Emerging Issues Regarding Liability Insurance and Genetically Modified Organisms

In short, even though GMO technology may seem unfamiliar or exotic to many coverage practitioners, many of the disputes that have arisen in environmental and mass tort insurance coverage litigation over the last several decades could sprout up in coverage litigation relating to the brave new world of GMO.

Robert D. Goodman, a member of this newsletter's Board of Editors, is a partner in the New York office of Debevoise & Plimpton LLP, where he practices in the firm's insurance industry and litigation groups. Harry Zirlin and William C. Weeks are associates at the New York office of Debevoise, where they have represented agricultural clients in GMO-related litigation, including the sugarbeet litigation referenced in this article.

The coverage issues surrounding losses caused by environmental pollution have been litigated for decades. Yet, no matter how many permutations of disputes take place over what constitutes “pollution” within the meaning of the pollution exclusions in comprehensive general liability (“CGL”) policies, new issues continue to arise. One issue poised to become significant is whether damage allegedly caused by genetically modified organisms (“GMO”) is within the ambit of the absolute pollution exclusion currently in effect. That exclusion, as set forth in the standard form policy published by Insurance Services Office, Inc., provides that CGL coverage does not apply to: “'Bodily injury' or 'property damage' arising out of the actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of 'pollutants,'” with “pollutants” defined as “any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste ' ” At least one insurance carrier, however, has defined “ pollutants” expressly also to include “genetically engineered materials.” See, e.g., Bechtel Petroleum Operations, Inc. v. Cont'l Ins. Co., 2006 WL 531277 (Cal. App. 2d Dist. Mar. 6, 2006). Other issues that have been litigated in the context of traditional environmental liability and mass tort claims are also relevant to potential GMO claims, including whether the alleged harm was expected or intended by the policyholder, and whether the alleged harm constitutes a single occurrence or multiple occurrences.

Although claims for damage caused by GMO may arise in other contexts, it is within the agricultural sector that GMO coverage issues would likely predominate. Various participants in the agriculture industry, from individual farmers to seed companies, agricultural cooperatives, and distributors, obtain CGL or other liability coverage to protect against liability for bodily injury and property damage. Covered liability for property damage generally includes physical injury to tangible property including the loss of use thereof, as well as the loss of use of tangible property that has not been physically injured. Coverage under such policies is typically limited to “occurrences,” as that word is interpreted in the case law.

Liability insurance policies held by farmers and others in the agriculture sector often contain exclusions for certain farming-related risks. For instance, one exclusion found in some policies excludes claims arising from cross-pollination, or the unintentional transmission of pollen from one field to another in which genetically compatible crops are fertilized by the drifting pollen. When unintentional cross-pollination occurs, the seed produced by the fertilized crop will contain genetic material from the foreign pollen, which can be undesirable from the perspective of the farmer whose crops have been cross-pollinated. For example, if a field of red beets is unintentionally cross-pollinated by a field of yellow beets, the offspring of the red beets may have traces of yellow coloration that render them less marketable.

The cross-pollination exclusion takes on new significance in the era of GMO crops, which have come to dominate parts of the American agriculture market. More than 90% of soybean and sugarbeet acreage and approximately 75% of cotton and corn acreage in the United States contain genetically engineered resistance to certain herbicides. These crops remain unharmed when treated with specific herbicides, while weeds present in the treated field will be killed. In addition, approximately 75% of cotton acreage and 65% of corn acreage possess genetically engineered resistance to certain insects.

Riceland Foods v. Liberty Mutual

Often in coverage disputes, the first issue confronting the insurance carrier is whether it has a duty to defend the policyholder. This issue recently arose in the context of alleged GMO-related damage in Riceland Foods, Inc. v. Liberty Mutual Insurance Co., 2011 U.S. Dist. LEXIS 61381 (E.D. Ark. June 8, 2011), in which the Eastern District of Arkansas held that Liberty Mutual had a duty to defend Riceland, an agricultural cooperative that processes and markets rice for its farmer members. Riceland was facing approximately 170 lawsuits brought by rice growers and distributors following an announcement by the U.S. Department of Agriculture (“USDA”) that a variety of GMO rice known as Liberty Link (“LL”) rice had been discovered in the U.S. rice supply. Riceland had been cooperating with Bayer Crop Science for a number of years to develop LL rice, and the complaints alleged that Riceland and Bayer had failed to take precautions to prevent LL rice from entering the supplies of conventional rice that Riceland processed.

Among other things, the complaints alleged that Riceland had failed to use safe growing zones, failed to segregate equipment used in fields where LL rice was grown, and failed to exercise reasonable care in the transportation and storage of LL rice. According to the complaints, LL rice had not yet been proven safe for long-term human consumption and would not be accepted by many purchasers, particularly in the European Union and, as a result of Riceland's actions, the price of rice had dropped, causing the plaintiffs significant losses. The complaints also alleged that prior to the USDA's announcement, Riceland had withheld knowledge of the presence of LL rice in the conventional rice supply, preventing farmers from foreseeing upcoming problems in the rice market and choosing to plant a different crop. European distributors also brought suits against Riceland, claiming that they had received shipments of rice containing LL rice that could not be sold to their customers in Europe.

