Insurers' Response to Nanotech Suits

Insurers, policyholders, and the plaintiffs' tort bar anticipate that nanotechnology claims may soon be a serious source of potential liability even though no lawsuits have yet been filed and great uncertainty exists about the adverse effects, if any, of exposure to nanomaterials. See Connie Germano, Managing the Emerging Risks of Nanotechnology, John Liner Rev., Summer 2008, at 30; Linda K. Breggin & Leslie Carothers, Governing Uncertainty: The Nanotechnology Environmental, Health, and Safety Challenge, 31 Colum. J. Envtl. L. 285 (2006); Ronald C. Wernette, The Dawn of the Age of Nanotorts, Prod. Safety & Liab. Rep., Apr. 2009; Stephen Goldberg, Nanotechnology May Be Tiny, But Exposures Could Be Huge, P&C Nat'l Underwriter, Dec. 7, 2009. Many commentators have encouraged policyholders and insurers to take steps now to assess exposures and implement risk management controls. See, e.g., Kristine L. Roberts, Nanotechnology and the Future of Litigation, Litig. News, Winter 2010, at 6, 7-8; Lloyd's, Risks: Lloyd's Emerging Risk Team Report (2007).

The vacuum of information concerning risks posed by nanotechnology and nanomaterials makes risk management planning difficult, if not impossible. See Robin Fretwell Wilson, Symposium: How Do We Develop Regulatory Policy in the Context of Limited Knowledge About the Risks, 34 J.L. Med. & Ethics 704 (2006); Breggin, supra. This article addresses that gap and explores the insurance implications of the likely “first wave” of lawsuits ' suits arising out of exposure to nanomaterials in the absence of evidence of actual physical injury or harm. It explores three scenarios where plaintiffs are likely to be exposed to nanomaterials in the near future. Nanotech suits are likely to raise many of the same coverage questions that apply to more traditional and well-known liabilities, but the uncertainty regarding nanotechnology's potential for harm and its unique nature mean that past experiences (and judicial decisions) provide only limited guidance.

Nanotech Risks and Rewards

Nanotechnology refers to the manipulation of matter at a microscopic scale. See Albert C. Lin, Size Matters: Regulating Nanotechnology, 31 Harv. Envtl. L. Rev. 349, 352 (2007). Commentators usually consider nanomaterials ' materials created with nanotechnologies ' to “have at least one dimension of 100 nanometers or less. A nanometer is a billionth of a meter ' approximately 1/100,000 the width of a human hair.” Breggin, supra, at 287. Materials manipulated at this infinitesimal scale frequently have properties different from those of their normal sized equivalents, opening exciting new possibilities. Breggin, supra, at 287-88; Lin, supra, at 353.

Products containing nanomaterials have already demonstrated impressive commercial value. Sunscreen containing zinc manipulated on a nanotech scale is clear on the skin, instead of opaque white. Barnaby J. Feder, I Have the Idea, You Have the Factory, N.Y. Times, Nov. 16, 2005, at G4. Silver nanomaterials have been found to have antiseptic and odor-fighting properties and have been incorporated into socks to suppress unpleasant smells. Goldberg, supra. Nanotech carbon compounds may be even more effective than standard technologies in remediating environmental waste sites, as they appear to have enhanced absorptive properties. See Xuchun Gui et al., Carbon Nanotube Sponges, 22 Adv. Materials 617 (2010).

At the same time, other research has raised concerns regarding exposure to nanomaterials. At least some evidence suggests that nanotech compounds can become lodged in lungs in a manner mimicking the disease-causing action of asbestos fibers. Breggin, supra, at 291; Goldberg, supra, at 2. Studies also have suggested that fish exposed to nanomaterials might show neurological damage. See How the Small World of Big Technology is Creating Big Safety and Health Challenges, Safety Director's Report, July 2004, at 6.

Most important for present purposes, our knowledge of these materials is staggeringly incomplete. Although more than 1,000 consumer products contain nanotech compounds, their ultimate fate and transport and the short- and long-term toxicological properties of these compounds are unknown. Germano, supra, at 33; Rhitu Chatterjee, Insurers Scrutinize Nanotechnology, 43 Envtl. Sci. & Tech. 1240, 1240 (2009). “SwissRE, the world's largest reinsurer, recently catalogued the sources of uncertainty that are introduced by nanotechnology. These include the fact that we have no long-term experience with nano-materials, few exposure assessments, few toxicology assessments, and no basis for classifying the risk posed by nano-materials.” Wilson, supra, at 706.

