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Anthrax Personal Lines Exposures Cited

Following the “FC&S On Lines” column of Nov. 26, 2001, in which the commercial lines ramifications of anthrax were explored, a reader requested that we do the same for personal lines.

At first, the two situations appeared to be similar. However, some unusual twists and turns led to some very different conclusions than those reached in the Nov. 26 column.

Assume that two neighbors, Jack and Cindy, car pool together to the same employer. Cindy stops regularly on the way home to pick up mail–both personal and for her husband Williams home business–from a Post Office box. William has one employee; the business is insured by endorsement to the homeowners policy.

One day, a letter with no return address mailed from Trenton, N.J., is in the bundle of mail. Cindy drops Jack at his home, and continues home with the suspicious letter.

Assume that despite publicity about similar letters and a postcard from the Post Office advising people not to open them but to call in the authorities immediately, Cindy opens the letter out of curiosity as to who might be writing from New Jersey. A few days later she becomes ill, and anthrax is suspected.

What are the coverage implications?

First, the carpooling neighbor, Jack, might have been exposed because of the ride home with the tainted letter. Will Cindys personal auto policy respond to a claim for bodily injury? (Bodily injury includes disease.)

Perhaps. Remember, the PAP promises to pay for bodily injury for which the insured becomes legally responsible because of an auto accident. Coverage is provided to the insured for incidents arising out of “ownership, maintenance, or use” of any auto. Could Cindy be held legally liable simply because she was using her car to transport the letter?

Courts are divided over this one. In the case of State Farm Mutual Insurance Company vs. Peck et al., 900 S.W.2d 910 (Tex. App. Ct. 1995), the court held that a dog bite occurring within a vehicle was “not an auto accident as the term is commonly understood.” Therefore, the homeowners policy was the proper place to seek coverage.

But in the case of Diehl v. Cumberland Mutual Fire Insurance Company et al. , 686 A.2d 785 (N.J. Super. 1997) the court determined the auto policy, rather than the homeowners insurer, should respond when the insureds dog lunged from the rear of his pickup and bit someone.

The court recognized that other jurisdictions reached different conclusions, but held that the homeowners policy excluded coverage for bodily injury arising out of the use of a motor vehicle. Because the motor vehicle was being used to transport the dog, there was a “substantial nexus” between the injury and the use of the vehicle.

Of course, in those two cases actual injury occurred, while in Jacks case there is potential injury. But in those jurisdictions where bodily injury encompasses mental injury, Jack might have a strong case that the possibility of a life-threatening disease has led to emotional problems that should be covered by Cindys auto insurance, because the car was used to transport the letter.

There do not appear to be any applicable exclusions. The vehicle was not being used as a public or livery conveyance; car pooling is excepted. Even though Jack and Cindy work in the same place, there is no fellow employee exclusion. Even if the letter was addressed to Williams business, Cindys use of the car to pick up mail for the business is not excluded, because she drives a private passenger auto.

There are some twists in the auto policy.

First, medical payments coverage promises to pay reasonable expenses incurred by an insured because of bodily injury caused by an accident. Note, just “an accident,” not “an auto accident.” If picking up the contaminated letter is considered an accident, then conceivably medical payments coverage could respond to Cindys illness, because she is an insured, and to Jacks emotional distress (in some jurisdictions), because he was occupying Cindys vehicle.

Second, the vehicle must be decontaminated. Who pays? Is this direct loss? The physical damage portion pays for “direct and accidental” loss. Loss caused by contact with an animal is considered other than collision, and bacteria–anthrax–falls into the animal category. The question remains as to whether the auto is actually damaged.

Cindys home must be quarantined and chlorine dioxide gas used to get rid of the anthrax spores. Does the homeowners insurer pay?

The homeowners policy requires direct physical damage as a trigger for coverage. As we argued in the Nov. 26 column, there does not appear to be any physical damage. There is no physical manifestation–no change in appearance–in the dwelling or its contents.

Oddly enough, though, some recently developed endorsements could inadvertently provide property and liability coverage. Some insurers are adding endorsements that cover direct physical loss, subject to an aggregate, caused by or consisting of wet rot, mold or bacteria resulting from an insured peril. Sometimes a separate amount is included to test for their presence. Depending upon specific language, cleanup costs might be covered.

If the loss to the home is covered, then loss-of-use coverage is triggered for the time William and Cindy must vacate the premises. A neighbors loss-of-use would not appear to be covered even if civil authority ordered them to vacate. Civil authority must prohibit access because neighboring premises are endangered by a peril insured against under the policy. And, unless the neighbors homeowners policies provide similar limited coverage for mold or bacteria, there is no coverage.

Conceivably the neighbors could sue Cindy and William for loss-of-use. Cindys negligence resulted in loss-of-use of tangible property, which is part of the definition of property damage. Could homeowners liability coverage be called upon to respond to Jacks claim?

If the act of picking up personal mail is not tied to the auto, then it would be an activity of an insured that should fall within homeowners coverage. Cindy was warned not to handle suspicious mail. Finding that Cindy was negligent is possible. No exclusion would appear to bar, at the least, a defense if Jacks claim against Cindy is held to be within the province of the homeowners policy.

The closest is the exclusion for transmission of a communicable disease by an insured, but the insured has not transmitted anything.

Some endorsements, like that above, provide coverage for an insureds liability for bodily injury arising from inhalation of bacteria. In that case, the homeowners policy would respond to Jacks claim. (Personal umbrella forms vary greatly, and so will not be included in this discussion.) And, at this point, there are no homeowners exclusions targeting terrorism. (The war exclusion does not apply, as this is not a declared war as defined by a common dictionary or by case law.)

Finally, what of Williams business and his employee? Assume the business is closed for the time the home is decontaminated. If there is no endorsement such as that previously described, then there is no direct physical loss to trigger business income coverage.

But if Williams business involves shipping his product, and the recipient claims damages because the product has been contaminated, the home-based business form responds to bodily injury arising out of his product. (Whether or not bodily injury has actually occurred is a question of fact rather than of contract.) However, if William is forced to recall his products, there is no coverage for this expense.

And, because the home-based business form excludes coverage for bodily injury to an employee arising out of and in the course of employment, Williams workers’ compensation coverage, if he has it, would be the proper place to turn. And, if the employee sues Cindy for her illness, Cindys homeowners form excludes coverage because the injury arose out of a business engaged in by an insured.

Diane Richardson, CPCU, is associate editor of the FC&S Bulletins, published by the National Underwriter Company in Erlanger, Ky. The editors welcome comment and questions and may be reached by fax at 859-692-2237 or via e-mail at [email protected]

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, March 11, 2002. Copyright 2002 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.

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