What this page covers

• The three policy clauses that most often reduce or deny cannabis claims
• Real world New York dispensary denial scenarios
• How surveillance and security language affects payout
• Where sublimits hide inside your policy
• The exact questions to ask your broker before signing

Exclusions: Where Coverage Quietly Disappears

An exclusion is a section of your policy that removes coverage for certain losses even if you assumed they were covered.

Insurance does not cover everything bad. It covers what the policy affirmatively includes minus what the exclusions remove.

In cannabis retail, exclusions are often broader than in standard retail.

Exclusions That Hurt Dispensaries Most

Employee theft
Many operators assume theft by staff is covered. It usually is not unless you purchase separate crime coverage. Even when purchased, it may carry strict proof requirements and lower limits.

Cash loss limitations
Cash may be excluded entirely or capped at small amounts. Coverage often depends on whether cash was in a locked safe, in transit, or unattended.

No visible forced entry
Some policies require physical evidence of forced entry for burglary coverage. If a door was left unlocked or there is no visible damage, carriers may deny the claim.

Spoilage or temperature damage
Loss from HVAC failure, power outage, or humidity may not be covered unless you added a specific endorsement.

Failure to maintain required safeguards
If the policy requires specific security systems and they are not functioning, the carrier may deny coverage even if the system failure did not directly cause the loss.

The important point is this. Exclusions are often written broadly. If a denial hinges on one sentence in the exclusion section, arguing after the fact becomes extremely difficult.

Security Warranties: The Clause That Denies the Most Claims

A security warranty, sometimes labeled a Protective Safeguards endorsement, is a condition that requires you to maintain specific protections as a prerequisite to coverage.

This is not a suggestion. It is a contractual promise.

If you fail to maintain the safeguard, the insurer may deny or reduce the claim.

Cannabis policies frequently require:

• Central station alarm monitoring
• Continuous surveillance coverage
• Minimum camera retention days
• Operational recording equipment
• Secure safes for product and cash
• Access control systems

In New York, adult use cannabis regulations also impose surveillance and security obligations. Insurers often mirror or exceed those requirements.

If your policy requires sixty days of camera retention and your system only keeps twenty one days, that gap can be used against you in a claim.

If monitoring lapses because of billing issues and a theft occurs during that period, the carrier may argue the warranty was breached.

If a required camera was offline at the time of loss, the carrier may argue you failed to maintain safeguards.

Insurance enforcement is contract based, not discretionary. The fact that the regulator did not inspect you yet does not matter to the carrier.

Before binding coverage, you must read the warranty language line by line and confirm:

• Exact retention requirements
• Monitoring certification requirements
• Repair time expectations
• Coverage areas required
• Documentation obligations

Do not rely on verbal assurances. You need the written endorsement.

Sublimits: The Hidden Cap Inside Your Big Limit

A sublimit is a maximum payout for a specific type of loss within your overall policy limit.

You may have one million dollars in property coverage but only two hundred fifty thousand dollars for theft of cannabis inventory.

If you lose six hundred thousand dollars in product, the maximum payout may still be two hundred fifty thousand dollars.

Sublimits commonly apply to:

• Cannabis inventory theft
• Cash loss
• Robbery versus burglary distinctions
• Product in transit
• Off premises property
• Spoilage
• Equipment breakdown

They are often found in:

• The declarations page
• Endorsements
• Coverage schedules
• Special cannabis forms

If you do not specifically ask for the theft sublimit in writing, you may not discover it until a claim.

How a Claim Gets Reduced in Real Life

You hold eight hundred thousand dollars in inventory.

Your policy shows:

• One million dollars property limit
• Two hundred fifty thousand dollars theft sublimit
• Central station monitoring warranty
• Sixty day camera retention requirement

A break in occurs.

Monitoring had lapsed for forty eight hours due to billing error.
Camera retention was set to twenty one days and footage overwrote before claim investigation.

Even though you paid premiums, the carrier may:

• Limit payout to the theft sublimit
• Argue breach of warranty
• Reduce payout further due to documentation deficiencies

What looked like one million dollars in protection may functionally be far less.

The Documents You Must Actually Read

The Certificate of Insurance is not your policy. It does not amend coverage and it does not override exclusions.

You need:

Declarations Page
Shows limits, deductibles, and sometimes sublimits.

Schedule of Forms and Endorsements
Lists every document modifying your coverage.

All Endorsements
This is where cannabis specific restrictions live.

If you do not have the endorsements, you do not know your coverage.

How New York Cannabis Security Rules Interact With Insurance

New York adult use regulations require surveillance coverage, retention, and availability for review.

Insurers often incorporate similar or stricter requirements into policy warranties.

If you fail to meet retention standards or cannot provide footage promptly, you may face:

• Regulatory exposure
• Insurance coverage challenges
• Reduced claim leverage

Insurance denials frequently turn into documentation disputes. Missing logs, expired monitoring certificates, or incomplete inventory records weaken your position.

The Broker Questions That Prevent Six Figure Mistakes

Before you sign, ask:

• What is the exact theft sublimit for cannabis inventory
• Is employee theft covered and under what conditions
• What is the cash sublimit in the safe, on premises, and in transit
• What security safeguards are mandatory under the policy
• How many days of camera retention are required
• Is central station monitoring mandatory
• What happens if a safeguard temporarily fails
• What documentation must we maintain to preserve coverage

If the answers are vague, you are not ready to bind.

Related pages

• Do NY DIspensaries Need Product Liability Insurance?
• Why cannabis insurance is so expensive in NY

Source material

• 9 NYCRR § 125.3 New York adult use cannabis security and surveillance requirements
• New York Insurance Law § 3106 warranties and effect of breach
• New York Insurance Law § 3420 liability insurance provisions and disclaimer rules
• New York Insurance Law § 3425 commercial policy cancellation and renewal provisions
• New York Department of Financial Services OGC Opinion No. 06 02 11 (Certificates of Insurance do not alter policy terms)