Altered Risks.

The international controversy over genetically modified foods could lead to claims for U.S. insurers.

As concerns about genetically modified foods spill over from Europe into the United States, food manufacturers and their suppliers, distributors and commercial insurers may face greater exposures. The risks range from bodily injury to product recall to advertising liabilities.

While genetically engineered food is a flashpoint for protests and bans in Europe and Japan, only 27% of U.S. consumers think it poses a health problem, according to a 1999 Gallup poll. Genetically modified food already is entrenched in the U.S. food supply Last year, 50% of the U.S. soybean crop, 4% of potatoes and 25% of corn crops were genetically altered planings, according to the U.S. Food & Drug Administration. Common uses are the corn syrup in soft drinks, the corn in breakfast cereals and the soy in products like veggie burgers, which are targeted to health-conscious consumers.

The controversy over genetically modified foods has started to have an effect in the United States. In late April, major international food companies, such as McDonald's Corp. and Proctor & Gamble Co., announced they would not accept genetically altered potatoes for manufacturing french fries and potato chips. Two other food producers, Kellogg Co. and Philip Morris Cos. Inc.--owner of Kraft Foods Corp.--recently faced protests at their annual meetings from environmental activists who asked them to stop using genetically engineered foods in their products. Citing consumer concerns, Frito-Lay Inc. told the farmers it buys from not to use genetically modified corn, but last month shareholders of PepsiCo Inc., Frito-Lay's parent, rejected a proposal to ban genetically altered crops from PepsiCo products.

Early last month, with the intent to reaffirm the safety of genetically modified foods and bowing to pressure from consumer and environmental groups who called for increased oversight of genetically engineered crops, the FDA announced new rules for biotechnology foods. The new steps include a stricter procedure that requires companies to submit more research material to get approval. The FDA also will design guidelines for food manufacturers that want to label their products to indicate that they are made with or without genetically modified ingredients. The new rules are subject to a public comment period before going into effect.

The Internet serves as a continuous electronic bulletin board for opponents to post information about genetically modified foods. Groups such as the Campaign to Ban Genetically Engineered Foods, the Alliance for Bio-Integrity and Mothers for Natural Law, have Web sites listing hundreds of news reports about genetically modified food from all over the world, information on how to contact manufacturers and legislators and online petitions to sign.

"The information is out there, and damage can be spread with Internet rumors," said Nancy Gleason an attorney with the law firm Luce, Forward, Hamilton & Scripps in Chicago.

Philip Fiscus, vice president of Chubb Group of Insurance Cos., Warren, N.J., said uncertainty might generate interest in litigation. "The biotech industry needs to be more proactive in its education of the public," Fiscus said. Major biotechnology companies, such as DuPont Co., Monsanto Co. and Dow Chemical Co., are joining with their foreign counterparts to produce a $50 million ad campaign to assuage consumers' fears about genetically altered products. The campaign hopes to convince consumers that biotechnology is beneficial because it makes foods more nutritious and allows farmers to use fewer pesticides.

Possible Exposures

The most likely exposure that insurers could face is bodily injury, if a consumer becomes ill from eating a genetically modified, or transgenic, food product. Insurers also might have to pay third-party claims if a company recalls a product. As food manufacturers advertise that their products are free from genetically modified foods, insurers might be exposed to claims if it turns out not to be true, according to NAC Reinsurance Co., which published an article about the subject in the NAC Re Liability Bulletin newsletter.

The FDA has said labeling genetically modified food isn't necessary if the nutritional value hasn't changed and if no allergen has been introduced. But its decision last month to issue labeling guidelines is likely to result in an increase in labeling.

Labels might not eliminate a company's exposure, but government-mandated and voluntary labels can mitigate risk--as evidenced in most U.S. packaging bearing warnings such as "Do not open if seal is broken" and "Warning: contents are hot."

"The perception surrounding genetically modified foods and products containing them without labeling creates the potential for questions, and, with that, litigation," said Jane Hall, assistant vice president of NAC Re's claims management division.

But labeling could invite litigation for those manufacturers that do label as well as for those that don't, said Thomas P. Redick, the liability counsel on genetically modified issues for the American Soybean Association. Currently, biotech foods are tested for allergic components, Redick said. The FDA requires any food that contains a known allergen to be labeled. Redick contends that biotech foods are setting the safety standard for food production.

"The entire food industry will have to pay as close attention to allergies as the biotech industry does," he said. "This makes other food producers who don't use (genetically modified) technology potentially at risk for failing to meet the standard of care in designing hypoallergenic food." The organic food industry, which has been pushing for labeling of genetically altered foods, "is opening a door that could slam shut on their fingers, particularly for recall risks," he said.

