Just as viruses, bacteria, and other disease-causing organisms evolve into newer, sometimes more virulent forms, there is an evolution, as well, in the insurance provisions for addressing them.
For more than two decades, standardized homeowners and other personal liability forms have had built-in exclusions precluding coverage for bodily injury arising from transmission of a communicable disease.
These exclusions were developed in the wake of widespread exposure to the HIV virus that causes AIDS and to other sexually transmitted diseases. Property/casualty insurers did not consider injury arising from physical intimacy to be the type of fortuitous occurrence intended for coverage under liability policies.
“The communicable disease exclusions in personal lines were initially conceived of as ‘one on one’ exclusions,” says Deborah Summerlin, AAIS vice president of insurance lines. “They were a reflection both of changing morals and a growing tendency to sue for injuries.”
 For some time, the AAIS communicable disease exclusion was implemented as a restriction in the definition of bodily injury in personal lines forms. In that manner, it was incorporated into AAIS farm liability forms, and it continued to apply solely to injury to humans arising from communicable diseases.
Starting in 2006, the AAIS Homeowners communicable disease exclusion was removed from the definition of bodily injury, stated as a separate exclusion applying to transmission of a communicable disease by an insured, and extended to exclude property damage coverage, in addition to bodily injury.
Among other things, that approach excludes liability coverage for a transmission of a communicable disease to animals.
Communicable diseases receive more detailed treatment in the AAIS Agricultural General Liability (AgGL) Program, filed countrywide starting in 2008. The AgGL is the first standardized general liability program developed specifically for agricultural risks.
As commercial forms, the AgGL base forms do not have communicable disease exclusions built into its base forms, although they do include built-in exclusions for the transmission of livestock diseases, and for property damage arising out of “the presence of disease organisms.”
A communicable disease exclusion applying to human bodily injury is available by endorsement, however, and an equivalent exclusion is built into the personal liability coverage available as an endorsement option.
Several features of AgGL’s communicable disease exclusions illustrate the expanding scope of such exclusions, especially as they relate to agriculture:
- The AgGL exclusions apply to bodily injury, property damage, and personal and advertising injury, indications that losses to livestock and other animals, as well as contamination of the property of others (loss of use) are not covered.
- The AgGL exclusions apply to losses caused by an insured, an insured’s property, and property in the insured’s care custody or control.
Taken together, these provisions indicate that, for agriculture, the communicable disease exclusions apply broadly to communicable diseases transmitted by humans, animals, and farm substances that could harm humans or animals or render property unusable.
“This is the first time we used such a detailed and explicit exclusion, because we needed to address a range of possibilities,” Summerlin says.
“A disease could be transferred by a person to another person or animal, by an animal to a person or another animal, and by any type of property to other property.”
The latter concern refers to, among other things, the tracking of contaminated soil from one farm to another, a critical concern in the control of foot-and-mouth disease.
AAIS’s latest communicable disease exclusions are being filed as endorsement options under commercial lines programs that provide liability coverage.
These exclusions are being filed countrywide under the AAIS Artisans, Businessowners, and Commercial Liability programs, with a proposed effective date of Feb. 1, 2010 in most states.
Like the AgGL exclusions, the commercial lines communicable disease exclusions apply broadly to the “actual or alleged” transmission of a communicable disease by a person, an insured’s property, and property of others in the insured’s care, custody, or control.
Also like the AgGL, the commercial lines exclusions eliminate coverage for bodily injury, property damage, and personal and advertising injury; again, the endorsements anticipate and exclude coverage for claims of violating another’s right to enjoyment of property, a personal injury offense.
“Commercial liability forms do not routinely exclude coverage for communicable disease,” Summerlin says. “In the absence of such an exclusion, policies based on those forms might cover the liability of a commercial insured whose employee may spread a disease in the course of his or her duties.”
According to Summerlin, the leading impetus for the introduction of communicable disease exclusions in commercial lines is the widespread anxiety over the possibility of a flu pandemic.
“Insurers’ wonder if their insureds will somehow be liable for bodily injury or even property damage arising out of the spread of a disease from their premises or operations,” she says.
AAIS commercial lines affiliates will have a choice between two types of communicable disease exclusions: one that has an exception (preserving coverage) for an insured’s products, and another with no exception.
Summerlin explains that “a communicable disease exclusion that extends to all products may be a serious restriction of coverage for the insured that processes, manufactures, or otherwise handles food and other products intended for consumption by humans or animals.”
“For example,” she says, “some insurers may not want to deprive an insured restaurant of coverage for the transmission of e coli in food, even if they want to eliminate coverage for disease transmitted by other means.”
The products liability exception to the exclusion also extends to products for “topical use,” such as cosmetics.
In addition to the filing of communicable disease exclusions, AAIS is also developing a sample endorsement companies could use as the basis of a proprietary exclusion for liability arising from a virus or bacteria. The virus or bacteria sample also includes an exception for products liability.
The sample exclusion would be available under all AAIS programs that include commercial liability coverage, but companies would have to file the endorsement themselves.
The “Virus or Bacteria” exclusion for liability coverage is modeled, in part, on exclusions for first-party property losses arising from viruses or bacteria. Those exclusions were filed countrywide as optional endorsements under AAIS farm and commercial lines programs, starting in 2006.
The property exclusions state that coverage is excluded for loss, cost, or expense caused by, resulting from, or relating to any virus, bacterium, or other microorganism that is capable of causing disease, illness, or physical distress.
In addition, the property exclusions explicitly apply to any loss, cost, or expense arising from denial of access to property because of any virus, bacterium, or other microorganism.
“In 2006,” says Summerlin, “there was concern that contamination of insured property might shut down a business and that policies might be interpreted to provide coverage for a resulting business income loss, even if no property suffered direct physical damage.
“The property exclusions for virus and bacteria also addressed some of the terrorism concerns related to the use of anthrax and other biological agents,” she adds.
According to Summerlin, the virus or bacteria exclusions for property exposures were considered clarifications of the original intent of property policies, and were approved by regulators with little resistance.
Implementing a virus and bacteria exclusion for commercial liability coverage won’t be as easy, however. Hence, AAIS will make the liability exclusion available as a sample, and await regulatory opinions on the acceptability and breadth of such exclusion.
Unlike its property counterpart, the virus or bacteria exclusion developed for liability coverages may represent a restriction in coverage.
Regulators may be reluctant to accept such a restriction unless a potential source of claims can be demonstrated to be a massive, unanticipated exposure that would threaten the solvency of numerous companies or force coverage to be priced at unacceptably high levels.
That’s important because, today, the effects of a pandemic are widely feared but largely unknown, at least in the United States.
Also, the sample liability exclusion, drafted to be a counterpart to the property exclusion, applies more broadly than communicable disease exclusions.
“The sample virus or bacteria exclusion for liability doesn’t depend on the transmission of a disease,” Summerlin says. “It addresses liability that arises from exposure to any microorganism capable of causing disease or physical distress.
“And, while the sample exclusion is primarily intended to address premises-related exposures, its application is not limited to locations owned, operated or controlled by the insured.”
Summerlin expects AAIS’s new communicable disease exclusion to be widely approved by regulators, and that many AAIS affiliates will opt to implement those rather than file the virus or bacteria exclusion independently.
Insurers willing to be among the first to test regulatory tolerance for the virus or bacteria liability exclusion can use the AAIS sample as the basis for a counterpart to the virus or bacteria exclusions filed and approved for property coverage.
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Quarantined from coverage 
