Resources & Insights

Errors and Omissions Coverage for Cannabis Businesses

September 19, 2019

Spencer Mahoney,
Insurance Advisor

The Colorado Department of Public Health and Environment announced recently it will make random stops at about 25 recreational cannabis dispensaries this fall “to evaluate contaminants in products on store shelves.”

“Each sample will be tested for pesticides and total yeast and mold by a state- and ISO-certified marijuana testing facility. Results of their respective testing will be shared with each facility and will also be shared broadly within a write-up of results,” the DDPHE said in a statement.

So two reactions to this news:

First, if other states haven’t already done this, they most assuredly will at some point.

And secondly, if this isn’t an argument for Errors and Omissions coverage for cannabis businesses, we’re not sure what might be.

E&O doesn’t always come up in discussions about the kind of policies a cannabis operation might need.

For example, most cannabis industry-related companies understand they shouldn’t try opening their doors without Product Liability coverage. Product Liability pays a business’s costs in defending itself against breach of warranty claims, failure to warn and deceptive practices claims, among others.

But it doesn’t do something critical that only an E&O policy can do: respond to claims brought by customers for their lost sales.

In other words, a lab that provided what turned out to be erroneous test results on a cannabis product that had to be recalled could turn to its E&O policy for help.

In fact, if your cannabis-related company performs any professional service for another party — it could be processing, consulting, marketing, hosting, developing, advising, managing, reporting or any number of other functions — there’s always the risk of running into a claim over financial losses suffered as a result of a failure in your services.

Clients often accuse business owners of one of these three things in an E&O lawsuit:

  • Professional mistakes.
  • Failure to deliver promised services.
  • Professional negligence.

An E&O policy, in short, can be invaluable when customer relationship go up in smoke and legal action ensues.

A closer look at E&O

So, aside from helping cover a customer’s income loss, what else might Errors and Omissions coverage for cannabis businesses cover? Here’s a quick look:

Defense Costs. E&O insurance will often help cover defense expenses that arise from claims made by dissatisfied customers – including when legal action turns out to be groundless.

Damages. E&O can help cover judgments or settlements of claims caused by services or advice provided to clients.

Disciplinary proceedings. Facing professional misconduct proceedings brought by a licensing, regulatory, or other government agency? An E&O policy can help.

Employee errors. Errors and omissions insurance also may cover claims that stem from errors made by employees, independent contractors, or temporary staff.

No matter how much care, training and preparation goes into your products or services, there’s always  the chance of making a mistake while serving customers. And when these mistakes occur, clients generally will want to be compensated for damages. An E&O policy might be the only thing standing between you and your ability to operate a going concern.

At about the same time the DDPHE put out its statement about random checks, news also broke about a cannabis producer forced to recall batches of marijuana because of “potentially unsafe levels of microbial contamination,” according to state investigators.

We hate to say it, but that could well be grounds for an E&O claim by retailers who rely on that producer.

Spencer Mahoney is a CCIG insurance advisor and heads the firm’s Cannabis Practice. Reach him at 720-212-2051 or

CCIG is a Denver-area insurance, employee benefits and surety bond brokerage with the full-service capabilities of a national brokerage. We do more than make sure you have the right policy. We also help you manage your long-term cost of insurance with our risk and claims management expertise and a commitment to service excellence.

Also readFire Prevention Checklist for Cannabis Businesses

Click here to learn more about CCIG’s Cannabis Practice.

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