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Genetic Engineering: A Potential Emerging Coverage Issue?

June 1, 1999, John E. James

INTRODUCTION

  • It's market day in Totnes [England], and the centre of the historic south Devon town is buzzing.  At a makeshift stall outside the busy community centre, passers-by pause in the sunshine to sign a petition, adding their support to a protest that has placed them in the eye of the genetic engineering storm.
  • A few miles away, controversial trials of a genetically modified maize crop lie in ruins, leaving two women facing charges of causing pounds 605,000 damage.
  • The night-time raid has been greeted with widespread approval in the area.  Awareness of the issues surrounding genetically modified foods is high, and it is an open secret in the town that a mass public uprooting of the crop was being considered at one stage.[2]

Is the reaction of these modern-day agrarian Luddites to genetically engineered agricultural products a harbinger of an "emerging" insurance coverage issue?  This article will explore the achievements of genetic engineering and the criticisms of its alleged risks.  That discussion will serve as background to the prospects of insurance coverage for those policyholders which may some day need coverage for the genetically engineered products that persons such as the townspeople of Totnes are afraid will cause property damage or bodily injury.

Whether there is insurance coverage for problems resulting from genetic engineering is an even more inchoate "emerging" issue than the typical slate of "emerging" issues that one finds on the menus of seminars and symposia, where the current emerging insurance coverage issues include liabilities for, inter alia, tobacco-related claims, noise-induced hearing loss, latex allergies, illnesses from lead paint exposure, and adverse reactions to pharmaceutical products such as Viagra and Vioxx.  The subject of this article, therefore, focuses on a "potential" emerging issue for insurance coverage.[3]

Genetic engineering, or genetic modification as it is known in Europe, is conceded to be, by both its advocates and detractors, a quantum leap forward in terms of man's ability to control and manipulate the development of biological organisms.  The business pages of our newspapers have reflected this phenomenon as hundreds of companies invest billions of dollars in genetic engineering applications in medicine and agriculture.  These companies range from small research boutiques to the Fortune 500 chemical and pharmaceutical giants, some of which have divested or reduced the emphasis on their former industrial or synthetic chemical operations, in order to become "life science" companies.  To the extent that there is any correlation between the frequency of insurance coverage disputes and the magnitude of economic resources involved in a particular area of development, then genetic engineering certainly would qualify as a likely source for emerging insurance coverage disputes.

In order to understand any emerging insurance coverage issue, one must start with the products or processes that are the potential sources of liability to the policyholder.  Accordingly, the first part of this article will outline what genetic engineering is expected to accomplish in the view of the companies that have committed billions of dollars and thousands of hours in the development of these products.  After that overview, the focus will then shift to the critics of genetic engineering.  The criticisms that have been lodged against genetic engineering have yet to yield any significant scientific support in the United States.  However, if some of those criticisms are borne out and property damage or bodily injury is caused by genetic engineering, those criticisms will be the source of this emerging insurance coverage issue in the decades ahead.  Using those criticisms of genetic engineering as a focal point, the final portion of this article will attempt to analyze some of the potential coverage issues for genetic engineering within the context of those third-party liability coverage issues which have arisen most frequently with respect to products and processes during the course of the last two decades.

THE ACHIEVEMENTS OF GENETIC ENGINEERING

Medical Developments

Perhaps because the cost benefit analysis appears to be stronger or perhaps because with respect to certain aspects of human health, there appear to be no better alternatives, the aspects of genetic engineering that have been applied to the medical field have generated less controversy than their cousins in agriculture.  For example, in Great Britain, which is currently a hot-bed of controversy concerning agricultural engineering, even the Prince of Wales, an opponent of genetic engineering in agriculture, has recognized that genetic engineering has an important contribution to make in medicine.[4]

One of the areas of development in medicine that Prince Charles and others may find useful concerns the field of tissue engineering, which includes aspects of genetic engineering.  This field of science permits scientists to regenerate or to grow body-part replacements in laboratories.  Indeed, organs could be genetically engineered to correct a patient's own genetic deficiencies.[5]  In June 1998 researchers from around the world met in Toronto to establish a 10 year initiative to grow a human heart.[6]  To some degree these products and processes cross the boundaries between medical devices and gene therapy, and as a result the FDA established a special task force three years ago to consider how to regulate such products.[7]

Genetic engineers have also succeeded in developing processes that affect man's interaction with pests, e.g., insects, to prevent the spread of disease.  For example, one approach is to alter the genetic characteristics of certain insects that carry other organisms, which do no harm to the insects, but which when transferred to man create diseases such as malaria.  Scientists have succeeded in creating a genetically engineered insect that will no longer pass on Chagas disease, which affects up to 20 million people per year.  The genetically engineered insect's immune system now reacts to the organism and kills it before it can be transferred to humans.  Using the same principle, these researchers are working on genetic engineering that will address the mosquito's transmission of malaria that kills more than 2 million people per year.  The benefit of using these genetic engineering techniques is that they will do less to alter the balance of nature because it will be less necessary to use synthetic chemical pesticides to address human health problems posed by mosquitoes and other insects.[8]

