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Like any new technology, risks are emerging with the proliferation of nanotechnology. Thomas F. Segalla and Troy S. Flascher of law firm Goldberg Segalla L.L.P. offer information for insurers, manufacturers, science and technology companies, and corporate decision-makers to consider when evaluating risks associated with nanotechnology.
Nanotechnology offers exciting potential to transform how we live our lives. From pharmaceuticals and pollution control to electronics and engineering applications, this revolutionary technology — which utilizes particles and structures as small as one ten-thousandth the diameter of a human hair — offers many benefits for health, the environment, scientific study, industry and the economy.
But with new technology comes new risk, and the risks associated with nanotechnology pose numerous new challenges for the insurance industry. Although no nanotechnology specific claims have been filed in the courts yet, some in the insurance industry have already labeled nanotechnology as an emerging risk, and, in addition to questions of coverage, complex concerns regarding regulatory oversight are on the rise, not to mention calls to ban nanotechnology outright.
With so many questions remaining unanswered — and with some projecting nanotechnology to have a $3 trillion impact on the U.S. economy by 2015 — it is essential for insurers, manufacturers, science and technology companies, and corporate decision-makers to understand the potential risks and coverage implications posed by the increasingly rapid advancement and commercialization of nanotechnology.
One industry leader has observed: “The insurance industry is concerned, not so much because experience shows that new technology developments tend to give rise to new loss scenarios, as because the extent of these potential claims can either be difficult or impossible to assess correctly.”
The risks are viewed as a function of the rapid growth and pervasiveness of nanotechnology, and of medical and scientific uncertainty concerning its effect on human health, safety and the environment. That's attributed, as Business Insurance pointed out in 2007, to the very characteristics of nanoparticles that make the technology revolutionary — their size (incapable of measurement using normal techniques), reactivity and conductivity (more reactive and conductive than larger particles), and routes of exposure (dermal, inhalation, and ingestion).
Property/casualty insurance risks encompass occupational and environmental exposures, and consumer product engineering and safety. Thus, from an insurance coverage perspective, the risks will implicate many common coverage forms, including: general liability; products liability; product recall; workers compensation; environmental liability; and property.
Lloyd's of London has said that other types of policies may be affected by risks related to nanotechnology as well, including professional indemnity, medical malpractice, directors and officers liability, general liability, employer's liability, and products liability.
A number of coverage issues that could prove critical for nanotechnology with respect to many forms of potential coverage — such as triggers, number of occurrences, pollution exclusions, and the definition of pollutants in the context of nanomaterials — were outlined in a thoughtful 2010 Law360 article by Ethan V. Torrey. All such coverage issues are important to consider in the context of an insured that could potentially be named as a defendant in a nano tort claim.
Though it is assumed that claims are inevitable, insurance industry leaders agree that the industry will not be able to quantify potential losses related to nanotechnology risks, and that it is too soon to tailor policy forms to nanotechnology risks. This is because the technology occupies a broad field with non-uniform risk characteristics; there is a lack of common language or set of definitions for the technology; and there is presently a low exposure of risks to the general population.
Nevertheless, several risk management concerns have emerged from early industry discussions. For example, the industry has acknowledged that long-term loss accumulation generated by long latency periods for human health and environmental impact will result in a “stacking of limits” problem, caused by occurrence policies that have trigger obligations (e.g., manifestation, injury-in-fact, exposure, and continuous trigger theories) under multiple policies over several years. To solve this problem, several industry leaders advocate for “claims-made” coverage for nanotechnology risks.
The industry also is mindful of current trends in judicial interpretation of pollution exclusions, which require traditional environmental damage to invoke this defense to coverage. Thus, as the journal Nature Nanotechnology has noted, questions abound whether the exclusion will afford protection in many loss scenarios, including consumer product, occupational exposure, product recall, and other contexts. Other questions that have been raised by insurers include whether nanoparticles will qualify as pollutants, and whether the loss results from a discharge, dispersal or release.