Rather than speculate on potential harms, this article focuses on what is almost a certainty: exposure to nanomaterials and resulting lawsuits. The plaintiffs' bar already has expressed interest in this area, and it seems simply a matter of time before there will be demonstrable evidence of nanomaterials in humans and animals. Lawsuits will almost certainly follow, most likely before there is clear medical evidence about the harm, if any, that results from exposure to nanomaterials. See Wenette, supra, at 11-12 (noting that “nanotorts are a virtual certainty” and predicting that medical monitoring claims and “no injury” suits will be the first claims to appear). Thus, policyholders and insurers will likely need to deal with a new class of lawsuits, notwithstanding serious scientific and medical uncertainty.

Three Nanotech Scenarios

Below we consider three hypothetical lawsuits concerning nanotech exposure and potential coverage for such lawsuits under the typical CGL policy.

Scenario One: Knee Replacements

Medical applications of nanotechnology, including implants, are already here. Scientists are experimenting with coating permanent surgical implants ' such as artificial knees and hips ' with compounds engineered on the nanotech scale to prevent infection or to speed bone growth and reduce the possibility of rejection. See Abby Vogel Robinson, Better Joint Replacements: Titanium Coating with Protein “Flower Bouquet” Nanoclusters Strengthens Implant, Ga. Tech Research News, at http://gtresearchnews.gatech.edu/joint-replacements.

Consider the following: Nanomaterials escape from the implant coating and lodge in another part of the body ' in an artery or vein, in the heart, or even in the brain. A lawsuit is filed, alleging that the implant was defectively designed to allow nanomaterials to migrate from the implant and seeking damages for medical care to remove or isolate the free nanomaterials and/or monitoring costs for as-yet-unknown harms. The medical supply company submits the claim to its insurer.

If the policyholder has a standard-form commercial general liability (“CGL”) policy, without any language specific to nanotech-related risks or harms, does the policyholder have coverage? Several questions arise:

• Is there an “occurrence” or “physical injury” within the meaning of the policy?

If the plaintiff does not have an independent disease or a diagnosed medical problem, is the mere presence of nanomaterials in his system an “injury” within the meaning of the policy? In other contexts, courts have reached different conclusions. For example, whereas some courts have refused to find that exposure to HIV-contaminated blood, in the absence of symptoms of disease, constitutes “bodily injury,” others have held that exposure to a substance that results in an increased risk of disease, like asbestos, is “bodily injury” and have required insurers to indemnify policyholders for the costs of exposed individuals' long-term medical monitoring. Compare Transam. Ins. Co. v. Doe, 840 P.2d 288 (Ariz. Ct. App. 1992), with Baughman v. U.S. Liab. Ins. Co., 662 F. Supp. 2d 386 (D.N.J. 2009).

In addition, unlike asbestos or silicosis cases, many of the nanotech-engineered particles are simply rearrangements of substances commonly found, to one degree or another, in the human body. For example, nanotech coatings designed to foster bone growth are composed of re-engineered proteins. Likewise, silver might be used to prevent infection, see Germano, supra, at 33, but nearly every person is exposed to silver every day without ill effects, except when exposures are to extreme doses. Is exposure to nanomaterials made from common substances different? What about exposure to organic materials that may be used in future generations of nanotech materials, rather than potentially toxic metals? See Tan Sheet, Ivy Nanoparticles in Sunscreens Safer, Stickier Than Titanium Oxide, Aug. 2, 2010.

• Assuming there is an “occurrence,” which policies respond?

Even if a policyholder passes the “occurrence” hurdle, he may still need to demonstrate when and how nanomaterials came loose from the implant. Moreover, if they migrated from the implant over a period of years, the question would arise as to which policies during the period of migration would respond.

In the asbestos and environmental contexts, many courts abandoned more traditional “manifestation” or “exposure” approaches to “trigger” and permitted policyholders to collect from each insurer on the risk during the period where the condition was developing. See, e.g., Montrose Chem. Corp. of Cal. v. Admiral Ins. Co., 913 P.3d 878, 893-901 (Cal. 1995) (surveying “trigger” approaches to asbestos claims, including “continuous” trigger, injury-in-fact, and manifestation triggers); 20 Eric Mills Holmes, Holmes' Appleman on Insurance ' 129.2 K (2d ed. 2002 & 2008 Supp.) (surveying approaches). Although a similar analysis might apply if nanomaterials are continually being released, the absence of clear scientific evidence regarding what harm, if any, is caused by nanomaterials, including whether there is some “critical mass” before which harm is not likely, make these questions more difficult here.