Genetic engineering with respect to medical applications takes a number of forms.  For example, at the University of Pennsylvania's Institute for Human Gene Therapy, one of the areas of concentration involves the use of viruses as the vehicles for transferring preferred genetic characteristics to cellular DNA.[9]  This approach is being used to address diseases such as AIDS and various cancers.[10]

What could be more central to the dilemma of human existence than the aging process.[11]  In that regard, scientists have discovered a gene in lower forms of life that appears to control the aging process.  One theory with respect to this genetic research is that the aging process is a function of damage to the body's genes caused in part by the oxygen that humans breathe, which contains destructive "free radicals."  According to that theory, designing genes that are better able to respond to those processes could significantly enhance the longevity of humans.[12]

Finally, the federal government recognizes the importance of all this research and, accordingly, the FDA has created a staff of 20 individuals who review applications for the testing of genetic engineering processes on patients.[13]

Agricultural Developments

  • "'And he gave it for his opinion, that whoever could make two ears of corn or two blades of grass to grow upon a spot of ground where only one grew before, would deserve better of mankind, and do more essential service to his country than the whole race of politicians put together.'"[14]

The sardonic wisdom of Jonathan Swift is taking shape today with the prospects offered by genetic engineering in agriculture.  Somewhat surprisingly, the greater controversy at this time as to genetic engineering has been raised with respect to agriculture than with medical advances.  This is interesting in many respects, not the least of which is that the process of genetically engineering plants has been in the works for over a decade with the companies involved in such efforts spending billions of dollars in research under constant supervision by federal and state government agencies.[15]  Since those early days, enormous strides have been made with respect to the use of genetic engineering technology to enhance productivity in agriculture.

The areas of development in this area are too myriad to mention in an article of this nature but a brief discussion is required in order to understand the scope of the potential problems with genetic engineering in this area if the critics are proven correct as to some of their fears.  The application of genetic engineering principles in agriculture runs the gamut from cosmetic changes to changes that affect every American's food consumption.  On the cosmetic side, scientist are engaged in genetic engineering to obtain greater uniformity and symmetry in Christmas tree species.[16]  On the food production front, it is estimated that in North America 32 percent of corn, 38 percent of soybeans, and 58 percent of canola-oil output is from genetically engineered seeds.[17]  Genetically engineered agricultural products have demonstrated that they can boost yields of production, diminish the reliance on synthetic pesticides, prolong the shelf life of foods, and improve the healthful features of foods generally.[18]  The universities and private company research centers that are engaged in study in this area have, through genetic manipulation, created beans and grains with more protein, coffee beans without caffeine, strawberries containing more natural sugars, and potatoes with altered starch makeup, making it possible for french fries to absorb less fat.[19]

One particularly impressive development is the transfer through genetic technology of a natural insecticide known as Bacillus thuringiensis (BT) to the genetic make-up of certain plants.[20]  Other plants have been genetically altered so they are immune to the effects of certain herbicides used to kill weeds.  These developments have reduced the need to use hundreds of thousands of gallons of pesticides in the United States.[21]

Agricultural genetic engineering has also focused on developing plants that are more cold tolerant, thereby increasing the producing season.  The most ingenious, and perhaps most controversial example of this technology relates to the development of a tomato that is more resistant to cold weather because the tomato's genes have been genetically altered to include the gene from an Arctic flounder, a fish that can survive in frigid seas using its own antifreeze.  Other genetic engineering processes are in the works that simply manipulate the plant's own genes to make them more cold tolerant.[22]  In a similar vein, one American agri-business has developed a canola seed that has resulted in the first genetically engineered vegetable oil.  This particular canola plant was developed in order to provide a domestic alternative to imported sources of oils such as coconut and palm kernel oil that can only be grown in equatorial climates.[23]

Finally, despite the criticisms that have recently emerged in Europe, which will be discussed below, the federal government and other organizations such as the United Nations, the World Bank, and the National Academy of Science have strongly supported the use of genetic engineering in agriculture to improve production.  This is no small matter in view of the fact that in 1998 approximately 18 million people in the world died of hunger and hundreds of millions are malnourished.[24]

In short the record is clear that genetic engineering is and can be a source of incalculable benefits to medicine and agriculture.

THE ALLEGED HAZARDS OF GENETIC ENGINEERING

While the fears and criticisms of genetic engineering may be scientifically flawed or exaggerated, it is those criticisms that are of interest for insurance coverage because the need for insurance coverage will only be triggered in the event that the products of genetic engineering have an adverse effect on property or persons.  Thus, the following discussion should not be viewed as an endorsement of the likelihood that any of the ills alleged to be associated with genetic engineering will ever occur, but simply an outline of the critics' views of what could go wrong with genetically engineered products that might require insurance coverage at some point in the future.