Michael Jacobsen, a microbiologist who is executive director of the Center for Science in the Public Interest, raised many questions about the FDA's allergen screening at a public meeting that the agency held last year in Chicago. The FDA encourages, but does not require, companies to conduct studies when a gene is transferred from a plant or animal that often causes allergies, Jacobsen said. He pointed out several new risks in transgenic foods, such as the possibility that a new gene itself did not encode an allergen, but activated dormant genes that did code for allergens. He also pointed out the possibility that a protein found in genetically modified foods could lead to a behavior disorder or an autoimmune disease. "Risks of allergic reactions may be small, but they are real. Other risks are speculative, but not nonexistent," Jacobsen said.

Some in the food industry are lobbying for mandatory labeling, saying it would instill confidence in the safety of genetically modified foods. "Until the consumer feels confident in the safety of genetically modified foods, they will continue to refuse to purchase them. Mandatory labeling would have shown consumers the food production and processing industry has nothing to hide," Gary Goldberg, chief executive officer of the American Corn Growers Association, said in a statement.

But some experts contend that the labeling could deceive the consumer. Bob Bowden, a plant pathologist with Kansas State University, says most processed foods containing corn or soy in supermarkets are genetically altered, so what additional information would the label tell the consumer? "It's been a continuous issue in debate between those who say it's the consumer's right to know and scientists saying there's nothing to learn from the label," Bowden said. "It's a clash on each part for the moral high ground."

The Snack Food Association, which represents more than 800 snack-food manufacturers worldwide, agrees. It opposes mandatory labeling of genetically enhanced foods, saying it would be redundant, given the FDA's existing policy, which requires that biotech foods need only be labeled if they are significantly altered or if an allergen is introduced.

Whole Foods Market Inc., an Austin, Texas-based natural food supermarket chain, supports mandatory labeling and refuses to use genetically altered food in its 365 private-labeled brands. To ensure this, the chain uses a testing procedure that can detect the presence of small concentrations of genetically altered substances.

Hain Food Group Inc., manufacturers of a range of foods including Terra Chips and Weight Watchers products, also is voluntarily labeling its line of natural foods because of consumer concern. "We're basing our decision to label on the consumers' right to know," said Maureen Putnam, vice president of marketing for the Uniondale, N.Y.-based company. Apparently the U.S. public agrees with this decision--68% of respondents to a Gallup poll question want genetically modified foods to be labeled.

The labeling issue is so sticky that the European Union included a limit for the accidental content of genetically altered organisms. The new standards, adopted last October to replace current regulations that require labeling of transgenic foods, allows for accidental inclusion of 1% of genetically altered food. The European Union said the measures offered "legal certainty" to providers of the foods.

An Ocean of Difference

Currently, the level of public awareness of the issue is low in the United States. Only 10% of those surveyed in the Gallup poll have heard "a great deal" about genetically modified food. The opposite is true in the European Union and Japan, where genetically modified food is referred to as "Frankenfood" and consumers demanded labels to identify products with genetically modified ingredients and testing for those products that claim to be free of them.

Elliot Entis, president of AF Protein, a Massachusetts-based firm that produces genetically altered salmon, attributed the difference in attitudes in Europe and the United States to culture, media "and a soupcon of anti-Americanism."

Environmental groups such as Greenpeace use the cause to raise money, and the British tabloid press is notorious for taking a sensational story and running with it, Entis said. But Britain's bout with "mad cow disease" created fertile ground for mistrust of science and government. Europe's beef scare was triggered in 1996, when the European Union imposed a ban on British beef after a link was established between beef contaminated with bovine spongiform encephalopathy--a slowly progressive and ultimately fatal neurological disorder that strikes adult cattle--and Creutzfeldt-Jakob disease, a rare and fatal degenerative brain condition in humans. About 48 deaths have been attributed to mad cow disease. But the British government's handling of the situation gave birth to a public mistrust of both institutions.

Entis experienced the drastic difference in public perception of genetically altered food when he received reactions from both sides of the Atlantic to news about his company's ability to breed salmon that can grow to commercial size 50% faster than unaltered salmon. "After the piece ran on CBS news in the United States, I received a couple hundred e-mails, mostly from people who wanted to invest in the company," Entis said. When the story ran in England, he received 30 interview requests in one day from British TV and radio stations that wanted to run stories on the controversial subject.

England also doesn't have a food regulatory agency like the FDA, which many Americans trust to protect them from unsafe products, he said.

Europeans' strong opinions on genetically engineered food are heavily influenced by the "Pusztai affair," which was based on remarks and findings of a British senior scientist for the Rowett Research Institute in Scotland. After feeding genetically modified potatoes to rats, Dr. [acute{A}]rp[acute{a}]d Pusztai reported that the rodents experienced stunted growth, damaged immune systems and damage to major organs. In interviews on British television, Pusztai declared that he wouldn't eat genetically modified food and said it was unfair to use humans as guinea pigs.