The duty-to-defend question facing the court turned primarily on a “change endorsement” to Riceland's CGL policy, which excluded coverage for property damage “caused in whole or in part” by, among other things, cross-pollination. Liberty Mutual argued that because the complaints alleged, in part, that LL rice had entered the conventional rice supply through cross-pollination, Riceland's property damage was “caused in whole or in part” by cross-pollination, and was excluded in full. The court disagreed. Because the complaint alleged several independent ways in which LL genetic material had entered the conventional rice supply, such as mixing during processing or storage, it was possible that the GMO presence was not, in fact, caused by cross-pollination. Because the trier of fact could conclude that the presence of LL genetic material in the rice supply was not caused, even in part, by cross-pollination, the court held that Liberty Mutual had a duty to defend Riceland.

While the Riceland case is the first to involve an insurance coverage dispute over large-scale liability involving allegations of damage caused by GMO, other recent cases outside of the insurance context have set the stage for coverage disputes that may arise relating to claims of alleged harm caused by GMO presence in agricultural products.

Allegations in Recent NEPA Case Law of Harm Arising from GMO Crops

Several recent cases arising under the National Environmental Policy Act of 1969 (“NEPA”), 42 U.S.C.
' 4321 et seq., although not involving coverage issues, provide examples of the types of alleged injuries that could well be the subject of coverage disputes in the future. In Monsanto Co. v. Geertson Seed Farms , 130 S. Ct. 2743 (2010), the Supreme Court addressed allegations of harm from the cultivation of a GMO variety of alfalfa called Roundup Ready alfalfa (“RRA”). The plaintiffs included organic and conventional (i.e., non-GMO) alfalfa growers who alleged that the USDA's decision to permit the unrestricted use of RRA would result in their crops being cross-pollinated by RRA fields. The organic farmers alleged that the presence of GMO genetic material in their crops would harm them because their customers wished to buy non-GMO alfalfa. (The Supreme Court's ruling dealt with NEPA procedural questions.)

Similarly, in Center for Food Safety v. Vilsack , 636 F.3d 1166 (9th Cir. 2011), a recent NEPA case involving GMO sugarbeets, the Ninth Circuit confronted issues relating to alleged harms from Roundup Ready sugarbeets (“RRSB”). The plaintiffs included organic seed producers who alleged that specific RRSB fields planted under permits issued by the USDA could cross-pollinate plaintiffs' organic seed fields, allegedly causing harm to the plaintiffs. The Ninth Circuit vacated a preliminary injunction granted to the plaintiffs, holding that they had not demonstrated a likelihood of genetic contamination or irreparable harm from the particular fields in question. The court's decision was based on the fact that the USDA permits would not allow the RRSB plants to flower and produce pollen, so the types of harm alleged by the plaintiffs could not occur under the permits.

Areas of Potential Litigation in Coverage Disputes Related to GMO

In both the alfalfa case and the sugarbeets case, the plaintiff farmers and organic seed producers essentially alleged that their crops would inevitably become contaminated by GMO crops, making their crops worth less, or, perhaps, worthless. (Indeed, a GMO farmer might also claim economic harm if genetic drift were to occur in the opposite direction, as the presence of non-GMO genetic material in a GMO farmer's crop could decrease its value.) In coverage litigation arising from such losses (should they come to pass), a court that is asked to interpret a typical CGL policy with an absolute pollution exclusion might well be confronted with the question of whether the gene or genes that drifted to the plaintiff's crops were “pollutants” and the resulting losses thus excluded from coverage.

Such a dispute would echo those cases addressing whether bacterial contamination of water constituted “pollution” for the purposes of the absolute pollution exclusion. Courts have split in their approach to such cases, with some holding that because bacteria are organic, and the words used to define pollutant, such as smoke, vapor, soot, fumes, acids, etc., describe inorganic matter, bacteria are not pollutants within the ambit of the exclusion. See, e.g., Keggi v. Northbrook Prop. & Cas. Ins. Co. , 13 P.3d 785 (Ariz. Ct. App. 1st Div. 2000). Other courts have differed with the reasoning of Keggi and held that under the plain meaning of the word “contaminant,” bacteria or other living organisms were “contaminating” the water or air at issue, and therefore coverage was excluded. See, e.g., Nova Cas. Co. v. Waserstein , 424 F. Supp. 2d 1325 (S.D. Fla. 2006).