As mentioned above, the reaction of the anti-genetic engineering groups to the application of genetic engineering concepts to medicine has been relatively muted.  Again, this may be a function of the view that with respect to certain diseases there simply is no alternative to untried approaches, such as genetic engineering, and that genetic engineering certainly could not be any worse than existing problems like cancer and AIDS.  Nonetheless, generalized concerns have been voiced about the unknown long-term effects of medical gene-therapies and the possibility that defective genes (created by genetic engineering) could be passed through successive generations.[25]

However, it is with respect to genetic engineering in agriculture that the most specific concerns, or hysteria, as the case may be, have been generated.  While until recently the United States has been relatively quiet on this issue, the European response to genetically engineered agricultural products has been shaped by environmental activists who have had a significant impact on the reactions of European governments and companies even to the testing of genetically engineered crops, and certainly to the actual commercial production of such crops.  In Great Britain, as reflected in the opening quotation of this article, and in other European countries, there have been episodes in which environmental activists have stormed into fields where genetically engineered crops have been tested and destroyed them.[26]

While such actions have captured the headlines, there has been a steady outpouring of criticism from environmental groups in Europe, and to a lesser degree in the United States, concerning the safety of genetically engineered agricultural products.  Some of the principal concerns that have been expressed by those opposed to genetic engineering in agriculture are:

  • The development of foods with different genetic characteristics through genetic modification could expose consumers to new allergens.[27]
     
  • Some genetically engineered foods may upset the balance of micro-organisms that naturally inhabit the human digestive system and thereby disrupt the normal digestive processes.[28]
     
  • Certain studies suggest that the genetic alteration of plants can have unexpected adverse effects on beneficial insects even though they may achieve a designed effect on harmful insects.  For example, a study in Europe argues that genetically engineered rape plants changed the chemical composition of nectar and pollen collected by bees, which altered their foraging pattern and increased their mortality.[29]  The same criticism has been made with respect to the adverse effect on the beneficial ladybug as a result of the use of genetically engineered corn that contains a natural insecticidal toxin.[30]
     
  • It is feared that the over-use of genetically engineered plants containing the "natural" insecticide BT will cause insects to develop resistance to that toxin to such a degree that it will become ineffective as a natural or "organic" insecticide.[31]
  • Also, with respect to BT, a New York University study indicates that active BT toxins that are genetically engineered into crops may accumulate in soil, not break down, and retain their ability to kill insects.  In contrast to naturally occurring BT, these genetically engineered varieties are in a form that can kill insects without being ingested by the insects.  According to critics, active toxins which might build up over a period of time, could kill soil insects that have a known BT sensitivity, whether they are harmful to crops or not.[32] 
  • Another criticism relates to the possible transfer of the genetically engineered characteristics from genetically engineered plants to close relatives that are weeds.  For example, it is feared that the plants that have been genetically engineered to produce their own toxins will transfer those characteristics to weedy relatives, making it more difficult to control those weeds.[33]
     
  • The transgenetic effect, the jumping of genetic traits from one plant to a close relative, also raises issues with respect to a new line of plants which through genetic engineering are designed to produce seeds that are sterile and incapable of reproduction.  The doomsday scenario associated with this technology is that pollen from the so-called "suicide" plants could drift with the wind and cross-pollinate with ordinary crops or wild plants and spread from species to species until plants all across the globe have been suddenly and irreversibly sterilized.[34]
     
  • There are concerns that the combination or transfer of genes from one species to another could have unforeseen consequences.  Thus, the critics argue that the scientists who are splicing human genes into pigs, fish genes into tomatoes, and insect genes into potatoes, have not explored fully the implications for human health and safety of those genetic transfers.[35] 

INDUSTRY'S REBUTTAL

For each of the criticisms that has been directed at genetically engineered products, independent scientists and the companies engaged in developing and producing those genetically engineered products have a response.

For example, they point out that the hue and cry against genetic engineering ignores the fact that humans have engaged in the cross-breeding of biological organisms for centuries.  As one of the representatives for a genetic engineering company has noted, "You don't find poodles in nature."[36]  Indeed, some of the very qualities that have excited protests from groups opposed to genetic engineering have been developed through more traditional, and much slower, cross-breeding techniques.  For example, one of the leading seed plant companies employing genetic engineering, has used traditional cross-breeding techniques rather than genetic engineering to create a type of canola plant that is resistant to herbicides.  Similar plants have been developed through genetic engineering.[37]  Indeed, genetic scientists point out that hybridization can create more problems than those posed by genetic engineering, because in hybridization thousands of genes are transferred from one plant to another.  Genetic engineering permits a more focused approach; it permits the use of a scalpel instead of a sledgehammer to achieve the results that are sought.[38]

With respect to the claim that the genetically engineered traits in the newly developed food crops could jump to weedy relatives and thereby create a breed of superweeds resistant to herbicides, there also is a response.  The USDA has approved the sale and distribution of genetically engineered seed crops primarily with respect to crops for which there are no wild relatives that could easily obtain the genetically engineered trait.  Furthermore, even if the genetically engineered trait were to be incorporated in weedy relatives, the prevailing scientific view is that the characteristic would be lost in a few generations.[39]

Lastly, with respect to the argument that the BT gene implants will lead to insect resistance to that natural pesticide, the industry answer is that most seed companies require farmers who are using this genetic product to plant a portion of their fields with non-BT seed, to reduce the chances that insects will develop resistance by having a non-resistant crop in the vicinity that will sustain the insects.[40]

LITIGATION AND GOVERNMENT REGULATION

The most obvious manifestation of whether the fruits of genetic engineering will present a source of coverage litigation between policyholders and their insurers is the level of government opposition or litigation relating to those products.  The second most important indication of whether this will be a source of coverage litigation is the attitude of insurers with respect to the prospective problem.  As to both of these categories, the indications are not sufficiently clear at this point to permit reliable predictions.  However, it is helpful to review the developments to date on both of these key indicators in the insurance coverage context.

