The outbreak of a new strain of the coronavirus has impacted in one way or another many businesses across the United States and around the world. Cannabis- and vaping-related businesses are no exception. According to recent media reports, those businesses have experienced – or may experience – interruption in their supply chains as a result of the viral outbreak. In certain circumstances, losses resulting from supply-chain or other business interruption, and/or additional costs incurred as a result of a viral outbreak, may be covered by commercial insurance, particularly business interruption or contingent business interruption coverage. Still other types of insurance potentially may cover other types of coronavirus-related losses.
The novel coronavirus and the cannabis industry
As explained by the World Health Organization (WHO), and as widely reported in the media, a “new strain” of the coronavirus recently has been identified. “Coronaviruses,” according to the WHO, “are a large family of viruses that cause illnesses ranging from the common cold to more severe diseases ….” That said, as The New York Times reports, “[w]hile the virus is a serious public health concern, the risk to most people outside China remains very low, and seasonal flu is a more immediate threat.”
Nonetheless, the viral outbreak has affected many different industries, including the cannabis and vaping industries. Marijuana Business Daily reports that the outbreak “is expected to impact marijuana vaporizer companies that depend on Chinese suppliers by interfering with the flow of hardware and other products.” Further, according to that same report, one cannabis vape hardware manufacturer executive explained that “[o]n top of the impact to vape manufacturers, he expects [the novel coronavirus-related] work stoppage to affect all sectors in the cannabis industry, including cultivators using LED lighting, greenhouse structures and packaging[,] and extraction equipment providers.”
Coverage for coronavirus-related losses and/or costs potentially may be available under various commercial insurance policies – most notably, those that provide business interruption and/or contingent business interruption coverage. Business interruption insurance is designed to pay a policyholder its lost profit and continuing unavoidable expenses when the policyholder’s operations are disrupted by “physical loss or damage” to property at the place of those operations or a place critical to those operations. Contingent business interruption insurance is designed to pay a policyholder similar amounts – the difference being that it applies not when the policyholder’s own operations are directly affected, but, rather, when the operations of a supplier(s), buyer(s), or someone else is affected.
Other coverages – such as civil authority, business travel/evacuation, and directors and officers – also may be implicated by the recent coronavirus outbreak. As such, it is important for a business to consult with knowledgeable coverage counsel who can assist with a review of its entire coverage portfolio to maximize any possible insurance recovery.
More detailed information relating to insurance coverage for losses caused by this viral outbreak can be found in the February 6, 2020 Reed Smith Client Alert “Novel coronavirus: commercial insurance considerations.”
While many virus-related losses and costs will not be covered by insurance for one reason or another, it is generally worth at least exploring whether any coverage exists for any such loss or cost. Therefore, any business in any way affected by the coronavirus should carefully review any potentially applicable insurance policies.
Generally, the same insurance-coverage considerations that would apply to a policyholder in any other industry would apply to a policyholder in the cannabis and/or vaping industries. That said, policies sold to businesses in the cannabis and vaping industries may vary somewhat from policies sold to businesses in other, more traditional industries. In particular, policies sold to cannabis- and vaping-related business may include unique exclusions. Therefore, it is important to read insurance policies carefully. Policy language matters.
To assist with such a review, policyholders should consult with insurance coverage counsel who is experienced with and knowledgeable about the relevant insurance policy language and its application.
Counsel also can assist policyholders to understand and honor their contractual obligations, including ensuring compliance with any notice provisions. Generally, policyholders are obligated to give notice of a loss, claim, or circumstances as soon as they learn of the loss, claim, or circumstances, or at least within a certain time period thereafter. Therefore, here as always, it is important for a policyholder to be proactive.
We are continuing to monitor the impact of the novel coronavirus on businesses, including those in the cannabis and vaping industries, and will provide further updates on material developments as appropriate, and encourage you to reach out if you have questions regarding your specific situation.