Scenario Two: Food Packaging

Food packaging is a likely use for nanomaterials in the near future. Clay nanomaterials may be better able to protect food from carbon dioxide and moisture in the air. It may be possible to package beer in nano-engineered plastic bottles ' without the unpleasant plastic taste ' that would lengthen the shelf life of the product and reduce shipping costs relative to glass bottles or metal cans. New packaging materials, constructed with nanotech materials, may be able to detect food spoilage or even toxic pathogens in the container before the products are consumed. See Food Packaging Using Nanotechnology Materials: An Overview of “Smart Packing” and “Active Packaging,” at www.azonano.com/Details.asp?ArticleID=1317; see also Rory Harrington, Nanotech's Potential to Boost Barrier Performance of Plastics, at www.foodproductiondaily.com/Product-Categories/Cleaning-Safety-Hygiene/Nanotechs-potential-to-boost-barrier-performance-of-plastics.

Consider the following: Nanomaterials embedded in food packaging migrate out of the packaging material into the food and are consumed by the end-user. Reports of the packing material's failure are widespread, and a recall is initiated. Both the food manufacturer and the manufacturer of the nanotech packaging are sued and submit claims to their insurers.

• Are either manufacturers' claims subject to a recall exclusion?

The ISO CGL recall language eliminates coverage for a recall of the policyholder's product or work “if such product, work, or property is withdrawn or recalled from the market or from use by any person or organization because of a known or suspected defect, deficiency, inadequacy or dangerous condition in it.”

Therefore, the identity of the recalled product is an essential question. Where the recalled product was not the policyholder's but the policyholder remains liable for recall-related expenses (where, for example, it is the policyholder's component of a third-party's product that is responsible for the recall), several courts have noted that coverage might be available. See Amerisure Mutual Ins. Co. v. Hall Steel Co., No. 286677, 2009 Mich. App. LEXIS 2545, *16-17 (Dec. 10, 2009); Am. & Foreign Ins. v. Nw. Castings, Inc., No. 99C-2089P, 2000 U.S. Dist. LEXIS 20662, *10 (W.D. Wash. Sept. 13, 2000); Travelers Indem. Co. v Dammann, No. 04-5599 (DRD), 2008 U.S. Dist. LEXIS 9759, *21 (D.N.J. Feb. 11, 2008). Thus, where the nanotech company falls within the supply and distribution chain will be a critical issue, as will identification of the recalled product. In this example, is it the food packaging that is being recalled or the contaminated food? Although many courts recognize that property damage may arise from incorporation of a policyholder's product into a third-party's finished good, some courts have refused to find coverage where the policyholder's defective packaging did not result in direct damage to the third-party's product. See, e.g., Silgan Containers Corp. v. Nat'l Union Fire Ins. Co. of Pittsburgh, Pa., No. 08-2246 PJH, 2010 U.S. Dist. LEXIS 30100 (N.D. Cal. Mar. 29, 2010) (no coverage for recall of pull-top canned fruit; although defective cans rendered product unsalable, there was no damage to the canned fruit).

• Are migrating nanotech materials a “pollutant” within the meaning of the standard pollution exclusion?

Although the scope of this exclusion is frequently litigated, courts have reached varying conclusions. Some courts have held that the exclusion cannot apply to products intentionally used as part of the manufacturing process, see, e.g., W. Bend Mut. Ins. Co. v. Iowa Iron Works, Inc., 503 N.W.2d 596 (Iowa 1993) (sand used in manufacturing process not a “pollutant” or “waste” within the meaning of the pollution exclusion), and others have questioned the applicability of the exclusion to product liability claims; still others have limited the pollution exclusion's scope to “traditional” environmental pollutants and refused to apply the clause to other substances, see, e.g., MacKinnon v. Truck Ins. Exch., 31 Cal. 4th 635, 652 (2003); PepsiCo, Inc. v. Winterthur Int'l Am. Ins. Co., 788 N.Y.S.2d 142, 144-45 (App. Div. 2004). For a good discussion of differing approaches to “pollution” arising out of use of a policyholder's products, see the majority and dissenting opinions in Park-Ohio Industries, Inc. v. Home Indemnity Co., 975 F.2d 1215 (6th Cir. 1215). However, many decisions have read the clause expansively, with application to any substance potentially falling within the clause's broad definition of “pollutant.” Compare Nav-Its, Inc. v. Selective Ins. Co. of Am., 869 A.2d 929, 937 (N.J. 2005), and Nautilus Ins. Co. v. Jabar, 188 F.3d 27, 30 (1st Cir. 1999), with Nascimiento v. Preferred Mut. Ins. Co., 513 F.3d 273, 297 (1st Cir. 2008), and Cold Creek Compost, Inc. v. State Farm Fire & Cas. Co., 68 Cal. Rptr. 3d 216 (Ct. App. 2007); see also 9 Steven Plitt et al., Couch on Insurance ' 127:6 (3d rev. ed. 2008).