First, one significant advantage for the genetic engineering industry, in the United States at least, is that the state and federal governments have been supportive of the efforts to develop the industry.  Thus, from the standpoint of any future third-party liability based upon violation of government regulations, those companies involved in genetic engineering would appear to be protected because of the administrative gauntlet that they must run to gain approval of their products.  To counter the success of these companies with the federal regulatory agencies, a number of anti-genetic engineering groups have recently filed suit against the federal government in an effort to obtain a reversal of the government's favorable treatment of one important type of genetically engineered plant, those that have been genetically altered to produce the BT insecticide.  Specifically, Greenpeace and other environmental activists recently brought suit against the EPA in the United States District Court for the District of Columbia.[41]  In Greenpeace International v. Browner, it is alleged, inter alia, that the EPA acted in an arbitrary and capricious manner in approving several genetically altered plants with BT under the Federal Fungicide, Insecticide and Rodenticide Act.  The plaintiffs in that action also attacked the EPA for failing to apply the National Environmental Policy Act, in that the EPA did not prepare an environmental impact statement with respect to the impact of these BT plants on the environment.  Additionally, Greenpeace alleges that the use of these BT products will render ineffective the use of natural BT in organic agriculture.[42]

The effect of the Greenpeace action on the activities of companies engaged in genetic engineering is, of course, indirect and tentative at this point.  A more direct attack has been made with respect to suits filed against a producer of genetically engineered products by 190 cotton growers in Georgia, Florida, and North Carolina who allege that the genetically engineered cotton seed in question was sold without adequate testing and as a result created crop failures and damages to the plaintiff farmers.[43]  Similarly, a producer of genetically engineered agricultural products announced a recall in 1997 of genetically engineered canola seed because an unapproved gene had been mistakenly inserted into the product.[44]

While the litigation in the United States relating to genetically engineered products, as referenced above, has been meager and appears to have had little impact on the manner in which the federal administrative agencies have been handling the treatment of such products, the situation in Europe has been of a wholly other color.  To some extent, this reflects the cultural differences between Europe and the United States not only with respect to the role of technology but the view of agriculture in the life of the community.  In any event, Great Britain, which apart from the United States and Canada, is one of the most advanced nations in terms of genetic engineering research, declared a moratorium in February 1999 on the commercial growing of genetically modified crops.[45]  Other countries such as Austria and Luxembourg have simply banned production of genetically modified organisms.[46]  Indeed, as of 1998, only three genetically altered food plants had been approved for commercial production in Europe, which of course is a fraction of such products that have been permitted in the United States.[47]  As a result of these European governmental attitudes, major food processors are beginning to withdraw products from the market that contain genetically engineered components.[48]

The effect, if any, of the decisions of European governments on the positive attitude of the federal and state governments in this country remains to be seen.  At most, if the more conservative position of European governments turns out to be more prudent, in retrospect, insurers will look to the European criticisms to bolster any opposition to coverage in the United States.

THE INSURANCE INDUSTRY'S REACTION

What has been the reaction of the insurance industry to the public discussion of this issue?  As with most issues affecting the insurance industry, it appears to vary from insurer to insurer and from time to time.  When the development of genetically engineered products began to gather steam in the 1980s, the initial reaction appears to have been negative, which may have been in part a function of a tight insurance market.  At that time there appeared to be some resistance to insurance coverage for the field test experiments that were being undertaken.[49]

More recently, the reaction has been mixed.  For example, Zurich-based Swiss Re indicates that while it continues to insure clients involved in genetic engineering, it does so cautiously because of the lack of predictability concerning losses, in part because of the large and unpredictable impact of societal influences on the public's perception of genetic engineering:

  • Genetic engineering is currently insured under the many existing liability insurance policies of large industrial clients.  This would give the impression that many insurers treat genetic engineering as a simple continuation of industrial activity with different means.  At the same time, insurers are reacting cautiously to this new technology:  genetic engineering is changing the risk profiles of the pharmaceuticals, agricultural and nutritional sectors permanently, without it being possible to predict the risk potential.
  • When dealing with this new technology, it is important to distinguish the technical risks from cultural and societal influences.  There is a lack of concrete loss experience regarding the technical risks; society's changing values can, however, lead to new loss models.  With genetic engineering, the insurance industry is faced with a socio-political risk of change.
  • Consumers' cost/benefit analyses are the decisive risk characteristics of genetic engineering for the insurance industry.  In dealing with genetic engineering, the decisive factor is not whether it is dangerous, but rather how dangerous it is perceived to be.  Which is why Swiss Re believes that the onus is now on industry and insurance to help shape society's changing values.[50]

Swiss Re's carefully worded statement is undoubtedly conditioned to some degree by the insurance coverage litigation explosion of the last two decades, which in turn was the product of fundamental changes in societal attitudes about, significantly, the environment and products.  On the other hand, one insurance market that traditionally accepts new and untested risks, Lloyd's, has indicated that it would determine a suitable premium for such coverage and if adverse claims increase over time, it will either increase the premiums or get out of the business entirely.  That attitude is really nothing more than a business as usual approach by Lloyd's and most insurers, viz., if the insurers cannot be assured of an operating profit on a certain line of business, they will simply drop the line of business.[51]

With this factual context, if litigation develops concerning genetically engineered products, what are the likely coverage issues that will be addressed?

