million total for bodily injuries and $1 million for property damage liability.
Consider what it would cost if you or someone driving for your business were to cause a 10-car pile-up on the freeway. Or what if you caused one or more fatalities in an accident? You would easily need this much coverage, though you may or may not be able to get limits this high depending on your driving record and other factors. Nonetheless, it’s important to try.
You may be thinking, “My premiums for the bare minimum amount of coverage required by my state are already high — I cannot afford to increase my coverage to this amount!” Don’t give up just yet. Auto insurance premiums do not increase proportionately with the limits of coverage. If you pay $1,000 a year for $100,000/$300,000/$100,000 limits, increasing the coverage amount 10 times (to my suggested amount) will not increase your premium 10 times as well.
In fact, you might be pleasantly surprised how affordable that coverage amount is.
Protect Yourself and Your Employees
Every state has a workers’ compensation law. The purpose of these laws is to protect both the employee and the employer.
If employees are injured while on the job, the employer will pay for the injuries. The employee typically gets unlimited lifetime medical benefits for job-related injuries, plus disability income. The employer buys workers’ compensation insurance to fund those benefits, since most employers do not have the resources to cover unlimited medical expenses.
This is a sharp contrast to how things were done before 1911, when Wisconsin passed the first workers’ compensation law. Before 1911, workers who were injured on the job were normally fired immediately. To collect for damages, workers typically had to sue the employer. Employers had several defenses that held up in court, including:
– Contributory negligence, or “The employee played a role in causing her own injuries, and shouldn’t be allowed to collect from me”;
– Fellow servant rule, or “It wasn’t my fault. I’m just the employer, I was in my office when the worker got hurt. It was a co-worker who was present when the injury happened who should be blamed”; and
– Assumption of risk, or “I told the employee this place was dangerous, and he assumed the risk by working here.”
Ultimately, most injured employees who sued were unsuccessful in court and walked away with nothing. Keep in mind, too, that there was no unemployment insurance, no welfare and no Social Security to fall back on either. Many families ended up destitute following a workplace injury.
Today, employers are also protected by workers’ compensation laws. Injured employees cannot sue the employer, but rather must accept the state-mandated workers’ compensation benefits. This protection from lawsuits is a valuable benefit to the employer.
The vast majority of employers in the U.S. are required to carry workers’ compensation coverage. Check with your state’s labor department to find out if you are exempt, but it’s safest to assume that you are required to carry it. Not carrying workers’ compensation insurance is an expensive proposition.
A failure to purchase the required workers’ compensation coverage can result in a hefty fine. Also, you will have to pay for employee injuries out of your pocket if you are at fault. If an employee is seriously injured, that could be hundreds of thousands of dollars — even millions.
Even if you don’t have to carry workers’ compensation coverage in your state, you may do so voluntarily. I highly recommend that you do this. It’s a lot easier to pay a few thousand dollars a year for the coverage than it is to defend yourself in a lawsuit and ultimately pay for an employee’s injuries sustained on the job.
Brenda Wells, Ph.D., is the Robert F. Bird Distinguished Professor of Risk and Insurance at East Carolina University and the owner of Risk Education Strategies. She has published articles on the risk management implications of cannabis legalization and is an expert in the risk management and insurance fields. She can be reached at brenda@riskedstrategies.com.
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