Understanding the Criteria for Management Liability Insurance

In the dynamic landscape of cannabis, managing a business involves making decisions and managing risks that few other industries have. From balancing employees and customers to investors and regulators, the actions and decisions of a company’s management team can have far-reaching consequences.

To protect both the company and its management from the risks associated with these increased responsibilities, management liability insurance plays a crucial role. In this blog, we will cover the key criteria for understanding and evaluating this type of comprehensive insurance and why it is crucial for cannabis operators and their management teams to obtain. 

What is Management Liability Insurance?

Management liability insurance is a specialized type of coverage designed to shield a company’s directors, officers, and managers from legal claims and financial losses resulting from their managerial actions. It encompasses various components, each tailored to address specific aspects of management-related risks such as breach of duty, negligence, and other professional liabilities.

What is Typically Included in Management Liability Insurance? 

Directors and Officers (D&O) Liability Coverage

Directors and officers play a pivotal role in shaping a company’s strategies and decisions. However, their decisions can sometimes be contested by stakeholders, leading to legal actions. D&O liability coverage provides protection for these individuals in the event of claims related to mismanagement, breach of fiduciary duty, and other alleged wrongful acts. This coverage not only safeguards their personal assets but also ensures that the company can attract and retain top-tier leadership.

Employment Practices Liability (EPL) Coverage

In today’s litigious society, companies are vulnerable to claims related to employment practices. This can include allegations of discrimination, wrongful termination, harassment, and other workplace-related issues. EPL coverage shields the company and its management from financial setbacks resulting from legal actions brought by employees. By having this coverage, businesses can maintain a positive work environment while mitigating the risks associated with employment-related claims.

Side A, B, and C Coverage

Directors and officers liability insurance is often structured into three sections: Side A, Side B, and Side C. Side A coverage provides direct protection to individual directors and officers when the company is unable to indemnify them. Side B coverage reimburses the company when it indemnifies its directors and officers. Side C coverage extends to the entity itself for privately held companies, protecting it from claims brought against the entity and its subsidiaries. For publicly traded companies, Side C coverage indemnifies against securities related claims.

What Classifications Are Covered?

While it depends on the insurance company, CannGen’s approved classifications for management liability insurance are cultivators, processors/harvesters, manufacturers/extractors, wholesale distributors, transporters, dispensaries, retailers, non-storefront delivery, as well as ancillary businesses.

Coverage Limits and Retentions

Understanding the coverage limits (the maximum amount the insurer will pay for a claim) and retention (the amount the insured is responsible for paying before the coverage kicks in) is crucial. These factors can significantly impact the effectiveness of the insurance policy as balancing these ensures the company and its management are adequately protected without overextending the budget. Be sure to discuss this with your insurance provider to ensure your limits and retentions match your needs. 

Protection Cannabis Operators Need

In today’s ever-evolving cannabis industry, the role of company management has never been more challenging. To navigate these challenges and protect against potential risks, Management Liability Insurance serves as a vital tool. By addressing the key criteria outlined in this blog, businesses can secure the well-being of their leadership team and the company as a whole. 

If you’re on the fence about management liability insurance, keep in mind that as risks continue to evolve within this industry, having a comprehensive understanding of the criteria will be paramount for sustainable business growth and success.

Contact CannGen here to see what coverages you need to best protect your cannabis business.

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Disclaimer: Information shared is for general purposes only.