Vehicle Exposure for Cannabis Retailers

By Lars Rittmann

The last two years have been challenging for most businesses across the country. Businesses that thrived faced raw product price increases and delays in shipping. Others found alternate methods of delivering their goods to their customers. Scheduled pick-ups and home delivery saw significant increases in frequency. This included retail delivery of cannabis by the store itself. This provided a revenue stream to keep some locations solvent.

As the COVID situation is managed and things slowly return to normal some provinces are considering the idea of cannabis delivery by retailers to consumers directly. This would allow retail locations to provide home delivery in the same manner as pizza. This could be beneficial for retailers but does present risk management issues for owners or corporations to be aware of.

The main risk retailers face is auto liability claims caused by delivery vehicles. There are two types of vehicle liability exposures the business faces: owned vehicle and nonowned vehicle. Below are some examples of the risks a retail location faces when delivering cannabis.

Owned Vehicles

Any time a business uses a vehicle during the day-to-day operations, the business owner must take precautions around its use. Safety on the road is paramount. The law holds entrepreneurs to a different standard of liability and commercial vehicle claims are reflective of this principle. The exposure to risk is different when using an owned vehicle as opposed to non-owned vehicle.

An owned vehicle is one the owner or corporation holds title to, and it has control over the insurance coverage. To provide door-to-door service, an owned vehicle requires the correct insurance classification for cannabis delivery. If a vehicle is not insured correctly for its use, a claim would be denied after an accident due to non-disclosure. This could be devastating if the accident involves a fatality or serious injury. A discussion with your broker can confirm the right coverage required.

Liability limits for the auto policy need to be carefully considered. Legal fees can easily erode the liability limit in advance of a judgement being awarded. Will $1,000,000 be enough? A $4,000,000 lawsuit can be underinsured for $3,000,000 with a $1,000,000 limit. To increase the coverage limits an umbrella or excess liability policy can be purchased.

In the case of a sole proprietorship, an uninsured claim could mean the store owner’s personal assets could come under attack. A corporation could also leave its board of directors exposed personally if the courts determine that it was a corporate mismanagement issue. If purchased, the Directors and Officers (D&O) insurance policy may respond if an auto exclusion isn’t included in wording.

An owned vehicle can have employee drivers. Drivers should provide a driver abstract, obtained from the Ministry of Transportation, along with a letter of experience from their previous insurance company. This will help determine the eligibility of the driver. An employee with tickets and accidents should be carefully handled by management to prevent any poor drivers from bringing the business into unnecessary lawsuits and increased insurance costs.

Providing training and a vehicle and drivers safety policy will help employees understand the expectations of the employer.

NON-OWNED VEHICLES

A non-owned vehicle is one the retail store does not own and is operated by someone else. This could be a third-party delivery company or employees using their car on behalf of the employer. A business owner has less control over the non-owned vehicle’s insurance and driver suitability. If the vehicle, under the direction of the business, gets into an accident, a portion of the lawsuit can be directed at the business owner for liability.

This exposure is non-owned auto liability. A non-owned vehicle being used for deliveries falls into this category. If not insured correctly, a claim could be denied and could then fall to the business owner or corporation. A discussion, in person and through contract, can determine the expectation of the delivery company/person and insurance requirements. Commercial use of a vehicle can lead to higher insurance premiums for the company or employee driver. There are a number of employer-initiated programs to help the employee with increased costs of insurance, including tax options and mileage reimbursement costs.

The store owner and the employee both need to understand the symbiosis of having proper coverage. An accident can close the operations of the cannabis retailer leaving the employee unemployed.

Non-owned auto liability insurance is a coverage that is included on most commercial insurance policies. It covers hired vehicles and liability for rented vehicles by the insured along with non-owned vehicles operated by a third party or an employee picking up coffee or supplies or parts for example.

Most cannabis insurance policies cover non-owned auto liability but exclude coverage for any delivery operations. This is an exposure to a claim that some retail locations are not aware of. To discover that a liability claim is not covered can be devastating to the business owner. Even though the delivery operations are excluded by the business policy, a stand-alone non-owned auto liability can be purchased before deliveries begin. A quick discussion with your broker can solve this gap in coverage.

Delivering cannabis to their customers is a promising opportunity to retail locations but it’s not without its own risks. These risks can be mitigated by good management principles and the correct insurance coverage. The items discussed here are not a replacement from a discussion with your insurance broker. Your broker can provide the options and detailed information you need.