Disturbed about what it called a "one-sided debate...raging in the media on the back of unvalidated claims," the Royal Society, an independent academy of science in the United Kingdom, reviewed the data before they were published and stated that no valid conclusions could be drawn from them. In October, Pusztai published his findings in The Lancet, a British medical journal, and the Royal Society condemned the article as containing unsubstantiated conclusions.

Pusztai continues his crusade on the Internet, and the debate rages on in Europe. The main problem with genetically modified food, said Pusztai, is it has never been tested on human or even lab animals, and there are only a handful of studies. "The (genetically modified) biotech industry takes this lack of evidence as evidence that genetically modified food is safe for human health," Pusztai said. "Clearly it makes logic stand on its head."

Stamp of Approval

In the United States, supporters of genetically modified foods point to approval by the FDA, the Environmental Protection Agency and the U.S. Department of Agriculture as an assurance of safety.

The FDA regulates genetically modified food by the same provisions and regulations that it applies to other food products. Genetically altered food is approved through a voluntary consultation process with the FDA. Companies send the FDA data on the altered food product proving it is safe and uses substances that are "generally considered as safe." The FDA's scientists review the data, and if they are satisfied with the data, they grant an approval.

There is disagreement about the degree to which FDA approval should provide comfort to insurers who cover companies using genetically modified food products.

"For there to be insurance implications, plaintiffs would have to show that they suffered actual physical damage or disease through consumption of the products," said Robert Hartwig, vice president and chief economist of the Insurance Information Institute. "I think this is unlikely, given the FDA testing and generally innocuous nature of the modifications."

But history proves that FDA approval doesn't provide total protection from litigation.

"FDA approval has not been a successful defense in warding off liability or expensive litigation. The FDA or government's approval doesn't insulate manufacturers," said Gleason of Luce, Forward, Hamilton & Scripps. The FDA approved the pesticide dibromochloropropane before it was alleged to cause sterility in users and banned in 1979, and it also approved silicone breast implants, Gleason said. Although critics have questioned the validity of the scientific evidence linking the implants to health problems, Dow Corning Corp., which once manufactured the implants, has agreed to pay $3.2 billion to settle claims by more than 170,000 women.

Potential for Litigation

Litigation related to third-party liability could evolve from a scenario in which genetically modified corn is mixed with regular crops and the shipment goes to a food manufacturer. If a consumer gets sick, the food manufacturer then might be sued for using the tainted crop. "There is a possibility for a tremendous chain of defendants," Gleason said. She suggests that insurers insert a clause into insurance coverages that deems a loss to be covered only if it occurs at a given time. If such a clause isn't inserted, insurers could face claims that stem from consumers eating genetically modified food over a period of many years. "That would open a can of worms," she said.

This issue also may affect a company's brand. In a recent Lloyd's study of the corporate image in the food and drink industry, a company's brand was considered a corporation's most valuable asset. Product contamination was listed as the most serious risk to corporate reputation. The study also points out that the media's coverage of genetically modified food has raised concern about the issue.

Coverage for damage to corporate image exists in Chubb's Reputational Damages Liability Insurance product. It's an endorsement to Chubb's liability policy for food processors, suppliers and franchisers. The policy was developed because standard commercial liability policies only respond to bodily injury and property damage, but don't address the economic losses that a brandowners' third party may sustain, said John Cavanaugh, vice president at Chubb. To trigger the coverage, bodily injury must occur. The Chubb coverage is offered as a sublimit to a Chubb commercial umbrella policy with a capacity of $50 million.

Legislative Moves on Liability

U.S. and European legislators also are getting involved in sorting out this issue. The biotech industry received a rare victory in April when the European Parliament rejected biotechnology-specific liability rules governing transgenic crops found in the reform of a European Union law The Parliament rejected new measures that would have made biotech companies liable for damage caused by genetically modified food. However, EuropaBio, a biotech industry association, said the amendments would have increased insurance costs drastically. The amendment called for specific strict civil liability, meaning liability regardless of fault, for any damage to human health or the environment caused by genetically engineered food and required insurance to cover the damage, said Conrad Von Kaimeke, head of EuropaBio's biotech liability task force. Because biotech-specific liability rules already exist in Germany, it's impossible for the insurance industry in that country to come up with a proposal to provide insurance mandate d by law that would be acceptable to the government, Kameke said.

After studying scientific evidence, a U.S. congressional panel concluded that genetically altered foods were safer than conventional foods. The report, released in April, blamed European activists for public distrust of genetically altered food.