Scenario Three: Nanotech and Environmental Remediation

Nanomaterials incorporating carbon might soon be used in environmental remediation situations. There is some evidence that nano-engineered carbon is more effective at trapping and containing organic contaminants than normal carbon. For example, scientists are working on a nanotech carbon-fiber mesh that will absorb oil more effectively than other materials, but also will be reusable and allow the oil to be extracted for later use, rather than being disposed of. See Elizabeth A. Thompson, MIT Develops a “Paper Towel” for Oil Spills, MIT News, at http://web.mit.edu/newsoffice/2008/oil-paper-0530.html.

Consider the following scenario. After an oil spill, a carbon-fiber nanomaterial “sponge” is released into the ocean to soak up the spill. The “sponge” is then retrieved, and the oil is recycled. Nanomaterials migrate from the “sponge” and into the environment. These nano-engineered carbon materials begin showing up in fish and other marine wildlife.

• Did the manufacturer “expect” or “intend” the release of carbon fibers?

Whereas older decisions focused on whether the insured “expected” or “intended” harm to result from its activities, no matter how related the expected or intended harm was to the actual harm for which it is now liable, see, e.g., Pachucki v. Republic Ins. Co., 278 N.W.2d 898, 903 (1979) (knowledge or expectation of any kind of harm sufficient to show policyholder expected or intended harm), modern decisions have recognized the unfairness of this rule, especially in the environmental context where businesses deal with potentially harmful products on a daily basis but operate under safety precautions designed to minimize risk of environmental harm. Thus, these decisions typically require a more holistic assessment of the policyholder's knowledge and whether it either intended environmental harm or knew that environmental harm would flow from its actions. See, e.g., Morton Int'l, Inc. v. Gen. Accident Ins. Co. of Am., 629 A.2d 831, 879-80 (N.J. 1993) (“A general rule in environmental-pollution coverage litigation that would permit intent to injure to be presumed simply on the basis of a knowing discharge of pollutants would be unjustified.”); City of Johnstown v. Bankers Standard Ins. Co., 877 F.2d 1146, 1150 (2d Cir. 1989) (“Recovery will be barred only if the insured intended the damages or if it can be said that the damages were, in a broader sense, 'intended' by the insured because the insured knew that the damages would flow directly and immediately from its intentional act.” (internal citations omitted)).

Given the admitted dearth of knowledge regarding nanomaterials, it would be only the rare case where a policyholder would expect or intend damage to occur from its non-malicious use of nanomaterials. Insurers therefore will likely attempt to bring the case under the older, “any harm” standard, especially if some level of bio-degradation might have been anticipated by the policyholder. Moreover, even preliminary research is likely to be seized upon by insurers (and plaintiffs' lawyers) as evidence of knowledge of harm.

Conclusion

Although the harms, if any, caused by nanomaterials remain uncertain, it is likely that enterprising plaintiffs' lawyers will soon begin bringing suit based on exposure to nanomaterials and that these suits could be adjudicated before a scientific consensus is reached on the safety (or lack thereof) of human or animal exposure to nanomaterials.

The likelihood of these envelope-pushing claims also highlights the importance of the insurer's duty to defend under standard CGL policies. Nanomaterial lawsuits may involve novel and complex questions regarding causation, toxicity, and scientific knowledge regarding the behavior of nanomaterials. The cost of litigating these first cases may be substantial, and policyholders will likely want insurers to participate early in the cases. The question is whether courts will find this “first wave” of nanotech complaints to allege facts that potentially fall within the coverage of the policies. The general rule is that an insurer has a duty to defend any suit where the allegations might result in a covered claim being proven at trial. However, several jurisdictions allow the insurer to “look behind” the complaint to establish uncontroverted facts that would show no possibility for coverage. 14 Lee R. Russ & Thomas F. Segalla, Couch on Insurance ' 200:17-22 (3d ed. 2005 & 2007 Supp.).

Charles J. Fischette is an associate and Marialuisa S. Gallozzi is a partner in the policyholder insurance practice of the Washington, DC, office of Covington & Burling LLP. This article reflects the views of the authors, not of their firm or its clients. The article is not legal advice.