POTENTIAL GENETIC ENGINEERING COVERAGE ISSUES

By the time that policyholders and insurers are required to grapple with insurance coverage issues concerning genetically engineered products sometime during the early years of this millennium, if at all, there will have been a generation of insurance coverage litigation precedent that will direct the lines of attack, to be made for and against coverage.  The phrase, "lines of attack," is used advisedly because if the worst-case fears related to genetically engineered products prove to be correct, the past generation of precedent related to other coverage issues, will not foreclose many important issues, because they will be purely factual (e.g. expected or intended issues).  Further, many of the legal issues vary from one jurisdiction to another as to whether they favor policyholders or insurers.

The areas of coverage litigation which may provide direction to the parties as they litigate genetically engineered product coverage issues are manifold.  Some of these areas have been extensively litigated (e.g. environmental) and others are "emerging issues" that will probably offer some guidance by the time that any dispute about genetically engineered product coverage is presented.  Not surprisingly, there is a common matrix of insurance coverage issues applicable to these disparate sources of liability incurred by the policyholder.[52]

In that regard what are some of the principal insurance coverage issues that could be the source of litigation in view of the present knowledge concerning genetically engineered products?  The spectrum of issues that may be litigated could be quite broad because the impact of genetically engineered products will likely be widespread and unforeseen ill-effects could involve long delayed manifestation issues, i.e. features common to environmental and asbestos coverage litigation.  Accordingly, the coverage issues that could arise are, inter alia, (1) expected or intended, (2) known risk, (3) known loss, (4) trigger of coverage, (5) bodily injury, (6) pollution exclusions, and (7) product exclusions.[53]

Another important qualification with respect to the issues that could be the subjects of coverage litigation is that the advent of the claims-made liability policy could affect a number of issues that are unique or of predominant concern to occurrence-based policies, such as trigger of coverage.  However, insurance companies are still selling occurrence-based policies and in all likelihood there would be a mix of claims-made and occurrence-based policies that would be placed at issue with respect to genetic engineering coverage disputes in the future, which creates a special problem for some issues such as allocation.[54]

With this background, the remainder of this article addresses what could be some of the more interesting and/or likely areas of coverage litigation.

"Expected or Intended"

The "expected or intended" defense is inevitable in virtually any coverage dispute.  It is more common in areas where there has been greater public debate concerning the effect, utility, or danger of industrial processes or products, which is certainly the case with respect to the present picture for genetically engineered product development activities, although not so much for those activities in earlier years.  This defense, although a perennial favorite of the insurance industry, is also one of the more difficult ones for insurers to establish.  This defense requires that the insurance companies convince the trier of fact that responsible corporations with the most highly trained scientists in the world at least expected, if not intended, that their products would cause harm to persons or to the environment.[55]

This particular standard is even more difficult for insurers because most courts require that the insurers demonstrate that the property damage or bodily injury was expected or intended from the "subjective" standpoint of the policyholder, rather than from an "objective" standard of the reasonable policyholder.[56]  This argument will also be particularly difficult for insurers because genetic engineering processes are highly regulated by federal and state agencies, thereby requiring a uniformity of conduct that should satisfy even the more stringent "objective" test as to whether the property damage or bodily injury is expected or intended.  In sum, as to the "expected or intended" insurance coverage defense, policyholders engaged in genetic engineering processes should be in a position to establish that the property damage or bodily injury for which they seek coverage was neither expected nor intended.

Known Risk

As discussed above, in the factual context of the development of genetically engineered products, the companies engaged in those processes have been subject to intense governmental and public scrutiny and as a result, the producers of genetically engineered products have only sold those products after substantial scientific testing has established their safety and after rigorous government review has concurred with that result.  Obviously, there are risks associated with any technology, and if some of those risks that have been raised most recently by critics of genetic engineering do indeed lead to property damage or bodily injury, one can expect the insurance industry to argue the lack of fortuity or known risk defense.

The most frequent response by the courts to the known risk argument is that to countenance such a defense to coverage would essentially vitiate the purpose of insurance.  Policyholders purchase insurance with the understanding that there are certain risks which attach to their businesses which need protection and insurance companies, without a similar recognition, would not be able to sell insurance.  Accordingly, the fact that there is a known risk associated with a product has not been a frequent basis for denial of coverage, as reflected in the litigation of this issue in the environmental context.[57]

Known Loss

Another insurer argument in this context is the known loss defense.  This defense usually arises when there has allegedly been property damage or bodily injury stemming from some product or activity of the policyholder at the time of the purchase of the insurance coverage in question, but before any legal liability for that misadventure has been established.  Again, the majority of courts have resolved this issue by determining that a known loss means a legal liability for which the policyholder has been held responsible, because that is the source from which third-party liability coverage must flow.  The mere existence of property damage without any claim against the policyholder should not defeat the policyholder's right to coverage even if the policyholder is aware that property damage has taken place.[58]

Because of the greater public sensitivity to product and environmental issues today than in the 1960s and 1970s, the known loss argument may not be as prevalent as in the environmental coverage cases.  It is likely that insurers will know of problems that have been caused by the insured's genetically engineered products in the underwriting process and will have declined to issue coverage.  It is also unlikely that policyholders engaged in genetic engineering, will face a situation like their industrial predecessors, which were aware of waste disposal situations that were not viewed as sources of third-party liability until the after-the-fact application of CERCLA.