Lloyd's, in assessing the effect of the potential risks, suggested the following coverage options:
1. Monitor and research emerging risks that would help account for unforeseen and unanticipated risks.
2. Price policies adequately and hold additional capital to take into consideration new risks and capital reserves.
3. Totally exclude coverage for nanotechnology businesses.
4. Exclude and write back into the policy with limited cover.
5. Only accept claims within a fixed period.
Continental Western Insurance Group, in 2008, issued the first nanospecific commercial insurance exclusions in the United States, which provided that this:
“ ... endorsement excludes bodily injury, property damage, and personal and advertising injury related to the exposure of nanotubes and nanotechnology in any form. This includes the use of, contact with, existence of, presence of, proliferation of, discharge of, dispersal of, seepage of, migration of, release of, escape of, or exposure to nanotubes or nanotechnology.”
Other insurers, such as Lloyd's and Swiss Re Ltd., have recommended that insurers issue short-term coverage, which is a way of avoiding risks associated with latent claims. The concept of fortuity is also implicated by nanotechnology claims. The known-loss doctrine, (which bars coverage for losses of which the insured was aware before policy inception) and the loss-in-progress doctrine (which bars coverage for losses in progress at policy inception) also may be implicated by nanotechnology claims. Studies of the health effects related to exposure to nanoparticles are ongoing, however, some studies already suggest that nanoparticles can be toxic. The extent to which the nanotechnology industry proceeds in spite of known risks to human health certainly may give rise to policy defenses based upon these doctrines.
It is generally recognized, however, that the best approach to insurance-related issues and risk exposure is an up-front understanding of the potential risks. This is best achieved through defined underwriting and risk management protocol. For example, Zurich Insurance Co. Ltd. has established a Nanotechnology Exposure Protocol and explained:
“By working closely with corporate customers, collecting data on the specific nanoparticles they were using, learning about the specific applications where they're employed, and then by combining this information, Zurich could form a global overview of nanotechnology and its various facets of risk. Such an activity would not only be a very good way to protect its business, but could form a basis for providing risk management advice to its customers going forward.”
Lloyd's has made recommendations that the following questions be asked by the insurer of its nano-insureds:
• What nanotechnologies does the company use?
• What are the known hazards of those materials?
• What are potential hazards of those materials?
• Has the material's toxicity been studied?
• Has its environmental impact been studied?
• Does the company follow any voluntary nano-specific environmental, health and safety guidelines?
• Has the company performed a life cycle assessment related to its use of nanomaterials?
• Does the insured advise its customers about its use of nanotechnologies?
While insurance companies are certainly sensitive to the effect of the risks associated with insureds that are involved in nanotechnology, it is generally recognized that policyholders must take a proactive approach to protect against liability and adverse financial impact.
The following are recognized as important inquiries and considerations for insureds:
• What is the nature of the nano-materials being manufactured?
• Is an expert needed?
• What regulations are applicable and unique to the business?
• Perform a cost-benefit analysis concerning applicable disclosure.
• Consider the internal impact of the manufacturing process on employees and on the work environment.
• Understand insurance coverage issues.
• Consider professional in-volvement in trade associations and governmental groups.
Such questions and relevant answers should be used by both insurers and policyholders, and reviewed with counsel, in assessing insurance-related questions and potential covered and noncovered claims.
The insurance industry knows from experience that the coverage implications of any emerging technology can be wide-ranging.
While changes in policy forms may be premature, the industry will need to continue to closely monitor the implications of nanotechnology.
And for those engaged in the surging business of nanotechnology, efforts should be taken to ensure compliance with known regulations and best practices concerning the technology and to ready their defenses for the likely inevitable nano tort claims.
Thomas F. Segalla is a founding partner of the law firm Goldberg Segalla L.L.P. He can be reached at email@example.com. Troy S. Flascher is an associate at Goldberg Segalla. He can be reached at tflascher@goldberg segalla.com.