Insurers, policyholders, and the plaintiffs' tort bar anticipate that nanotechnology claims may soon be a serious source of potential liability even though no lawsuits have yet been filed and great uncertainty exists about the adverse effects, if any, of exposure to nanomaterials. See Connie Germano, Managing the Emerging Risks of Nanotechnology, John Liner Rev., Summer 2008, at 30; Linda K. Breggin & Leslie Carothers, Governing Uncertainty: The Nanotechnology Environmental, Health, and Safety Challenge, 31 Colum. J. Envtl. L. 285 (2006); Ronald C. Wernette, The Dawn of the Age of Nanotorts, Prod. Safety & Liab. Rep., Apr. 2009; Stephen Goldberg, Nanotechnology May Be Tiny, But Exposures Could Be Huge, P&C Nat'l Underwriter, Dec. 7, 2009. Many commentators have encouraged policyholders and insurers to take steps now to assess exposures and implement risk management controls. See, e.g., Kristine L. Roberts, Nanotechnology and the Future of Litigation, Litig. News, Winter 2010, at 6, 7-8; Lloyd's, Risks: Lloyd's Emerging Risk Team Report (2007).

The vacuum of information concerning risks posed by nanotechnology and nanomaterials makes risk management planning difficult, if not impossible. See Robin Fretwell Wilson, Symposium: How Do We Develop Regulatory Policy in the Context of Limited Knowledge About the Risks, 34 J.L. Med. & Ethics 704 (2006); Breggin, supra. This article addresses that gap and explores the insurance implications of the likely “first wave” of lawsuits ' suits arising out of exposure to nanomaterials in the absence of evidence of actual physical injury or harm. It explores three scenarios where plaintiffs are likely to be exposed to nanomaterials in the near future. Nanotech suits are likely to raise many of the same coverage questions that apply to more traditional and well-known liabilities, but the uncertainty regarding nanotechnology's potential for harm and its unique nature mean that past experiences (and judicial decisions) provide only limited guidance.

Nanotech Risks and Rewards

Nanotechnology refers to the manipulation of matter at a microscopic scale. See Albert C. Lin, Size Matters: Regulating Nanotechnology, 31 Harv. Envtl. L. Rev. 349, 352 (2007). Commentators usually consider nanomaterials ' materials created with nanotechnologies ' to “have at least one dimension of 100 nanometers or less. A nanometer is a billionth of a meter ' approximately 1/100,000 the width of a human hair.” Breggin, supra, at 287. Materials manipulated at this infinitesimal scale frequently have properties different from those of their normal sized equivalents, opening exciting new possibilities. Breggin, supra, at 287-88; Lin, supra, at 353.

Products containing nanomaterials have already demonstrated impressive commercial value. Sunscreen containing zinc manipulated on a nanotech scale is clear on the skin, instead of opaque white. Barnaby J. Feder, I Have the Idea, You Have the Factory, N.Y. Times, Nov. 16, 2005, at G4. Silver nanomaterials have been found to have antiseptic and odor-fighting properties and have been incorporated into socks to suppress unpleasant smells. Goldberg, supra. Nanotech carbon compounds may be even more effective than standard technologies in remediating environmental waste sites, as they appear to have enhanced absorptive properties. See Xuchun Gui et al., Carbon Nanotube Sponges, 22 Adv. Materials 617 (2010).

At the same time, other research has raised concerns regarding exposure to nanomaterials. At least some evidence suggests that nanotech compounds can become lodged in lungs in a manner mimicking the disease-causing action of asbestos fibers. Breggin, supra, at 291; Goldberg, supra, at 2. Studies also have suggested that fish exposed to nanomaterials might show neurological damage. See How the Small World of Big Technology is Creating Big Safety and Health Challenges, Safety Director's Report, July 2004, at 6.

Most important for present purposes, our knowledge of these materials is staggeringly incomplete. Although more than 1,000 consumer products contain nanotech compounds, their ultimate fate and transport and the short- and long-term toxicological properties of these compounds are unknown. Germano, supra, at 33; Rhitu Chatterjee, Insurers Scrutinize Nanotechnology, 43 Envtl. Sci. & Tech. 1240, 1240 (2009). “SwissRE, the world's largest reinsurer, recently catalogued the sources of uncertainty that are introduced by nanotechnology. These include the fact that we have no long-term experience with nano-materials, few exposure assessments, few toxicology assessments, and no basis for classifying the risk posed by nano-materials.” Wilson, supra, at 706.