Trigger of Coverage

With respect to coverage that is occurrence-based rather than claims-made, the issue of trigger of coverage could be important to claims involving genetically engineered products.  This importance will stem from the fact that in all likelihood if there are problems with genetically engineered products, some could be latent for many years before the injury is manifest.  This situation is more likely with medical applications of genetic engineering than with agricultural uses.  Here, the asbestos coverage situation provides a suitable analogue for analysis.

That context is particularly relevant because for many years the asbestos manufacturers were unaware of the bodily injuries that were caused by exposure to asbestos.  Because of the period of time that passed before recognition of the problem, decades of insurance coverage was arguably exposed which contributed to the various trigger theories that have evolved, i.e. exposure, manifestation, installation, injury-in-fact, and continuous trigger.[59]  The multifarious court rulings on this subject in the asbestos and other contexts probably will be repeated with respect to the genetic engineering situation, should liabilities arise with respect to latent bodily injuries.

Bodily Injury

Another interesting potential coverage issue concerns the prospect of coverage for emotional distress, mental anguish or stress related fears of disease or injury from genetically engineered products.  These claims might arise in the context of cases in which genetically engineered body parts begin to develop problems thereby causing emotional distress concerning the effects of disease or injury.

There are two principal facets to this issue.  The first is whether in the underlying tort cases the jurisdiction in question permits recovery for emotional distress when there is no proven physical injury.  The second element concerns whether the definition of "bodily injury" in the insurance contract can be construed either explicitly or through contra proferentem to cover emotional distress or fear of disease.

The easier cases are, of course, those situations in which the insurance policies include emotional injuries within the policy definition of bodily injury.  In that situation, the policyholder obviously has a strong argument that the emotional distress caused by, for example, the knowledge that a genetically engineered physical body part may be defective is covered.[60]  In cases where bodily injury is not specifically defined to include emotional injury or distress claims, some courts have found the definition to be ambiguous and construed the policies to cover emotional claims.[61]  However, some of those same cases require there to be a physical manifestation along with the emotional problems.

Pollution Exclusions

One of the more interesting areas of potential coverage litigation with respect to genetically engineered products or processes could relate to the application of the so-called "absolute" pollution exclusion which was adopted in one form or another in the 1980s to replace the "sudden and accidental" pollution exclusion.  A typical absolute pollution exclusion provision provides:

  • In consideration of the premium charged, it is hereby agreed and declared that this policy shall not apply to bodily injury or property damage arising out of the discharge, dispersal, release or escape of smoke, vapors, soot, fumes, acids, alkalis, toxic chemicals, liquids or gases, waste materials or other irritants, contaminants or pollutants into or upon land, the atmosphere, or any water course or body of water.[62]

Some policies have been more expansive in their definitions related to absolute pollution exclusions to include pollution caused by biological elements:

  • The word "pollutants" as used herein means any . . . contaminants, including . . . biological elements and agents . . . the presence of . . . which . . . adversely affects human health or welfare, unfavorably alters ecological balances of importance to human life, adversely affects other species of importance to mankind, or degrades the vitality of the environment for esthetic, cultural, and/or historical purposes.[63]

There appears to be no situation in the extensive body of environmental coverage decisional law analogous to the claim of biological pollution that could result from a miscalculation with respect to some feature of genetic engineering in agriculture.  Historically, most of the pollution exclusion litigation has been applied to industrial pollution, or to situations involving the effects of synthetic chemicals in non-waste disposal contexts, such as lead paint in buildings.  If such claims do arise, and the policies do not incorporate pollution exclusions that specifically address biological contamination, the courts will be required to focus on the very general terms in the absolute pollution exclusion provision, such as "pollutant," "contaminant," or "irritant," and determine whether such a provision clearly contemplated the application of those exclusions to biological organisms which are in every sense "natural" but with unexpected and intended environmental consequences.  Presumably, if there were catastrophic consequences from some aspect of genetically engineered agriculture, the insurance industry would respond quickly by creating specific endorsements limiting coverage for genetically engineered products or by using pollution exclusions like the one in Action Auto Stores, supra, that exclude coverage for "pollution" caused by biological organisms.

Product Exclusions

Finally, one set of exclusions that may figure in any coverage for the product related aspects of genetic engineering could be the so-called business risk or design defect exclusion and the sistership exclusion.  The design defect exclusion is allegedly written to preclude coverage for bodily injury and property damage that is caused by an inherent design deficiency.  Such an exclusion allegedly does not apply in situations where the product related injury is attributable to some negligence in the manufacturing process or other active malfunction of the product.[64]  This exclusion is likely to be a fruitful field of litigation to the extent injured parties can demonstrate that the entire conceptual or design framework for the genetically engineered product was defective and the source of the injury.  Because many of the current eco-critics of genetically engineered agricultural products have taken the position that the design of certain genetically engineered products, such as the "suicide" seeds that result in sterilized seeds, are design misconceptions, it is likely that lawyers for injured property owners or consumers will adopt a similar litigation approach.  More importantly, lawyers representing insurance companies will certainly take that position when the alleged damages are widespread and expensive to remedy.

