Four Must-Have Insurance Coverages for Psychedelic Medicinal Businesses
While our country continues to grapple with how to best address the growing mental health and opioid addiction crisis facing our nation, psychedelic medicines are being extensively researched and reported as being a game-changing therapy for PTSD, suicide, chronic pain, and other illnesses. As a result, there is a race in the psychedelic space to innovate and bring various types of psychedelic drugs, therapies, and treatments to market.
With Opportunity Comes Risk and the Need to Protect Your Business
As with any niche industry still in its infancy, the risks are high. Many companies, including pharmaceutical manufacturers, treatment centers and clinics, and businesses offering wellness and nutraceutical products using psychoactive ingredients, such as micro-dosing psilocybin, are finding it difficult to find the right coverages or any coverage at all. Some insurers may provide a drug-specific policy, usually for drugs that are approved for use by the FDA but will not cover drugs that aren't FDA approved.
A General Liability Insurance policy does not offer adequate protection from a devastating lawsuit. According to Rahn & Associates, which focuses solely on providing specialty lines of insurance products and services for highly regulated and complex industries such as psychedelic medicine, there are four must-have insurance coverages that businesses need to protect themselves against what could be a wide spectrum of lawsuits, many of which are unforeseen at this early stage of development.
1) Product Liability Insurance
Psychedelic medicine is used in a variety of therapies and may include MDMA, ketamine, psilocybin mushrooms, LSD, peyote, and even cannabis. Many cannabis companies are not aware that marijuana is a form of psychedelic medicine and there are explicit laws around product marketing. The need for different product coverages depends on the legality of the active ingredient in the state in which it operates. From an insurance perspective, the product risk exposure is high due to the possible side effects of certain psychedelic medicines. Even though there is a low risk of addiction, there is still a risk of an overdose.
Each state has their own set of laws, which are rapidly evolving. For example, Texas, which has a historically conservative approach to drugs, is allowing a bill that requires the state to study the risks and benefits of psilocybin, MDMA, and ketamine for veterans. It is important that you find an insurance broker that stays ahead of the curve when it comes to State laws regarding psychedelic medicines.
2) Professional Liability/E&O Insurance
Professional Liability/Errors & Omissions (E&O) insurance is a kind of specialized liability protection against losses not covered by traditional liability insurance. It protects you and your business from claims, even if that claim proves to be groundless, in the event that a customer/patient accuses your business of making a mistake (an error) or failing to do something (an omission).
In an industry like psychedelic medicine, this type of insurance is critical and in high demand. Many industry professionals provide their therapies either on-site or remote through telemedicine and assist their patients throughout the course of their therapy. Patients require precise dosing and treatment, and there is no room for error. Businesses providing any time of psychedelic medical products or treatments are highly advised to purchase the right Professional/E&O Liability Insurance as the consequences for even a minor miscalculation can be costly and detrimental to their business.
3) Cyber Liability Insurance
Cyber fraud is a very real and costly risk that requires its own specific policy. Many medicinal businesses and clinicians rely heavily on technology and software to provide their therapeutic treatments. VR/AR technologies and applications are extremely vulnerable to cyber-related crimes - lab data on drugs can be altered, personal records can be hacked and credit card and banking information can be stolen. Psychedelic medicinal businesses share similar risks with plant touching THC companies and can learn from their mistakes.
Cyber Liability Insurance goes together with General Liability and Professional Liability Insurance and is necessary to protect your psychedelic medicinal business against lawsuits, as well as penalties/fines from regulators.
4) Directors & Officers (D&O) Liability Insurance
Litigation is becoming a more frequent occurrence, especially in a high-risk industry such as psychedelic medicine. If your business has outside investors, you cannot afford to pass over D&O Liability Insurance. In fact, many investors, officers and directors require a company to provide D&O insurance.
Directors and Officers (D&O) liability insurance protects corporate directors and officers, as well as their spouses and estates, from being personally liable in the event your company is sued by employees, vendors, competitors, customers, or other parties, for actual or alleged wrongful acts in managing the company. The only way to protect yourself from accusations regarding compliance with regulations or laws, employment practices and HR issues, theft of intellectual property, lack of corporate governance, underperforming company or stock performance, breach of fiduciary duty resulting in financial loss/bankruptcy, misrepresentation of company assets, misuse of company funds and fraud is to have D&O Liability Insurance. In the event of litigation, your policy will cover legal fees, fines, settlements, and other substantial costs.
Finding and accessing the necessary insurance coverages for psychedelic medicinal businesses can be a confusing and frustrating process. This decision is further compounded by ever-changing regulations that vary from state-to-state. Purchasing only General Liability Insurance from some major, traditional insurance company won’t work in the complex world of psychedelic medicine. Pharmaceutical manufacturers, treatment centers and clinics, and businesses offering wellness and nutraceutical products using psychoactive ingredients need Product, Professional/E&O, Cyber Liability and D&O coverages that are tailored to their specific operations for maximum protection against lawsuits and fines.
If you have questions regarding the specific products or treatments your business provides and what is required to be adequately protected, Rahn & Associates is here to assist you.