Rather than speculate on potential harms, this article focuses on what is almost a certainty: exposure to nanomaterials and resulting lawsuits. The plaintiffs' bar already has expressed interest in this area, and it seems simply a matter of time before there will be demonstrable evidence of nanomaterials in humans and animals. Lawsuits will almost certainly follow, most likely before there is clear medical evidence about the harm, if any, that results from exposure to nanomaterials. See Wenette, supra, at 11-12 (noting that “nanotorts are a virtual certainty” and predicting that medical monitoring claims and “no injury” suits will be the first claims to appear). Thus, policyholders and insurers will likely need to deal with a new class of lawsuits, notwithstanding serious scientific and medical uncertainty.

Three Nanotech Scenarios

Below we consider three hypothetical lawsuits concerning nanotech exposure and potential coverage for such lawsuits under the typical CGL policy.

Scenario One: Knee Replacements

Medical applications of nanotechnology, including implants, are already here. Scientists are experimenting with coating permanent surgical implants ' such as artificial knees and hips ' with compounds engineered on the nanotech scale to prevent infection or to speed bone growth and reduce the possibility of rejection. See Abby Vogel Robinson, Better Joint Replacements: Titanium Coating with Protein “Flower Bouquet” Nanoclusters Strengthens Implant, Ga. Tech Research News, at http://gtresearchnews.gatech.edu/joint-replacements.

Consider the following: Nanomaterials escape from the implant coating and lodge in another part of the body ' in an artery or vein, in the heart, or even in the brain. A lawsuit is filed, alleging that the implant was defectively designed to allow nanomaterials to migrate from the implant and seeking damages for medical care to remove or isolate the free nanomaterials and/or monitoring costs for as-yet-unknown harms. The medical supply company submits the claim to its insurer.

If the policyholder has a standard-form commercial general liability (“CGL”) policy, without any language specific to nanotech-related risks or harms, does the policyholder have coverage? Several questions arise:

• Is there an “occurrence” or “physical injury” within the meaning of the policy?

If the plaintiff does not have an independent disease or a diagnosed medical problem, is the mere presence of nanomaterials in his system an “injury” within the meaning of the policy? In other contexts, courts have reached different conclusions. For example, whereas some courts have refused to find that exposure to HIV-contaminated blood, in the absence of symptoms of disease, constitutes “bodily injury,” others have held that exposure to a substance that results in an increased risk of disease, like asbestos, is “bodily injury” and have required insurers to indemnify policyholders for the costs of exposed individuals' long-term medical monitoring. Compare Transam. Ins. Co. v. Doe , 840 P.2d 288 (Ariz. Ct. App. 1992), with Baughman v. U.S. Liab. Ins. Co. , 662 F. Supp. 2d 386 (D.N.J. 2009).

In addition, unlike asbestos or silicosis cases, many of the nanotech-engineered particles are simply rearrangements of substances commonly found, to one degree or another, in the human body. For example, nanotech coatings designed to foster bone growth are composed of re-engineered proteins. Likewise, silver might be used to prevent infection, see Germano, supra, at 33, but nearly every person is exposed to silver every day without ill effects, except when exposures are to extreme doses. Is exposure to nanomaterials made from common substances different? What about exposure to organic materials that may be used in future generations of nanotech materials, rather than potentially toxic metals? See Tan Sheet, Ivy Nanoparticles in Sunscreens Safer, Stickier Than Titanium Oxide, Aug. 2, 2010.

• Assuming there is an “occurrence,” which policies respond?

Even if a policyholder passes the “occurrence” hurdle, he may still need to demonstrate when and how nanomaterials came loose from the implant. Moreover, if they migrated from the implant over a period of years, the question would arise as to which policies during the period of migration would respond.

In the asbestos and environmental contexts, many courts abandoned more traditional “manifestation” or “exposure” approaches to “trigger” and permitted policyholders to collect from each insurer on the risk during the period where the condition was developing. See, e.g., Montrose Chem. Corp. of Cal. v. Admiral Ins. Co. , 913 P.3d 878, 893-901 (Cal. 1995) (surveying “trigger” approaches to asbestos claims, including “continuous” trigger, injury-in-fact, and manifestation triggers); 20 Eric Mills Holmes, Holmes' Appleman on Insurance ' 129.2 K (2d ed. 2002 & 2008 Supp.) (surveying approaches). Although a similar analysis might apply if nanomaterials are continually being released, the absence of clear scientific evidence regarding what harm, if any, is caused by nanomaterials, including whether there is some “critical mass” before which harm is not likely, make these questions more difficult here.

