Prognosis: Unknown; insurers' liability for losses caused by bioterrorism or the threat of bioterrorism is too new to be clear cut. (Property/Casualty).

Bioterrorism attacks may cause claims exposure in multiple insurance lines, but right now there are more questions than answers. Insurance lines that could be affected include property, commercial general liability, workers' compensation and business interruption.

"So far, the medical professionals are telling us it's not such a big problem. If there are no more anthrax cases, this is just a tiny blip. Most will be covered by health insurance, life insurance for those who died and workers' comp," said attorney John H. Haley, counsel with the insurance and reinsurance practice group of Edwards & Angell LLP.

Because bioterrorism is a new threat to insurers, and especially since the source of the present anthrax attacks hasn't been discovered, the industry is cautious about the subject. In lieu of an interview on bioterrorism, Hartford Financial Services issued this statement: "The threat of anthrax, real or otherwise, presents a new issue to the insurance industry. Circumstances of claims being made and policy coverages can differ widely, as can jurisdictional issues. Claims are being carefully reviewed individually and decisions made on a case-by-case basis, depending on the facts of the case."

The cause of the most recent bioterrorism threat--anthrax--hasn't been determined, and the actual threat to the population is small. Consequently, insurers haven't had much experience with claims. Haley said it's still too soon to even estimate the amount of lawsuit liability for insurers regarding bioterrorism. "It's very hard to tell. Despite all the massive fear, there are so few cases. A handful of people have died so far, there have been few exposures, and anthrax at least is very curable in its early stages," Haley said.

Claims potential for the group life insurance part of the industry depends on contract wording and, in some products, act of war exclusions, said Ronald Barto, vice president of group life benefits division, Hartford Financial Services Corp. "Before a claim is paid, we would look at the contract and read the language and decide what's covered and what wasn't. Depending on what employers need, we may not include certain wording in any given case," Barto said.

Group life claim payments wouldn't be affected by any exclusions, but group disability and accidental death and dismemberment do carry an act-of-war exclusion. "The anthrax situation is unclear right now as to who is initiating the attacks. We don't know if it's an act of war. There are no terrorism exclusions, but [in the group disability and accidental death and disability] we have act of war exclusions. It's a big decision when to invoke those exclusions, and to date we haven't done that," Barto said.

The actual property exposures may be few--with CBS, NBC, the U.S. Senate and various postal facilities as the most high-profile locations. But a location may need to be decontaminated and tested even if anthrax didn't actually appear on the premises. According to an Orlando, Fla., television report, an anthrax-laced letter contained the return address of an Orlando company. The letter was sent between Zurich, Switzerland, and Santiago, Chile. Simply because of the return address, the company s building and employees had to undergo testing for anthrax.

Pollution Problems

One area of potential litigation is pollution exclusions. A common definition of pollutants is "any solid, liquid, gaseous, or thermal irritant or contaminant including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste." The key word is contaminant, Haley said, and the question is whether insurers consider anthrax or any other bioterrorist substance to be a contaminant. If so, the pollution exclusion could eliminate coverage.

Don Griffin, director of business and personal lines for the National Association of Independent Insurers, said court cases concerning the interpretation of contract wording and bioterrorism coverage are inevitable. Even though insurers try to anticipate what will spark litigation, "We didn't think about this. It will get down to the contract and how the company interprets the contract," Griffin said.

The lack of a liability figure for bioterrorism is ominous, considering that liability losses are the biggest wild card outstanding from the Sept. 11 catastrophe. Morgan Stanley estimates liability losses at $5 billion, while Tillinghast-Towers Perrin's high estimate is $20 billion in possible liability exposure from the disaster. Total losses from the catastrophe have been estimated in the range of $30 billion to $70 billion.

The Exposure Lineup

Among insurance lines with possible exposure to bioterrorism, workers' comp faces the potential for the largest number of claims, according to experts. That's because the situation is the clearest. If the exposure arises from the course of employment, most insurers say it's compensable under workers' comp, said Robert Hartwig, vice president and chief economist for the Insurance Information Institute. In fact, Hartwig said there is a precedent in case law concerning workers' comp coverage for anthrax exposure dating back to 1917.

"There are few cases of anthrax in the workplace, but this case is case law nonetheless and involved tanning hides, so the worker contracted it in the course of his employment," Hartwig said.

Workers who become infected with anthrax during the course of their jobs will be covered for testing and medication under workers' comp. But coverage claims get complicated when it comes to paying for testing or antibiotics for being exposed but having no direct contact with the substance. Since workers' comp covers actual injuries, preventative treatments would most likely be covered by the employee's health insurance, Haley said.

Previous examples of the need for medical testing and medication for exposure to a contaminant are few, said Nancy Schroeder, assistant vice president of workers' comp claims for the NAII. For example, a precedent exists in Connecticut where that state's Supreme Court ruled exposure to HIV is compensable as an injury under workers' comp coverage.

Coverage Scenarios

Coverage under commercial general liability insurance could exist, in a scenario where someone contracted anthrax during a visit to an office.

Haley contended that commercial general liability insurance is basically a premises owner's coverage that protects the insured owner against suits based on accidents like someone slipping and falling on the property. "Conceptually, getting anthrax while on a property is not too far from slipping and falling," Haley said, "but you have to prove how you contracted the anthrax to get a recovery. You can imagine the problems there."

Hartwig said that not only would plaintiffs have to prove they contracted the disease on the premises, they would have to prove negligence on behalf of the business. "Odds are the business wasn't aware the bacteria was present in the workplace. It would be difficult to cross that negligence barrier," he said.

There is some disagreement as to whether bioterrorism would be covered under business interruption insurance if no pollution exclusion applies. The main criterion for coverage in business interruption is whether there is physical loss or damage to a property from a covered peril. Haley said that if a business is shut down simply because of the fear of anthrax or any other bioterrorism threat, business interruption coverage doesn't go into effect. But "if you can prove you have anthrax powder on the premises, you have a legitimate business interruption claim." He dismissed the argument that if anthrax contamination is covered under business interruption, then outbreaks of influenza also must be. "You have to make a real distinction between a business being shut down by a disease-causing substance that is deliberately put there, as opposed to something that we get every year. It's not the same thing," he said.

Hartwig said an anthrax infestation in an office would be no different from a virus spreading around. "That happens all the time and has a measurable impact on many businesses around the country but that's not something a business interruption policy can respond to. Whether the bacteria is called streptococcus pneumoniae or bacillus anthracis, there is no physical loss or damage from a business income perspective," Hartwig said.