As the cannabis industry continues to grow, insurance for cannabis businesses has become an increasingly important topic. One area of concern is the availability of insurance coverage for product recalls. In recent years, there have been several high-profile cases of voluntary or mandatory recalls within the cannabis industry, resulting in significant costs for businesses.
Unfortunately, most cannabis general liability and product liability policies do not automatically provide coverage for product recall or product withdrawal. However, some carriers now offer limited product withdrawal or recall insurance as a sub-limit on their policy form.
So, what is the difference between product recall and limited product withdrawal insurance? Product recall insurance typically covers both voluntary and involuntary recalls triggered by the insured or government/agency. It can help cover a wide range of costs, including advertising and promotional costs, shipping costs, product destruction and disposal costs, product replacement, repair, and distribution costs, fees to wholesalers, distributors, and retailers, business interruption costs, reputation repair and management costs, and contingent business interruption expenses. However, there are currently only a few insurance companies offering true product recall coverage, making it difficult for businesses to obtain this coverage.
On the other hand, limited product withdrawal insurance is more common in the cannabis industry and is often added via a product liability policy endorsement sub-limit of up to $250,000. This type of coverage may include costs associated with a covered recall, such as notification costs, overtime pay for employees, costs of hiring contractors and temporary employees, and costs of transportation, shipping, packaging, and warehousing.
Therefore, it is crucial for businesses in the cannabis industry to carefully review their insurance policies to determine whether they have coverage for product recall or product withdrawal. If not, securing a sub-limit for product withdrawal or recall under a product liability policy may be the most efficient and cost-effective method of securing limited coverage in the event of a recall. It is important to review which events trigger coverage and to work with a reputable insurance carrier to ensure that your business is adequately protected.
In conclusion, with the increasing number of product recalls and withdrawals in the cannabis industry, having proper insurance coverage is essential. Reviewing and understanding the policy terms, including coverage for product recall and withdrawal, can help cannabis businesses avoid significant costs and losses due to unexpected events.
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