Scenario Two: Food Packaging

Food packaging is a likely use for nanomaterials in the near future. Clay nanomaterials may be better able to protect food from carbon dioxide and moisture in the air. It may be possible to package beer in nano-engineered plastic bottles ' without the unpleasant plastic taste ' that would lengthen the shelf life of the product and reduce shipping costs relative to glass bottles or metal cans. New packaging materials, constructed with nanotech materials, may be able to detect food spoilage or even toxic pathogens in the container before the products are consumed. See Food Packaging Using Nanotechnology Materials: An Overview of “Smart Packing” and “Active Packaging,” at www.azonano.com/Details.asp?ArticleID=1317; see also Rory Harrington, Nanotech's Potential to Boost Barrier Performance of Plastics, at www.foodproductiondaily.com/Product-Categories/Cleaning-Safety-Hygiene/Nanotechs-potential-to-boost-barrier-performance-of-plastics.

Consider the following: Nanomaterials embedded in food packaging migrate out of the packaging material into the food and are consumed by the end-user. Reports of the packing material's failure are widespread, and a recall is initiated. Both the food manufacturer and the manufacturer of the nanotech packaging are sued and submit claims to their insurers.

• Are either manufacturers' claims subject to a recall exclusion?

The ISO CGL recall language eliminates coverage for a recall of the policyholder's product or work “if such product, work, or property is withdrawn or recalled from the market or from use by any person or organization because of a known or suspected defect, deficiency, inadequacy or dangerous condition in it.”

Therefore, the identity of the recalled product is an essential question. Where the recalled product was not the policyholder's but the policyholder remains liable for recall-related expenses (where, for example, it is the policyholder's component of a third-party's product that is responsible for the recall), several courts have noted that coverage might be available. See Amerisure Mutual Ins. Co. v. Hall Steel Co., No. 286677, 2009 Mich. App. LEXIS 2545, *16-17 (Dec. 10, 2009); Am. & Foreign Ins. v. Nw. Castings, Inc., No. 99C-2089P, 2000 U.S. Dist. LEXIS 20662, *10 (W.D. Wash. Sept. 13, 2000); Travelers Indem. Co. v Dammann, No. 04-5599 (DRD), 2008 U.S. Dist. LEXIS 9759, *21 (D.N.J. Feb. 11, 2008). Thus, where the nanotech company falls within the supply and distribution chain will be a critical issue, as will identification of the recalled product. In this example, is it the food packaging that is being recalled or the contaminated food? Although many courts recognize that property damage may arise from incorporation of a policyholder's product into a third-party's finished good, some courts have refused to find coverage where the policyholder's defective packaging did not result in direct damage to the third-party's product. See, e.g., Silgan Containers Corp. v. Nat'l Union Fire Ins. Co. of Pittsburgh, Pa., No. 08-2246 PJH, 2010 U.S. Dist. LEXIS 30100 (N.D. Cal. Mar. 29, 2010) (no coverage for recall of pull-top canned fruit; although defective cans rendered product unsalable, there was no damage to the canned fruit).

• Are migrating nanotech materials a “pollutant” within the meaning of the standard pollution exclusion?

Although the scope of this exclusion is frequently litigated, courts have reached varying conclusions. Some courts have held that the exclusion cannot apply to products intentionally used as part of the manufacturing process, see, e.g., W. Bend Mut. Ins. Co. v. Iowa Iron Works, Inc. , 503 N.W.2d 596 (Iowa 1993) (sand used in manufacturing process not a “pollutant” or “waste” within the meaning of the pollution exclusion), and others have questioned the applicability of the exclusion to product liability claims; still others have limited the pollution exclusion's scope to “traditional” environmental pollutants and refused to apply the clause to other substances, see, e.g., MacKinnon v. Truck Ins. Exch. , 31 Cal. 4th 635, 652 (2003); PepsiCo, Inc. v. Winterthur Int'l Am. Ins. Co. , 788 N.Y.S.2d 142, 144-45 (App. Div. 2004). For a good discussion of differing approaches to “pollution” arising out of use of a policyholder's products, see the majority and dissenting opinions in Park-Ohio Industries, Inc. v. Home Indemnity Co ., 975 F.2d 1215 (6th Cir. 1215). However, many decisions have read the clause expansively, with application to any substance potentially falling within the clause's broad definition of “pollutant.” Compare Nav-Its, Inc. v. Selective Ins. Co. of Am. , 869 A.2d 929, 937 (N.J. 2005), and Nautilus Ins. Co. v. Jabar , 188 F.3d 27, 30 (1st Cir. 1999), with Nascimiento v. Preferred Mut. Ins. Co. , 513 F.3d 273, 297 (1st Cir. 2008), and Cold Creek Compost, Inc. v. State Farm Fire & Cas. Co. , 68 Cal. Rptr. 3d 216 (Ct. App. 2007); see also 9 Steven Plitt et al., Couch on Insurance ' 127:6 (3d rev. ed. 2008).

