Errors and omissions (E&O) insurance, also known as professional liability insurance, is a policy designed to protect businesses if they are sued or fined for mistakes, professional negligence, failure to provide promised services or providing incorrect advice.
Any service-based business requires E&O cover to protect their future. Cannabis businesses, in particular, need cover for professional liability as they often have to give advice as part of the range of services they offer to their customers.
Cannabis entrepreneurs must not consider E&O insurance as an optional extra. It is an essential form of coverage.
Why Do Dispensaries Need Errors and Omissions Insurance?
It may be tempting for a new cannabis business to save on costs by omitting E&O insurance, but this is a mistake. E&O insurance offers full coverage in the event a business issued by a customer. It covers legal costs and settlement costs, including when cases deemed frivolous are directed towards a business.
To Protect Against Costly Mistakes
Everyone knows even the most reliable employee may make a mistake. These mistakes can be incredibly costly where cannabis is concerned.
For example, if a tired employee mixes up two different orders and inadvertently delivers strong cannabis to the wrong customer, the business is put at risk.
Simple, common mistakes could lead to a range of unintended consequences. Ultimately, this often has to be settled in court. E&O insurance prevents any necessary costs from being paid out-of-pocket by the business owner.
Ensure Safety of Business in the Event of an Error
Errors happen sooner or later. Resulting lawsuits commonly run into tens of thousands of dollars. Even if the business successfully defends itself in a lawsuit, they may not have to pay settlement costs, but they will still need to cover their own legal fees.
Small businesses may not have the capacity to spend thousands of dollars on lawyers to defend them. Professional liability cases can ruin the potential of small businesses. It is a big price to pay for a single error made by an employee. E&O insurance provides this protection.
Factors Affecting the Cost of Errors and Omissions Insurance
E&O insurance does not have to be expensive. Businesses may pay no more than a few hundred dollars every year for their coverage. However, there is a range of factors affecting the overall cost of this type of insurance. Business owners are advised to familiarize themselves with the different contributing factors so they can determine the right policy for them.
The Size of the Cannabis Business
From the point of view of insurers, it is all about risk. Anything that increases risk will increase insurance premiums. The size of the cannabis business will have an impact. The larger it is, the higher the chances are of something going wrong. A single small dispensary will pay less in premiums than major growing facilities spread across multiple states.
Number of Employees
Similarly, the more employees there are, the higher the chances are of something going wrong. Cannabis insurers will request details on the number of employees working for the business. Take note, E&O insurance does not only cover full-time and part-time employees. E&O coverage extends to any independent contractors and temporary workers, so this will need to be taken into account.
Type of Training Your Employees Go Through
Employee training is a more difficult factor to take into account because the cannabis industry is relatively new and training programs differ between states. Insurers will carefully inspect how much training employees go through. Employees who have been trained to a higher standard are less likely to make errors and mistakes which could lead to a lawsuit.
Location of the Business
The location of the business also matters. Depending on the state, there may be higher minimum coverage limits mandated by law. This does not apply solely to states but different localities within states. For example, California has no set minimum coverage level by law, but Culver City within California demands a minimum of $1,000,000 in professional liability coverage per claim.
If there are legal minimums in place, this will typically increase the costs of E&O insurance.
Talk With MFE For More Info On How Much Does Errors And Omissions Insurance Cost
No cannabis business should consider opening their doors without first ensuring they have a comprehensive E&O policy in place. Along with the factors described, the more coverage a business chooses to take out, the more it will cost in monthly premiums. Not every business requires the same amount of coverage, so it is important to speak to a professional insurer to judge the right amount of coverage for your business. You do not want to be left unprotected, but you also do not want to pay for more coverage than you actually need.
To find out more about E&O insurance cover for cannabis businesses, speak to the experts at MFE Insurance.