“Just one word. Are you listening? Plastic,” an enthusiastic Mr. McGuire advises Benjamin in the 1967 movie, The Graduate. A little more than 40 years later, we're still talking about plastics, although not quite so optimistically.

It turns out that one of the ecological answers to the disposable water bottle problem — the hard plastic, reusable variety — is a chemical that some health officials now label as toxic. The hard plastic used in water bottles, baby cups, and baby bottles contains Bisphenol A (BPA). Studies show that this organic compound acts like the female hormone estrogen, and it has been linked to certain health problems, including infertility and cancer in animals. In addition to the hard plastic bottles, BPA is commonly found in the liners of food cans, dental sealants, CDs and DVDs, as well as other common household goods.

Who's Afraid of BPA?

In late April, Health Canada banned the import, sale, and advertisement of baby bottles containing BPA. Some U.S. retailers have already stopped selling suspect baby bottles; some no longer market adult-sized reusable bottles; and some have pulled the plastic containers from their shelves altogether.

On the flip side, the Polycarbonate/BPA Global Group insists that the danger posed by human exposure to BPA from such polycarbonate plastic containers is minimal at best and thus poses “no known risk to human health.”

It is evident that the debate has the potential to impact the commercial general liability (CGL) insurance coverage carried by the manufacturers and retailers that make and distribute BPA, as well as the products that contain the chemical. However, deciding when coverage will actually be triggered is less clear.

If a causal link between BPA and illness in humans is proven, then the typical CGL form would provide defense and damage payments for the ensuing bodily injury claim. But when did the occurrence that gave rise to the bodily injury actually take place?

The CGL defines an “occurrence” as an “accident, including continuous or repeated exposure to substantially the same general harmful conditions.” By this definition, exposure to BPA in polycarbonate plastics over a period of time would qualify as “continuous or repeated exposure.”

Four Theories of Occurrence

First synthesized in 1905, BPA has been used commercially since the late 1950s, according to the Polycarbonate/BPA Global Group. To determine the date of occurrence in continuous exposure cases, various jurisdictions have used four theories: the exposure theory; the manifestation theory; the injurious process theory; and the injury-in-fact theory.

The manifestation theory holds that an injury actually occurs when it manifests itself. Liability is covered by the policy in force when the injury or disease is diagnosed. Followers of the exposure theory argue that the liability policy obligated to respond is the one that was in effect when the claimant was exposed to the dangerous condition.

However, proponents of the injurious process theory argue that the injury is a continuous process that begins with the first exposure and ends when the injury becomes known. This theory was developed as a result of asbestos litigation cases such as Keene Corp. v. INA, in which the court held that injury began with the first inhalation of asbestos fibers and ended when the disease manifested itself. Policies in effect at any time during this exposure period, the Keene court determined, applied to the liabilities. This theory would trigger all policies in force throughout the continuum of continuous exposure.

The case of American Home Products Corp. v. Liberty Mutual Insurance Co. illustrates the injury-in-fact theory. The court reasoned that coverage was not triggered when symptoms from asbestos exposure manifested themselves, but rather when the injury actually occurred. This theory does not require that the injury be diagnosed during the policy period, but rather when the injury actually occurred.

Even though there is, as of yet, no proof of bodily injury from the plastics, property damage has occurred. The CGL form defines property damage as “physical injury to tangible property, including all resulting loss of use of that property; and loss of use of tangible property that is not physically injured.” There may not have been physical damage to the bottles, but there has been a loss of their use, as they have been banned and pulled from stores' shelves.

The courts typically have agreed about how to determine the date of occurrence for property damage. It is considered to have occurred, as noted in Wrecking Corporation of America, Virginia, Inc., v. Insurance Co. of North America, when the damage is discovered. In the case of the bottles, this appears to have already happened.

Having established the reality of property damage and an occurrence, — the damage was accidental and not intentional — an adjuster would then focus on policy exclusions. The three that come to mind are the “your product,” impaired property, and product recall exclusions.

There is no coverage for property damage to the named insured's product when the damage arises from the product itself. However, if the named insured's product causes property damage to another company's product, then that damage is covered. So it would seem that the “your product” exclusion would not apply to a bottle manufacturer that uses BPA-containing plastics supplied by another manufacturer, but the exclusion would apply to the actual plastics manufacturer.

The impaired property exclusion — listed as “exclusion m.” on the current CGL form — does not provide coverage for damage to “impaired property” or to property that has not been physically injured. To warrant coverage, a defect or a dangerous condition in the named insured's product must actually cause the damage. However, adjusters need to take a second look to discern whether the plastic products meet the definition of “impaired property” pertaining to BPA. Impaired property is defined as a product — namely BPA — that makes the insured's property (the manufacturer's bottles) either useless or less useful because it contains the faulty product. In addition, the repair or removal of the insured's product must be able to restore the property. It is important to note that both parts of the definition have to be met.

Because BPA cannot be extracted from the bottles, the definition of “impaired property” is not met. Therefore, the impaired property exclusion does not apply.

Product Withdrawal Exclusion

Generally speaking, courts have ruled that losses associated with the removal or the recall of “sister” products to prevent future damage are excluded from coverage. However, claims for the initial failure are eligible. If BPA is determined to be defective and therefore failed when put to use, then there would have been damage to the products in which the chemical was incorporated. That damage might be covered by the CGL. However, a recall of products with the aim of preventing future damages would be precluded.

Until all of the tests are completed and the lawsuits filed, most of us will be adopting a wait-and-see attitude. To while away the time, why not rent The Graduate and bask once again in those famous one-liners? But beware: BPA is found in DVDs, too.

Diana B. Reitz, CPCU, AAI, is editorial director of Fire, Casualty, & Surety Bulletins. She may be reached at dreitz@nuco.com.

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