The sistership exclusion is one that is used in policies to preclude coverage for product recalls or similar remedial actions by the manufacturer or distributor that are required to product-wide or systemic defects.  To the extent that certain genetically engineered products become the source of claims for bodily injury or property damage and the regulatory authorities demand that the manufacturers recall such products or require other preventative actions, that exclusion will undoubtedly be invoked by insurance companies and could pose difficulties for policyholders which have exclusions such as these in their policies, depending upon the circumstances under which the recall or other preventative steps are required.[65]

CONCLUSION

As observed from the outset of this article, it is the general belief in the scientific community that genetic engineering, whether it deals with medical applications or with agricultural production, offers some of the greatest opportunities for mankind to make breakthroughs in areas that will greatly enhance the quality of life.  Because of the magnitude of the changes that are being implemented through the new sciences of genetic engineering, there are certain unknowns which pose risks for those businesses that are engaged in the development and distribution of such products and processes.  However, the risk benefit analysis clearly favors the benefits that are to be obtained from further strides in genetic engineering and the essential function of insurance is to provide the necessary protection to those business entities that are faced with the risks that may attach to genetic engineering.  The coverage issues that could develop with respect to genetic engineering will probably not be unique unless the insurance industry develops specific coverage language or exclusions that are directly related to genetically engineered products and processes . As the scientific developments, and criticisms thereof, continue to accrue, policyholder businesses and the insurance industry will be looking more closely at this field and the coverage issues, or lack thereof, will be elucidated in the next several years.

Notes:

1    Mr. James is a partner with Potter Anderson & Corroon LLP in Wilmington, Delaware.  The views expressed in this article are those of the author alone and may not reflect the views of his firm or its clients.
2    Geoffrey Gibbs, Seeds of Anger; Genetics:  An Attack On A Genetically Modified Maize Crop Has Stirred Up Passionate Local Support In A Quiet Devon Town, THE GUARDIAN, August 26, 1998, at 4. 
3    This article addresses only third-party liability coverage and not first-party coverage issues related to genetically engineered products. 
4    Tom Utley, Tinkering With Nature Comes Naturally To Man, THE DAILY TELEGRAPH, February 5, 1999, at 24. 
5    Leon Jaroff, Fixing the Genes, TIME MAGAZINE, January 11, 1999
6    Catherine Arnst, Biotech Bodies, BUSINESS WEEK, July 27, 1998, at 56
7    Id.
8    Roger Dobson, Genetics May Stop Mosquitoes Passing On Malaria, THE LONDON SUNDAY TIMES, January 3, 1999.
9    Nicholas Wade, Gene Therapy Passes Important Test, In Monkeys, THE NEW YORK TIMES, February 23, 1999, at 1.
10    Id.
11    The Signs of Aging, LONDON FINANCIAL TIMES, January 23, 1999, at 10.
12    Id.
13    Wade, supra note 8. 
14    James Walsh, Alien Seed? TIME MAGAZINE, August 24, 1998, at 38 (quoting Gulliver's Travels, "Voyage To Brobdingnag")
15    See, e.g., Field-test Ups And Downs; Genetic Engineering Field Tests, SCIENCE NEWS, June 7, 1986, at 366. 
16    Rebecca Butlin, Genes Perfect Christmas Tree, THE LONDON SUNDAY TIMES, December 20, 1998. 
17    Walsh, supra note 13. 
18    Id
19    Id
20    Jeff Swiatek, Plaintiffs Protest Use of BT Insecticide, THE INDIANAPOLIS STAR, February 19, 1999, at C2. 
21    How a Powerful Technology Works, ST. LOUIS POST-DISPATCH, December 27, 1998, at A9. 
22    Nigel Hawkes, "Built-in Antifreeze," THE LONDON TIMES, April 20, 1998. 
23    IFT 98 Gives Glimpse Of Future Foods; Institute Of Food Technologist Show, FOOD PROCESSING, August 1998, at 49. 
24    Philip Angell, Monsanto Cites Support For Biotechnology As Best Solution For World Hunger, ST. LOUIS POST-DISPATCH, January 11, 1999, at D13. 
25    Wade, supra note 8. 
26    Michael Hornsby, Green Group Rips Up Genetically Altered Rape Crop, THE LONDON TIMES, July 6, 1998; Gibbs, supra note 1. 
27    Walsh, supra note 13. 
28    Id
29    Clive Cookson, Genetically Engineered Plants Criticized, THE ARIZONA REPUBLIC, November 29, 1997, at A31. 
30    Walsh, supra note 13. 
31    David Kennell, The Risks Of Genetic Engineering, ST. LOUIS POST-DISPATCH, March 17, 1999, at B7. 
32    The Gene Exchange, Build Up of BT Toxins in Soil
33    Cookson, supra note 28. 
34    Jeffrey Kluger, The Suicide Seeds, TIME MAGAZINE, February 1, 1999. 
35    Students for Alternatives to Genetic Engineering, Overview Of Issues And Dangers
36    Walsh, supra note 13.
37    David Concar and Andy Coghlan, A Question of Breeding, NEW SCIENTIST, February 27, 1999
38    Martin Brookes, Running Wild, NEW SCIENTIST, October 31, 1998, at 38.
39    Id
40    Swiatek, supra note 19.
41    EPA Suit Over Genetically Altered Crops, THE BOSTON GLOBE, February 19, 1999, at A9.
42    See Greenpeace, et al. v. Browner, United States District Court for the District of Columbia (filed February 18, 1999).
43    Cotton Growers Blame New Seed For Crop Losses, AUGUSTA CHRONICLE, January 25, 1999.
44    Genetic Engineering Error, RACHEL'S ENVIRONMENT AND HEALTH WEEKLY, June 5, 1997
45    Paul Brown, Meacher Puts GM Crops On Hold, THE GUARDIAN, February 19, 1999, at 1.
46    Walsh, supra note 13.
47    Id
48    Nick Nuttall, Food Giant To Phase Out GM Ingredients, THE LONDON TIMES, April 29, 1999
49    Field-Test Ups And Downs; Genetic Engineering Field Test, SCIENCE NEWS, June 7, 1986, at 336;Ronnie Cummins, Genetic Roulette, CHICAGO TRIBUNE, March 18, 1997, at 12.
50    Genetic Engineering and Liability Insurance: The Power Of Public Perception
51    John Madelay, Insurance And Industry Refuse To Insure 'Unpredictable Risks' of Genetic Engineering, GE AND INSURANCE, January 27, 1999
52    One significant caveat to that generalization is that notwithstanding the use of standard forms in the insurance industry, each insurance policy is a unique contract, the terms of which must be analyzed before generalizing about the effect of any major insurance coverage issue.
53    Also, while not strictly a coverage issue, choice of law will inevitably be an important matter to be resolved in all of these cases because that could be outcome determinative in view of the split among jurisdictions as to the rule of law on key insurance coverage issues.
54    See, e.g., William P. Skinner, Allocation Between Claims-Made And Occurrence Policies, published as part of the materials distributed at the March 4-6, 1999 Midyear Meeting of the ABA Section of Litigation, Insurance Coverage Litigation Committee.
55    This presumption, that corporations do not set out to develop processes or products that will harm the consuming public, operates in these cases even though the technical burden of proof may be on the policyholder to establish that it did not expect or intend that its actions would contribute to the property damage or bodily injury in question.  The case law is divided as to whether policyholders or insurers have the burden with respect to issues of proof on the expected or intended defense to coverage.  Compare Carter-Wallace, Inc. v. Admiral Ins. Co., et al., 712 A.2d 1116, 1126 (N.J. 1998) (insurer's burden) with New Castle County v. Hartford Accident & Indem. Co., 933 F.2d 1162, 1181 (3d Cir. 1991) (policyholder's burden).
56    See, e.g., City of Johnstown, N.Y. v. Bankers Standard Ins. Co., 877 F.2d 1146, 1151, n.1 (2d Cir. N.Y. 1989); contra Carter Lake v. Aetna Cas. & Sur. Co., 604 F.2d 1052, 1058-59 (8th Cir. 1979) (applying objective test).
57    See, e.g., Monsanto Co. v. Aetna Cas. & Sur. Co., C.A. No. 88C-JA-118, 1993 Del. Super. LEXIS 443 at *66 et seq.; City of Johnstown, supra, 877 F.2d at 1152-53.
58    See Monsantosupra, 1993 Del. Super. LEXIS 443 at *56 et. seq. 
59    See generally E. Anderson, J. Stanzler, L. Masters, Insurance Coverage Litigation, "Trigger of Coverage," §§ 4.1 - 4.17 (1997 ed.).
60    See, e.g., United States v. Security Management Co., Inc., 96 F.3d 260, 267 (7th Cir. 1996).
61    See, e.g., Voorhees v. Preferred Mutual Insurance Co., 607 A.2d 1255, 1259-62 (N.J. 1992).
62    Kimber Petroleum Corp. v. Travelers Indemn. Co., 689 A.2d 747, 752 (N.J. Super. Ct. App. Div. 1997).
63    Action Auto Stores, Inc. v. United Capitol Ins. Co., 845 F. Supp. 428, 436 (W.D. Mich. 1993).
64    See, e.g., Hoechst Celanese Corp. v. National Union Fire Ins. Co. of Pittsburgh, PA, C.A. No. 89C-SE-35, 1994 Del. Super. LEXIS 577 at *4-6 (Del. Super. Apr. 13, 1994) (exclusion amiguous);Kyllo v. Northland Chemical Co., 209 N.W.2d 629, 632-33 (N.D. 1973) (exclusion applied).
65    See, e.g., Stonewall Insurance co. v. Asbestos Claims Management Corp., 73 F.3d 1178, 1211 (2d Cir. 1995); United States Fidelity & Guaranty Co. v. Wilkin Insulation Co., 578 N.E.2d 926, 933 (Ill. 1991).