Scenario Three: Nanotech and Environmental Remediation

Nanomaterials incorporating carbon might soon be used in environmental remediation situations. There is some evidence that nano-engineered carbon is more effective at trapping and containing organic contaminants than normal carbon. For example, scientists are working on a nanotech carbon-fiber mesh that will absorb oil more effectively than other materials, but also will be reusable and allow the oil to be extracted for later use, rather than being disposed of. See Elizabeth A. Thompson, MIT Develops a “Paper Towel” for Oil Spills, MIT News, at http://web.mit.edu/newsoffice/2008/oil-paper-0530.html.

Consider the following scenario. After an oil spill, a carbon-fiber nanomaterial “sponge” is released into the ocean to soak up the spill. The “sponge” is then retrieved, and the oil is recycled. Nanomaterials migrate from the “sponge” and into the environment. These nano-engineered carbon materials begin showing up in fish and other marine wildlife.

• Did the manufacturer “expect” or “intend” the release of carbon fibers?

Whereas older decisions focused on whether the insured “expected” or “intended” harm to result from its activities, no matter how related the expected or intended harm was to the actual harm for which it is now liable, see, e.g., Pachucki v. Republic Ins. Co. , 278 N.W.2d 898, 903 (1979) (knowledge or expectation of any kind of harm sufficient to show policyholder expected or intended harm), modern decisions have recognized the unfairness of this rule, especially in the environmental context where businesses deal with potentially harmful products on a daily basis but operate under safety precautions designed to minimize risk of environmental harm. Thus, these decisions typically require a more holistic assessment of the policyholder's knowledge and whether it either intended environmental harm or knew that environmental harm would flow from its actions. See, e.g., Morton Int'l, Inc. v. Gen. Accident Ins. Co. of Am. , 629 A.2d 831, 879-80 (N.J. 1993) (“A general rule in environmental-pollution coverage litigation that would permit intent to injure to be presumed simply on the basis of a knowing discharge of pollutants would be unjustified.”); City of Johnstown v. Bankers Standard Ins. Co. , 877 F.2d 1146, 1150 (2d Cir. 1989) (“Recovery will be barred only if the insured intended the damages or if it can be said that the damages were, in a broader sense, 'intended' by the insured because the insured knew that the damages would flow directly and immediately from its intentional act.” (internal citations omitted)).

Given the admitted dearth of knowledge regarding nanomaterials, it would be only the rare case where a policyholder would expect or intend damage to occur from its non-malicious use of nanomaterials. Insurers therefore will likely attempt to bring the case under the older, “any harm” standard, especially if some level of bio-degradation might have been anticipated by the policyholder. Moreover, even preliminary research is likely to be seized upon by insurers (and plaintiffs' lawyers) as evidence of knowledge of harm.

Conclusion

Although the harms, if any, caused by nanomaterials remain uncertain, it is likely that enterprising plaintiffs' lawyers will soon begin bringing suit based on exposure to nanomaterials and that these suits could be adjudicated before a scientific consensus is reached on the safety (or lack thereof) of human or animal exposure to nanomaterials.

The likelihood of these envelope-pushing claims also highlights the importance of the insurer's duty to defend under standard CGL policies. Nanomaterial lawsuits may involve novel and complex questions regarding causation, toxicity, and scientific knowledge regarding the behavior of nanomaterials. The cost of litigating these first cases may be substantial, and policyholders will likely want insurers to participate early in the cases. The question is whether courts will find this “first wave” of nanotech complaints to allege facts that potentially fall within the coverage of the policies. The general rule is that an insurer has a duty to defend any suit where the allegations might result in a covered claim being proven at trial. However, several jurisdictions allow the insurer to “look behind” the complaint to establish uncontroverted facts that would show no possibility for coverage. 14 Lee R. Russ & Thomas F. Segalla, Couch on Insurance ' 200:17-22 (3d ed. 2005 & 2007 Supp.).

Charles J. Fischette is an associate and Marialuisa S. Gallozzi is a partner in the policyholder insurance practice of the Washington, DC, office of Covington & Burling LLP. This article reflects the views of the authors, not of their firm or its clients. The article is not legal advice.