E-cigarette use in the U.S. is increasing, particularly among young adults.
As a result, last August the Food and Drug Administration (FDA) began regulating all tobacco products, including e-cigarettes, cigars, e-pipes, vaporizers, vape pens, hookah pens and all other electronic nicotine delivery systems (ENDS).
There are conflicting opinions on whether e-cigarettes are a safer alternative to traditional cigarettes, and the long-term health effects of e-cigarette use is still unknown. However, safety concerns are growing given the number of battery explosions and fire claims occurring as a result of e-cigarette use.
Some e-cigarette history
There are two primary categories of e-cigarettes:
Closed systems – which utilize pre-filled cartridges. These are known as ENDS or e-cigarettes.
Open systems – which utilize a refillable tank the user manually fills with solution. These allow users to inhale a heated aerosol containing nicotine and other substances; an activity commonly referred to as vaping. These systems include e-hookahs, hookah pens, vape pens, vaporizers, e-cigars and e-pipes.
E-cigarettes are now offered in hundreds of brands in many shapes and designs, and can be in a disposable or rechargeable form. They are used to inhale a variety of products from nicotine to marijuana. According to a December 2016 report from the U.S. Surgeon General, e-cigarette use by high school students rose by 900% from 2011 to 2015, with almost one in six high school students using e-cigarettes in the previous 30 days.
Some teens use e-cigarettes for “dripping,” where a user can manually apply a few drops of liquid to the heating coil of the cigarette, and change from one liquid flavor to another. This produces a thicker cloud and likely improves the taste sensation.
Another use of e-cigarettes involves smoke tricks where users inhale the vapor or the aerosol, and then blow it out of their mouth or nose to create varying shapes and sizes. There are even vape fests and competitions allowing people to show off their skills.
U.S. regulation of e-cigarettes
In 2015, 99% of e-cigarettes sold in U.S. convenience stores, supermarkets and similar outlets contained nicotine.
In August 2016, the FDA began regulating all tobacco products, including e-cigarettes, cigars, e-pipes, vaporizers, vape pens, hookah pens and all other ENDS. The new rule regulates the following:
Tobacco products may not be sold to anyone under age 18, in person or online;
A photo ID will be required to verify age;
Free samples may not be distributed; and
Sales of tobacco products may not be sold in vending machines unless they are in an adult-only facility.
The FDA position is that as long as e-cigarettes are not marketed as medical devices or for therapeutic purposes, they will be regulated as a tobacco product. However, if they are marketed as a device to help stop smoking, they must be regulated as drugs or medical devices and must pass through the same regulatory processes as other stop smoking aids such as nicotine patches and nicotine gums.
E-cigarettes can be used for vaping, smoking tobacco or marijuana among other substances. (Photo: Shutterstock)
Given the known and unknown dangers associated with the use of e-cigarettes, vaping or dripping, the carriers who are willing to provide product liability coverage are narrowing coverage with exclusions and endorsements. Carriers are hesitant to provide coverage for e-cigarettes because the medical community does not yet have enough data to prove their safety, and if e-cigarettes are not the healthy product advertised, they don't want to be in the position of insuring tobacco manufacturers.
Despite the growing restrictions placed on its use, tobacco continues to be a viable product to the adult consumer. But the negative effects of the nicotine produced by the burning of tobacco have been quite costly, as evidenced by some recent litigation awards.
In 2013, the family of Laura Grossman was awarded $37.5 million to be paid by R.J. Reynolds Tobacco Company. Grossman died from lung cancer in 1995 at age 38. She started smoking at age 15.
R.J. Reynolds was also ordered by a Florida jury to pay $23.6 billion in punitive damages to the widow of Michael Johnson, Sr., who was a chain smoker for many years and died of lung cancer in 1996. Johnson's estate had previously won a verdict of $17 million as compensation for his family's loss.
In a case against R.J. Reynolds and Philip Morris, a Jacksonville, Florida, jury awarded a $40 million verdict on behalf of the husband and daughter of Patty Allen, who died after smoking two packs of cigarettes a day for 36 years.
These award amounts were primarily for punitive damages with less than $38 million awarded for compensatory damages. Tobacco is currently the leading preventable cause of disease, disability and death in the U.S.
Reluctance to provide occurrence-based coverage
With all of the unknowns, e-cigarettes are still considered an emerging risk to insurers and many are reluctant to provide occurrence-based coverage. Some carriers make use of absolute health hazard exclusions, while others use tobacco and carcinogen exclusions.
Health hazard exclusions vary and some can totally exclude all health-related issues, e-liquids, devices, or a combination of these items. Carriers do not want to be in a position where they have to defend or pay out claims for several million dollars.
One example of a tobacco health hazard exclusion excludes “bodily injury” including but not limited to the actual or alleged emergence, contraction or exacerbation of virtually any type of cancer or pre-cancerous condition, heart disease, arteriosclerosis, emphysema or any other lung-related disease, or any other disease; caused by, resulting from, arising out of the use, consumption ingestion, inhalation, absorption of, contact with, or exposure to tobacco, any product containing tobacco or any product used with or related to the use of tobacco.
Another sample exclusion applies to all liability similar to the above, but also excludes other metabolic effects of “tobacco, tobacco products or tobacco byproducts” use, including shortness of breath, low resistance to infection or disease, psychological or mental injury or addiction.
“Tobacco, tobacco products or tobacco byproducts” include but are not limited to raw or cured tobacco, nicotine, tar, any products containing tobacco or tobacco-related substances or chemicals, cigars, cigar wrappers, pipe tobacco, cigarette filter, snuff, chewing tobacco, smokeless-tobacco products, cigarettes and cigarette paper, tobacco smoke, second-hand smoke, particles of tobacco, gaseous or solid residue or by-products of tobacco tips and filters, and any chemical, mineral or other product or components sprayed on, applied to, customarily found within or used in conjunction with any tobacco products.
The cigarette, e-cigarette and vaping industry statistics and studies appear to be rife with controversy. Depending upon which organization did the study, what was analyzed, the measurements used, the statistics researched and who analyzed the results, it is easy to find contradicting studies. Even among smokers, those who use e-cigarettes and those who vape, use different results and analyses to support their opinions.
In addition to the health issues from vaping, there are other risks such as product liability. (Photo: Shutterstock)
Other coverage concerns
With the regulations permitting e-cigarette purchase and use in adult-only locations, retailers and bars that permit their use will likely see an increase in exposures. According to the National Association for Shoplifting Prevention, retailers lose up to $13 billion each year because of shoplifters. E-cigarettes and related products are small and expensive, and their increased use raises the likelihood of theft, particularly in shops where there are no or ineffective security cameras.
With the limited data and lack of thorough scientific studies on the safety of e-cigarettes, insurers and consumers have no way of confirming if there are therapeutic benefits to their use, or how their health effects compare to cigarettes. Long-term effects cannot yet be determined. Further, the safety concerns pose a risk to those insurers seeking to provide coverage to manufacturers of these products, and their increased use poses additional exposures to retailers and adult-only establishments that permit these products.
Prudent insurers will stay informed about the emerging risks of these products, and keep abreast of federal and state litigation and future government oversight to protect their profitability potential.
Karen L. Sorrell, CPCU, is an editor with FC&S Online, the authority on insurance coverage interpretation and analysis for the P&C industry. It’s the resource agents, brokers, risk managers, underwriters, and adjusters rely on to research commercial and personal lines coverage issues. Karen can be reached at firstname.lastname@example.org.