In the case of genetic material, a similar question is presented. Would the drift of genetic material from one crop to another be the type of “pollution” or “contamination” meant to be excluded from coverage under the absolute pollution exclusion? If the allegation were that an organic farmer's crops were “contaminated” by GMO material, a court could take a “plain language” approach to interpreting the exclusion and deny coverage, or, following the reasoning of Keggi, it could conclude that only inorganic contaminants were meant to be excluded from coverage.

Another potential dispute in this context is whether a contamination event would constitute a covered occurrence or, rather, would it be “expected or intended” from the standpoint of the policyholder. Because genetic material that has been engineered into a GMO becomes, by definition, part of a living organism, even the most fervent advocates of the technology underlying GMO would admit that not all genetic drift can be avoided under all circumstances. On the other hand, because they are far from oblivious to the risks of genetic drift, users of GMO technology have adopted, for their own commercial reasons, strict measures to mitigate the risk of unintentional cross-pollination between GMO and non-GMO crops, including tracking the locations of genetically compatible crops and ensuring that fields of compatible GMO and non-GMO crops are separated by sufficient distances. Those in favor of GMO technology (including the USDA) believe that any risks associated with unintentional cross-pollination by GMO plants can be managed to an acceptable level through such means and that the benefits of the technology therefore outweigh such risks.

Nonetheless, insurance carriers could attempt to capitalize on the alleged “inevitability” of genetic drift by arguing that a contamination event did not constitute an accident or occurrence under the policy, but rather was expected or intended. Again, the case law addressing the “accident”/”occurrence” and “expected”/”intended” issues differs significantly from state to state, so that what constitutes a covered occurrence under New Jersey law might well be excluded from coverage under Texas law. Compare Voorhees v. Preferred Mut. Ins. Co. , 607 A.2d 1255, 1265 (N.J. 1992) (“Absent exceptional circumstances that objectively establish the insured's intent to injure, we will look to the insured's subjective intent to determine intent to injure.”) with Mid-Century Ins. Co. of Texas v. Lindsey , 997 S.W.2d 153, 155 (Tex. 1999) (“[B]oth the actor's intent and the reasonably foreseeable effect of his conduct bear on the determination of whether an occurrence is accidental.”).

Likewise, because there is often a per occurrence deductible and a per occurrence limit under CGL policies, the number of occurrences at issue in a GMO-related claim could be a contested issue. For example, would an allegation of genetic drift from one source to two different farmers constitute one occurrence or two? Under a cause-oriented analysis there is only one occurrence when there is “one proximate, uninterrupted, and continuing cause which resulted in all of the injuries and damage,” regardless of how many discrete claims are made. See, e.g., Bartholomew v. Ins. Co. of N. Am. , 502 F. Supp. 246, 251 (D.R.I. 1980) (quotation omitted). Thus, one coverage issue in a genetic drift case could be whether the cause was “uninterrupted and continuing,” with advocates of a single-occurrence result arguing that the proximity of the GMO field to the fields of the complainants was the cause, and proponents of a multiple-occurrence outcome arguing that each cross-pollination event of a different field, or even of a different plant, (whether by wind or insect) should be viewed as the cause of the alleged damage.

Of course, by saying that claims for alleged losses from GMO may have certain issues in common with traditional environmental pollution and other mass torts, we do not mean to imply that coverage claims for GMO-related losses will rise to these levels. However, potential GMO claims could have a number of notable similarities to traditional types of claims, including the difficulty of ascertaining when the alleged injury began and the possibility that the alleged injury could span multiple policy periods before it is discovered. For example, in the Riceland case, if the same policy had not been in effect during the several years in which contamination was alleged to have occurred, there would likely have been a dispute as to how to allocate coverage. Another potential dispute is whether a farmer's or seed producer's costs in implementing a breeding program to eliminate the presence of a GMO gene from non-GMO breeding lines would be a covered loss analogous to disputes over what constitutes covered “cleanup” costs in the context of traditional pollution claims. Cases considering whether cleanup costs are “property damage” in the context of traditional environmental claims have relied heavily on requirements imposed by governmental agencies, see, e.g., Avondale Indus. Inc. v. Travelers Indem. Co. , 887 F.2d 1200 (2d Cir. 1995), but it is unclear whether, in the context of GMO claims, governmental authorities would impose any requirements at all, much less in relation to future breeding lines.

In short, even though GMO technology may seem unfamiliar or exotic to many coverage practitioners, many of the disputes that have arisen in environmental and mass tort insurance coverage litigation over the last several decades could sprout up in coverage litigation relating to the brave new world of GMO.

Robert D. Goodman, a member of this newsletter's Board of Editors, is a partner in the New York office of Debevoise & Plimpton LLP, where he practices in the firm's insurance industry and litigation groups. Harry Zirlin and William C. Weeks are associates at the New York office of Debevoise, where they have represented agricultural clients in GMO-related litigation, including the sugarbeet litigation referenced in this article.