Regardless, U.S. Reps. Dennis J. Kucinich, D-Ohio, and Jack Metcalf, R-Wash., introduced the bipartisan Genetically Engineered Food Safety Act earlier this year. The legislation calls for restructuring the FDA's review process of transgenic foods. The legislators want the altered food to be subject to the FDA's food-additive process. Kucinich also called for legislation that would mandate labeling of genetically altered foods. As of early May, both bills were in a holding stage in the commerce and agricultural committees. A Kucinich aide said only the force of political pressure would move the bills toward a vote. Kucinich called the FDA's new rules on biotech food "genetically engineered baloney."

"If the FDA can require premarket testing of artificial colors and preservatives, then why can't they do the same for genetically engineered foods?" he said.

Risks of Genetically Altered Foods

Genetically engineered foods recently received a cautious endorsement from a scientific panel convened by the National Research Council of the National Academy of Sciences. The research committee, which advises the federal government, said a plant isn't necessarily dangerous just because it's genetically modified. "The committee is not aware of any evidence that foods on the market today are unsafe to eat as a result of genetic modification," Perry Adkisson, chair of the committee on genetically modified pest-protected plants, said in a statement. But, the council recommended developing new methods to identify potential allergens in genetically modified food and using more reliable animal models in the tests. The report also questioned the FDA's decision to exempt from regulation plants that have received a new gene from a sexually compatible plant. In some cases, the transfer and manipulation of genes could potentially increase human and environmental exposure to high levels of toxins, the committee said.

Some experts who study plant diseases contend that foods derived from biotechnology processes are safer to eat than food from crops sprayed with pesticides. Corn, for example, is subject to destruction from corn borers and ear-worms. These insects can introduce a plant disease associated with the formation of mycotoxins that may be fatal to horses and pigs and are a probable human carcinogen, according to the American Phytopathological Society. Biotech corn, known as Bt corn, has been altered to resist caterpillars, corn borers and earworms. "Bt corn is less likely to be attacked by insects and rot than non-altered corn. This leads to less spraying and less residue on the corn," said Bowden, a plant pathologist with Kansas State University.

Groups opposed to genetically modified foods cite a full range of risks from the products. They include increased cancer risks, allergies, damage to beneficial insects and creation of new viruses. In 1997, Monsanto, the largest supplier of genetically engineered seeds, recalled a batch of its transgenic canola seeds, which were designed to deter the growth of weeds. The St.Louis-based chemical and biotechnology giant said the canola seeds contained an unapproved gene that was mixed into the seed by mistake.

The National Corn Growers Association also is advising its members that some seed companies are saying that even seeds that are not considered genetically modified contain low levels of germplasm, or the reproductive cell, of genetically modified organisms. The association advises farmers who deal with European importers, Japanese importers or businesses that request non-modified corn that testing for genetically modified germplasm at processors' bins or export vessels isn't in place yet and adds up to "high- stakes legal problems for everyone involved."

The Brave New World of Genetically Engineered Food

Starting with the Flavr-Savr tomato in 1994, genetically engineered food spread into most of the products U.S. consumers use every day.

The list includes cakes mixes, soft drinks, pancake mixes, corn chips, granola bars and even pet food, according to the Center for Food Safety. Soybeans, corn, potatoes and tomatoes are the main crops planted with genetically altered seeds. Genetically engineered crops are designed to increase yields, reduce pesticide use and provide better nutrition. Genetic engineering manipulates by scrambling, blocking or adding the genetic material or DNA inside the cells of living organisms to block or add desired traits, according to research from the natural foods supermarket chain Whole Foods Markets.

U.S. regulations for genetically altered foods are administered by three agencies. The Environmental Protection Agency regulates field testing of biotech crops; the Food and Drug Administration oversees labeling and food safety; and the U.S. Agriculture Department handles pesticide use.

To create a genetically altered plant, scientists insert a single gene or, if necessary, multiple genes into a crop's seed to give it new, advantageous characteristics, according to the FDA. Altered soybean crops carry a gene that makes them resistant to herbicides. About 25% of the U.S. corn crop planted in 1999 contained a gene that produces a protein toxin that wards off certain caterpillars, thus eliminating the need for a range of pesticides.

The basics of biotechnology as applied to agriculture hit a high point in the late 19th century when Gregor Mendel, an Augustinian monk, discovered that traits of pea plants were inherited. In 1973, scientists were able to splice DNA which led to the development of the first genetically altered food--the FlavrSavr tomato that was designed to delay over-ripening for a longer shelf life. Proponents of genetically altered foods point to its humble beginnings and say what's being done today is nothing new, only faster.

But Jane Rissler, a biotech expert with the Union of Concerned Scientists recently told the Associated Press that genetic engineering is a "very powerful technology, far more powerful than traditional breeding, just as nuclear energy is far more powerful than fossil fuels."