Why Cannabis Theft Claims Get Rejected Over an Insurance Clause

A missed alarm servicing agreement can invalidate a cannabis theft claim, and many operators only learn that after they file.

When cannabis operators review coverage, they usually ask two things: what it costs and what the limits are. A third question rarely enters the discussion: what would make the policy refuse to pay?

Stephanie Bozzuto, chief executive officer of Bozzuto Surety Insurance Services in San Diego, says that question opens a very different conversation about cannabis insurance. She focuses on the gaps operators most often overlook, the claim conditions that get missed, and what brokers should be addressing at placement.

The safeguards clause that can sink a claim

For many cannabis businesses, the answer begins with a clause hidden in the property policy. Bozzuto says the protective safeguards endorsement is included in nearly every cannabis property policy, yet most clients do not understand what it requires.

The endorsement makes security equipment an active condition of coverage. Alarms, cameras and, in some cases, safes must be operating and properly monitored at all times. Simply installing the equipment is not enough.

Bozzuto has seen claims denied in two common situations. “If the alarm was down for a service call the night someone broke in, or the monitoring contract lapsed because a card on file expired, the carrier can deny the theft claim outright,” she said. “I’ve seen it happen.”

Both examples stem from the same issue. Many operators view cameras and alarms mainly as state compliance tools and pay less attention to the insurance requirements attached to them. Bozzuto said both sets of obligations apply at the same time.

“Operators assume the cameras are for the state regulators,” she said. “They’re also a condition of the insurance and need to be connected to a third party monitoring company.”

Passive CCTV alone does not meet the monitoring standard. The system has to be linked to a third-party monitoring company. Bozzuto also makes sure the safeguards discussion reaches beyond ownership.

“I make sure the people running the site, not just the owner, know exactly what the safeguards require,” she said.

D&O is often overlooked until conflict erupts

The safeguards endorsement is not the only recurring blind spot Bozzuto sees. While many operators assume product liability is the coverage that matters most, she says that instinct often misses a bigger exposure: directors and officers liability.

“This industry has so much volatility: ownership changes, investors coming in and out, partners falling out, acquisitions that get announced and then fall apart,” she said. “Every one of those is a potential lawsuit against the owners and board personally. A lot of operators don’t buy D&O until they’re raising money, or a deal is on the table, and by then it’s often too late.”

The policy form adds another wrinkle. D&O is written on a claims-made basis, meaning it responds when the claim is made, not when the underlying problem happened. If the dispute started before the policy began, the coverage will not apply.

Bozzuto said she has seen that timing problem firsthand. “I’ve seen operators buy a policy in the middle of a falling-out with an investor and assume they’re protected when the problem was already there,” she said. “Without coverage, the legal defense alone can run into six figures, and it can reach the personal assets of the people running the company.”

For operators planning a sale or merger, she said protection should not stop at closing. “If you’re selling or merging, you also need to think about tail coverage, so the old leadership is still protected after the deal closes,” she said.

Coverage limits often go untouched after placement

Property insurance creates another version of the same problem. Bozzuto says two issues explain most post-loss disappointments: limits that were set too low at the start and business income projections that do not reflect how long reconstruction will actually take.

Price pressure is usually behind the first problem. “Property insurance is very expensive in this space and is usually the main premium driver, so when we send a quote, clients often come back asking for revisions, usually to lower their limits because of cost,” Bozzuto said.

The second issue becomes even more serious after a major loss. “Cannabis operators also grow fast, and business income gets underestimated because people don’t account for how long it takes to rebuild,” she added.

When both numbers are too low, the consequences pile up. Property coverage can run out before repairs are finished, and income coverage can expire before the business is operating again.

Bozzuto said both problems can be prevented. She reviews limits with clients during the policy term, not only at renewal. In her experience, most post-loss surprises come from those two issues going unaddressed.

The question that changes the placement discussion

All of the gaps Bozzuto points to reflect the same mistake at placement: too much attention on what the policy covers and too little on what it excludes.

“Spend more time on what’s excluded than on what’s covered,” she said. “I’d rather sit down with an owner and say, ‘Here are the five things this policy won’t pay for,’ than hand them a summary of limits.”

She said safeguards requirements should be reviewed line by line with on-site staff, not only with ownership. The placement conversation should also cover operational details such as how inventory moves, where cash is stored overnight, and who handles deliveries. Important exclusions should be confirmed in writing and explained in plain language.

Bozzuto said one question, asked before binding, can reshape the entire cannabis insurance discussion.

“‘What would cause this policy not to pay?’ Most people ask how much it costs and what the limits are,” she said. “That question flips the conversation and forces the broker to talk about warranties, exclusions, and sublimits.”

She added that the same question can help operators judge their broker. “If your broker can’t answer it without pulling out the policy and reading it to you for the first time, that tells you something,” she said.